Nepal on Tuesday imposed a monthly limit on the amount of Indian currency its citizen can spend in India. A spokesperson of the Nepal Rastra Bank (NRB) said a Nepali citizen would be unable to spend more than ₹1 lakh per month while paying for goods and services in India and that the decision was taken to address the country’s current account deficit.
The policy applicable to prepaid, credit and debit cards of Nepali banks came into effect on Tuesday.
However, leading economists of Kathmandu are saying that the unprecedented step was prompted by Nepal’s recent experience with the Indian currency that included the demonetisation process launched by Prime Minister Narendra Modi.
Central bank spokesperson Narayan Prasad Paudel said the decision was taken to deal with the growing problem of current account deficit and the balance of payment crisis.
Demonetisation impact
Economists say Nepal has been confronted with a series of issues with the Indian currency since Mr. Modi launched the process of demonetisation of high denomination notes in November 2016.
Kathmandu-based expert Achyut Wagle said India’s demonetisation had created a negative sentiment in Nepal and by taking charge of its currency, Kathmandu wanted to secure itself against any future Indian moves.
Dr. Wagle said Nepal had acted without consulting India on this issue as there was a sentiment in the country that it should take control of its own currency and secure it from any future action like the demonetisation. He said, “India’s demonetisation affected Nepal negatively and has been criticised in recent months. Tuesday’s decision is an independent move by Nepal and our government decided to go ahead without really holding consultation with India.”
Bhisma Raj Dhungana, chief of the Foreign Exchange Management Department at the NRB, told the media in Kathmandu that the latest measure would however exempt payment in hospitals and pharmacies in India.
Apart from impacting the spending trends of Nepali consumers and tourists in India, capping expenditure is also expected to influence trade in the India-Nepal border areas where Nepali businessmen usually pay in Indian currency. The decision to cap individual spending came two weeks after Nepal formally banned high denomination Indian currency notes.
Mr. Paudel said the country continues to deal with the after-effects of the demonetisation by India. He said Nepal was yet to receive India’s response regarding its collection of old demonetised Indian currency notes. He said Kathmandu had an assessment of old Indian notes in the banking system of Nepal, but could not spell out the amount of old Indian notes that private Nepali citizens might be holding as part of past individual savings. Dr. Wagle echoed the sentiment of the Nepal Rastra Bank and said the latest moves were aimed at assuring the domestic market that Nepal would remain secure in case India repeated demonetisation in the future.
“The last time India went for demonetisation we were left holding huge amount of Indian currency that has not been exchanged so far by Delhi. So this time we are trying to minimise the risks in advance just in case India plans to repeat a similar exercise as there are continuous rumours in the Nepali bazaar about one more possible demonetisation by Mr. Modi,” said Dr. Wagle.
