Strong dollar puts importers in a fix
KATHMANDU, JUN 03 -
The freefall of the Nepali rupee against the US dollar has put businessmen, especially those involved in import business from the third countries, in a catch 22 situation: If they pass the higher import costs on to consumers, their sales might fall, and if not, they might occur losses.
The fall of the Nepali rupee against the dollar is mainly due to the sharp devaluation of the Indian currency, with which the domestic currency is pegged. With the dollar rising sharply against the Indian currency, the Nepali rupee is on a freefall in recent days-losing its value by 12.23 percent since March.
Importers say strong dollar increases custom duty as well as the value added tax, leading to a sharp rise in prices of imported goods. At the existing exchange rate of Rs 89.7 per dollar (for Sunday), they predict a price rise of 20-30 percent, compared to the period when the rate was at Rs 80 a dollar. “Prices of electronic appliances, on which 20 percent custom duty is levied, will rise by 20-25 percent,” said Akhil Chapagain, president of Nepal-Turkey Chamber of Commerce and Industry.
In case of apparel — most of which are imported from countries other than India — prices will rise by as high as 25 percent. Prices of apparel imported from China and Thailand have already gone up in the domestic market. Fast moving consumer goods (FMCG) imported from third countries are projected to get dearer by around 30 percent.
Importers even FMCG imported from India will be expensive as production cost of Indian industries has gone up. “Even the goods imported from India will be expensive within a month,” said Sekhar Golchha, executive director at Golchha Organisation.
Against the backdrop of low economic activities in recent months, businessmen are in dilemma whether to pass on the increased price to customers. “If we pass on the increased price to consumers, sales might fall, and if not, our businesses might incur losses,” said Golchha. “It is a very difficult situation.”
The automobile sector, which boomed and slumped along with the realty sector, will face further challenges. “Sales are already down and strong dollar will further push sales down,” said Golchha.
Automobile dealers say prices of automobile imported from third countries as well as those imported from India will rise further. “As Indian auto makers import automobile parts from other countries, their production cost will increase, pushing up auto prices,” said Golchha. “Prices of Bajaj motorcycles have been revised four times so far this fiscal year.”
According to bankers, the rate of issuance of letters of credit (LC) has gone down in recent months, with importers incurring losses. Importers get credit term of up to 180 days while opening LC.
And, those who imported when the local currency was stronger are now facing losses. “The rate of LC issuance has gone down by almost 50 percent,” said Ashoke Rana, president of the Nepal Bankers’ Association.
NIC Bank CEO Sashin Joshi echoed Rana and feared the possible LC defaults if the exchange rate remains high.
Source: The Kathmandu Post
