Growing need of IC could prove to be dicey
KATHMANDU:
In the wake of escalating imports from India and Nepal’s failure to maintain trade balance with the southern neighbour, the country has been forced to buy more and more Indian currency, with the purchase in the last four years seeing a jump by around 1.5 times.
In the last fiscal alone Nepal Rastra Bank sold $2.7 million to buy IC worth Rs 123.8 billion. Two years ago, the central bank had purchased IC worth Rs 73.4 billion by selling $1.5 million.
Experts say the increasing purchase of IC signals Nepal’s growing concentration and reliance on India for imports.
To make matters worse, growth of Nepali exports to India has been declining over the years, with trade deficit with India almost doubling from Rs 121 billion to Rs 218 billion (from 2008/09 to 2010/11).
“Nepal has been forced to sell more dollars to buy IC to finance the trade, which is eroding Nepal’s foreign exchange reserves,” says economist Prof Bishamber Pyakurel. “There is an urgent need for trade facilitation and investment promotion so that the current contraction haunting Nepali exports can be dealt with and trade balance with India can be achieved.” Declining foreign exchange reserves means Nepal becoming poorer and its ability to buy goods and services from foreign countries getting weaker.
“The exchange rate for Indian currency through open market determination can easily go as high as Rs 1.8 due to current level of trade deficit with India, if Nepal decides to abandon the current fixed exchange rate regime with India,” he points out.
Nepal, on one hand heavily relies on India for imports for its geographical proximity to the country, and on the other, it has floundered to produce good quality stuff for exports, leading it to lag far behind in bridging the trade deficit gap. In addition, it also has not been able to exploit the opportunities despite it having the vast Indian market in such Indian states as Bihar, Uttar Pradesh and West Bengal. Even the goods that Nepal imports and exports have a huge mismatch.
Nepal imports capital goods such as petroleum products, vehicles and spare parts, cement and electronics, whereas it exports small and low-priced stuff, which is not going to help maintain the trade balance.
“Nepal needs to produce better quality goods with competitive edge,” suggests Pyakurel.
The imports from India presently amount to Rs 261 billion while Nepal is exporting goods to India worth just Rs 43 billion.
The trend
Fiscal year IC Purchase
2007-08 Rs 70.6
2008-09 Rs 73.4
2009-10 Rs 102
2010-11 Rs 123.8
(Figures in million rupees. Source: NRB)
In the wake of escalating imports from India and Nepal’s failure to maintain trade balance with the southern neighbour, the country has been forced to buy more and more Indian currency, with the purchase in the last four years seeing a jump by around 1.5 times.
In the last fiscal alone Nepal Rastra Bank sold $2.7 million to buy IC worth Rs 123.8 billion. Two years ago, the central bank had purchased IC worth Rs 73.4 billion by selling $1.5 million.
Experts say the increasing purchase of IC signals Nepal’s growing concentration and reliance on India for imports.
To make matters worse, growth of Nepali exports to India has been declining over the years, with trade deficit with India almost doubling from Rs 121 billion to Rs 218 billion (from 2008/09 to 2010/11).
“Nepal has been forced to sell more dollars to buy IC to finance the trade, which is eroding Nepal’s foreign exchange reserves,” says economist Prof Bishamber Pyakurel. “There is an urgent need for trade facilitation and investment promotion so that the current contraction haunting Nepali exports can be dealt with and trade balance with India can be achieved.” Declining foreign exchange reserves means Nepal becoming poorer and its ability to buy goods and services from foreign countries getting weaker.
“The exchange rate for Indian currency through open market determination can easily go as high as Rs 1.8 due to current level of trade deficit with India, if Nepal decides to abandon the current fixed exchange rate regime with India,” he points out.
Nepal, on one hand heavily relies on India for imports for its geographical proximity to the country, and on the other, it has floundered to produce good quality stuff for exports, leading it to lag far behind in bridging the trade deficit gap. In addition, it also has not been able to exploit the opportunities despite it having the vast Indian market in such Indian states as Bihar, Uttar Pradesh and West Bengal. Even the goods that Nepal imports and exports have a huge mismatch.
Nepal imports capital goods such as petroleum products, vehicles and spare parts, cement and electronics, whereas it exports small and low-priced stuff, which is not going to help maintain the trade balance.
“Nepal needs to produce better quality goods with competitive edge,” suggests Pyakurel.
The imports from India presently amount to Rs 261 billion while Nepal is exporting goods to India worth just Rs 43 billion.
The trend
Fiscal year IC Purchase
2007-08 Rs 70.6
2008-09 Rs 73.4
2009-10 Rs 102
2010-11 Rs 123.8
(Figures in million rupees. Source: NRB)
