The Reserve Bank of India has stepped in to avert a foreign exchange problem in Nepal. This comes as a relief to those exporting goods to the Himalayan kingdom as they were not sure of getting paid for their exports until now.
With the Maoist movement in Nepal intensifying since late 2003, the supply of the Indian rupee has almost dried up as the tourist inflow from India has come to a grinding halt.
Some Indian companies have scaled down their operations in the Himalayan kingdom in the last year or so. As a result, there is a huge scarcity of the Indian rupee in Nepal.
At the same time, Nepal is required to pay India in Indian rupees for all its imports, according to a trade agreement between the two countries.
India is a net exporter to Nepal and the world's sole Hindu nation needs around Rs 10 crore in INR daily to pay for imports from its neighbour.
A solution worked out by the Indian government in consultation with the RBI now allowed the Nepal government to deposit dollars equivalent to rupee payments that were due to India, sources close to the development told Business Standard.
The dollars will be kept in a current account maintained by the Nepal Rashtra Bank (the central bank of Nepal) with the Kolkata branch of the RBI.
Thereafter, these dollars will be converted into rupees and sent back to Nepal for circulation in the financial system. This will help Nepal pay Indian exporters.
The problem has become more acute as under the Foreign Exchange Management Act (FEMA), no denomination of the rupee higher than 100 is allowed to be carried from India to Nepal. This has been done primarily to avoid the circulation of fake currency.
After the Indo-Nepal treaty was signed in 1996, Nepalese exports to India witnessed a seven-fold increase, whereas India's exports to Nepal moved up three-fold. Imports from India account for almost 97 per cent of Nepal's total imports from Saarc countries, amounting to around Rs 8,165 crore (Rs 81.65 billion).
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