Nepal's economic condition bad: Big loss to India; Nepal bans import of all non-essential goods, only 6 months of foreign money left

Posted on 19th Apr 2022 by rohit kumar

After Sri Lanka, now the economic situation in Nepal with a population of 30 million has started deteriorating. In the financial year July 2021-July 2022, there has been a huge decrease in its foreign exchange reserve i.e. foreign exchange reserves. Now Nepal has money left to import goods for only 6 months.

 

Foreign Exchange Reserve i.e. foreign currency, as the name suggests, is used to buy currency from countries around the world. Most purchases are made in dollars. Now Nepal has had a decrease of about 16% in its foreign exchange reserves in the last 8 months.

 

Nepal is most dependent on India to meet its small needs. Nepal is a mountainous country, due to which farming is not done properly here. The industry is non-existent. It is a landlocked country i.e. not adjacent to any sea. Nepal also has to import essential goods like petrol, diesel, gas, paddy, rice, and oil from India. In such a situation, now India is suffering a big loss due to the ban on imports. At the same time, the prices of food items have increased in Nepal.

 

Prohibition on purchase of all non-essential items

 

Seeing the worsening economic situation in the country with a GDP of 3.68 lakh crore Nepalese rupees, Nepal's central bank NRB ie Nepal Rastra Bank has banned the import of vehicles and other luxury items, non-essential goods. Such a step has been taken due to the depleting foreign currency in the reserves.

 

According to the report of Nepal's largest English newspaper My Republic, Nepal Rastra Bank spokesperson Gunakar Bhatt has said that the biggest challenge is to maintain foreign exchange reserves. Because of this, Nepal has banned the purchase of all non-essential goods purchased from countries around the world.

 

Bhatt was quoted in the report as saying that this step has been taken to prevent the fall in foreign exchange reserves due to the rising deficit and continuous increase in imports.

 

How much loss to India due to the ban on Nepal's imports

 

Nepal imports 64% of its total imports from India. According to the figures for 2019, Nepal bought goods worth $ 7.7 billion from India. Nepal imported 886 billion Nepalese rupees from India in 2020-21. At the same time, Nepal imports 16% of its total imports from China.

 

Nepal buys a maximum of 17% of fuel, and oil products from India, while iron and steel imports 9%, and electronic items also about 8%. In such a situation, the way Nepal has banned the import of all non-essential goods. If this goes on for a long time, it will hurt India too.

 

Nepal Rastra Bank has banned the Letter of Credit (LC) issued for the import of goods like cement, toys, sporting goods, wooden items, hair cream, footwear, and leather products.

 

Letter credit means that if a businessman of a country buys goods from another country, then the bank of the demanding country gives a guarantee to the supplying country. That is, if the person who bought the goods tomorrow refuses to give money, defaults, then the bank of that country will have to pay money.

 

Understand foreign exchange reserves i.e. foreign exchange

 

According to the International Monitoring Fund ie IMF, any country has any kind of external currency, it is called a foreign reserve i.e. foreign exchange reserves. This includes gold and external currency i.e. money from other countries. such as the dollar, euro, pound, yen, ruble, etc.

 

Most foreign exchange reserves are kept in the US dollar, as it is the most traded currency in the world.

 

Nepal has only foreign money left for 6 months of import

 

Nepal's foreign exchange reserves are continuously depleting. Earlier the foreign exchange reserves were for 7 months, but due to the ever-increasing imports, now Nepal has only 6 and a half months of foreign exchange reserves left.

 

According to February 2022, $ 9.59 billion, i.e. 1.16 lakh crore Nepalese rupees are left in Nepal's foreign exchange reserves. It was $11.75 billion in July 2021. At the same time, citing wrong policies, Nepal's Finance Minister Janardan Sharma has suspended NRB Governor Mahaprasad Adhikari and ordered an inquiry.

 

It is believed that due to this economic crisis, the governor officer has been removed. At the same time, Nepali media reports claim that the officials disagreed with the decisions of the Finance Minister.

 

increased import burden

 

Nepal imports 90% of its items from other countries to meet its needs. Alam is that Nepal's biggest export is soybean oil, but this country can produce only 31,567 tonnes of raw soybean annually.

 

It cannot meet the requirement of even a section of the Nepalese population. Compared to imports, Nepal's exports were only 118.85 billion Nepalese rupees in the first 6 months. Due to this, he suffered a total loss of 880.49 billion Nepalese rupees.

 

Nepal's imports have increased by 42% in the first 8 months of the current financial year 2021-22. Nepal has imported 1147 billion Nepalese rupees.

 

Corona broke the back of the economy

 

Tourists are the biggest source of income for Nepal. For the last two years, due to the Corona epidemic, the entire tourism business has come to a standstill. Nepal earns $ 700 million annually from tourism, i.e. 8.5 thousand Nepalese rupees.

 

However, there has been some relief in March. Nepal has received 42,000 tourists this month, of which 15,013 were from India. At the same time, only 14,977 foreign tourists visited Nepal in March 2021 last year.

 

30% of GDP rests on remittances

 

At the time of Corona, countries around the world banned people from coming from abroad. Nepal is also suffering from this, because due to the absence of Nepali people in other countries, Nepal could not get the external currency.

 

Due to this also there has been a decrease in the foreign exchange reserve. 30% of Nepal's GDP rests on remittances.

 

Think of it in such a way that if people from India go to other countries to earn, they spend money here in dollars or the currency of that country. This increases the foreign exchange currency of India.

 

Who is responsible for this crisis?

 

Professor Achyut Wagle of Kathmandu University has told the Nepali newspaper Kathmandu Post that the country is stuck in an economic crisis. However, this crisis has not yet reached the level of Sri Lanka.

 

He has said that the country's trade deficit has reached $ 18 billion. Experts are following the policies of the government behind the deepening economic crisis. Experts say that the government needed to act on foreign purchases in time.

 

Finance Minister Janardan Sharma is blaming Rashtra Bank for the condition of the country. The Finance Minister says that the bank has failed to stop the increasing debt. The limit for taking a private-sector loan was fixed at 19%, but this loan increased to above 30%.

 

There is a shortage of money in the banks of Nepal. Due to this, he is also unable to give a loan. Because of this, banks have increased their deposit rates. That is, the interest that the bank was giving earlier is giving more than that.

 

source of income of the Nepal government

 

The Nepal government is now caught in a double crisis. On the one hand, it has banned the import of luxury items. On the other hand, most of the revenue for the government comes from these things.

 

Taxes on petroleum products earned the government the highest amount of Nepalese rupees 81.58 billion in the first eight months of the current financial year 2021-22.

 

After this, the Government of Nepal earned 70 billion rupees from taxes on vehicles and 21.38 billion Nepalese rupees from iron and steel. At the same time, 16.35 billion rupees were earned from electric machinery and equipment and 12.77 billion Nepalese rupees from plastic items.

 

Like Sri Lanka, there can be a serious situation in Nepal too.

 

The inflation rate in Sri Lanka has crossed 18%. People are forced to stand in queues for hours to buy petrol, cooking gas, and kerosene.

 

The country has declared itself a default. He says that he is not in a position to pay the foreign debt. Sri Lanka has a debt of 51 billion US dollars.

 

At present, Nepal has a debt of about 20 billion US dollars, which is likely to increase continuously. The way Nepal has banned the import of goods, the inflation rate in the country can touch the sky. 

 

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