In­dian Ru­pee stock at crit­i­cal level

With INR 100 notes now run­ning out of stock, the im­pacts of de­mon­e­ti­za­tion are likely to be­come more glar­ing than ex­pected

Business Bhutan - - Front Page - Lucky Wangmo from Thim­phu

The cen­tral bank’s In­dian Ru­pee Cur­rency (INR) stock could be de­pleted within a day or two, with the re­serve of INR 100 notes and lower de­nom­i­na­tions reach­ing crit­i­cal level.

As of Novem­ber 23, the Royal Mone­tary Author­ity’s (RMA) stock of INR 100 and lower de­nom­i­na­tions had reached an all time low of 18.87mn. About INR 5mn are trans­acted ev­ery day, that is de­spite low­er­ing the with­drawal limit from INR 10,000 a per­son per month to INR 5,000.

“Look­ing at the INR stock that we have, it may just last for one to two days,” said the Deputy Gov­er­nor of RMA, Phajo Dor­jee. “One of the ma­jor con­cerns right now is that the stock

could fin­ish up be­fore we re­ceive fresh sup­ply as we are de­pen­dent on the Re­serve Bank of In­dia (RBI).”

The RMA and the gov­ern­ment are in touch with coun­ter­parts in In­dia to pro­cure fresh INR stocks.

Eco­nomic Af­fairs Min­is­ter Lekey Dorji told this pa­per that RMA is con­stantly fol­low­ing up with the RBI on re­plen­ish­ing INR 100 de­nom­i­nated ban­knotes to meet the do­mes­tic re­quire­ment. “RMA has re­quested the RBI to al­low new INR 500 and INR 2000 ban­knotes to be used in Bhutan,” said Ly­onpo. (Read full in­ter­view with Ly­onpo on page 5)

How­ever, the cen­tral bank is yet to hear from the In­dian gov­ern­ment.

Ac­cord­ing to the Di­rec­tor of For­eign Ex­change and Re­serve Man­age­ment De­part­ment of RMA, Dechen Pel­zom, the stock of de­mon­e­tized notes amounts to INR 2.3bn as of Novem­ber 22, of which INR 1.5bn was col­lected from the pub­lic while INR 0.8bn was RMA’s stock, lifted from the State Bank of In­dia (SBI).

As of Novem­ber 17, Tashi Bank alone recorded INR 37.67mn ru­pee trans­ac­tion. The high­est INR de­posit made with the bank in one day was INR 10.95mn.

Druk Pun­jab Na­tional Bank trans­acted INR 122.7mn as of Novem­ber 17. On an av­er­age, a to­tal of INR 20.45mn de­posits were made ev­ery day. The high­est amount of sin­gle de­posit made with the bank was around INR 2mn.

Al­though RMA Gov­er­nor, Dasho Pen­jore, ear­lier said that the tem­po­rary glitch caused by the INR de­mon­e­ti­za­tion would not af­fect the econ­omy and trade in any way, with INR 100 notes now run­ning out of stock, the im­pacts of de­mon­e­ti­za­tion are likely to be­come more glar­ing than ex­pected.

Small traders deal­ing in cash with In­dia is likely to be ham­pered due to de­mon­e­ti­za­tion and RMA could face dif­fi­culty in man­ag­ing INR in cash if RBI and SBI de­lay the process of re­plen­ish­ment, ac­cord­ing to the Eco­nomic Af­fairs Min­is­ter.

Po­tato traders have al­ready been hit by the de­mon­e­ti­za­tion of INR 500 and 1000 notes, with prices plung­ing due to lim­ited cash in cir­cu­la­tion. (Read story in page 4)

An Eco­nom­ics Pro­fes­sor at Royal Thim­phu Col­lege, Mr. San­jeev Me­hta, said some of the pos­si­ble im­pacts of de­mon­e­ti­za­tion will be the re­duc­tion in vol­ume of in­for­mal trade in the bor­der ar­eas, which is very large, rise in in­fla­tion rate, re­duc­tion in the vol­ume of In­dian tourists and slow­down in the hospi­tal­ity in­dus­try in Bhutan.

“Bhutanese vis­it­ing In­dia for avail­ing health, ed­u­ca­tion and re­li­gious ser­vices will also see a de­cline and the short­age of In­dian cur­rency will also ad­versely af­fect the con­struc­tion in­dus­try,” he said. “If tourism and con­struc­tion sec­tors are ad­versely af­fected, the Gross Do­mes­tic Prod­uct rate will ex­pe­ri­ence a down­turn.”

Mr. San­jeev Me­hta said that there is very lim­ited scope for pol­icy in­ter­ven­tion for Bhutan to tackle this sit­u­a­tion. “Bhutan will have to bear the fall­out,” he said, adding that RMA will cap the with­drawal of In­dian cur­rency to op­ti­mize its use.

Al­though RMA has been re­quest­ing the pub­lic to post­pone their trav­els to In­dia un­less it is ab­so­lutely nec­es­sary, many pil­grims have al­ready planned their trip.

The owner of Bhutan Merit Trav­els, Tsh­er­ing Pelmo, who is or­ga­niz­ing a tour pro­gram to Bod­hgaya and Re­wal­sar (Tsho Pema) in In­dia, have al­ready re­ceived 42 con­fir­ma­tions.

The travel agent is still wait­ing for a few more peo­ple to con­firm for the trip. “We are wor­ried that we might face prob­lems once we are In­dia but I am try­ing to find some mea­sures with the RMA and the banks be­fore leav­ing,” she said.

Po­tato traders and farm­ers have been hit by the de­mon­e­ti­za­tion move, as prices plunge due to lim­ited INR avail­able in the econ­omy.

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