The Indian Express (Delhi Edition)
Why Nepal feels the pinch of demonetisation
❚ Chiranjivee Dahal, 70, had saved around Rs 60,000 INR for his next appointment at the Rajiv Gandhi Cancer Hospital in Delhi; his wife had set aside Indian Rs 20,000 for a pilgrimage to Haridwar. All this was before demonetisation in India left them in the lurch. ❚ During his son’s wedding, a businessman in Birgunj, on Nepal’s border with India, was forced to issue a cheque to the pundit, who had come from India, after the family was hit by a currency shortage following the ban on high-value Rs 500 and Rs 1,000 notes in India.
THE TWO instances are reflective of how the Indian government’s November 8 announcement has affected all sections in Nepal, where Indian currency used to be freely accepted, and in some places, preferred to the Nepalese rupee.
One of the main reasons for the widespread acceptance of the Indian currency is that like Birgunj, there are half a dozen pairs of satellite towns on either sides of the border that have a shared or rather inter-dependent economy, a common consumer market, and inter-connected families.
Those affected by demonetisation include family members of the large Nepalese workforce in India, Hindu and Buddhist pilgrims from Nepal who frequent shrines in India, the large number of Nepalese patients who cross the border into India for specialised treatment, mostly in Delhi, and students.
The Nepal government has already sounded out Indian authorities on the situation. After several formal requests to make arrangements for the exchange of high-value Indian notes, the deputy governor of the Nepal Rashtra Bank (NRB), Chintamani Siwakoti, flew into New Delhi on January 12 and met with a two-member delegation of the Reserve Bank of India (RBI), after which, the country’s ambassador to India, Deep Kumar Upadhyay, told journalists in Delhi that India needed to bail out Nepal.
According to media reports in Nepal, the NRB delegation sought an exchange facility, where Nepal citizens could turn in old notes of up to Rs 25,000. A joint team of India's Reserve Bank and the Finance Ministry is now likely to visit the Himalayan country.
While the Indian banking team may end up coming to the aid of ex-gorkha soldiers, around 1,20,000 of whom live in Nepal, and those in the organised sectors, there appears tobelittlehopeforsmallsaversinaneconomy, which, much like India, is largely cash-driven.
The percentage of Indian currency in circulation in the Nepal economy may never be known as much of it is largely kept for daily use,suddentripstoindia,andtradinginindian markets across the border, among others.
Nepal’s central bank, which has declared that it only has around 30 million INR, has stopped transacting or exchanging Indian currency since the ban. The NRB delegation, which visited India, has sought regular supply of Indian currency to the central bank.
But what puts the Nepalese at a greater disadvantage is that the new Rs 2,000 value note is not yet in circulation here. Besides, demonetisation in India has come just when Nepal was recovering from a ban on Rs 500 and Rs 1,000 that the Indian government had imposed in 1992 after Nepal’s central bank was found to be holding fake Indian currency. The ban was revoked in 2014, during Prime Ministernarendramodi’svisitinjulythatyear.
A senior executive working for a multinational company says that a large chunk of demonetised currency “may have already been exchanged” through private contacts in India and“whatremainscouldeitherbebigvolumes of stashed money with no source to legitimise their presence or small savings without any access to exchange system. “For instance, the NIC (Nepal Industrial and Commercial) Asia Bank’s Biratnagar branch got an account openedacrosstheborderinjogbani,bihar,and hadrs5.2millioninrdepositedthere,”abusinessman from Biratnagar says.
A senior police official says demonetistion has led to a spike in gold being smuggled from the Middle-east and China into Nepal, from where it will ultimately find its way into India. “It seems gold has substituted high-value currency in big business deals,” says Nabaraj Silwal,chiefofthecrimeinvestigationbureau, currently investigating the seizure of 34 kg of gold at the Tribhuvan International Airport.