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The quantum of Indian rupees in our economy is open to debate

B360 December 19, 2016, 12:00 am

The quantum of Indian rupees in our economy is open to debate

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Saurya Rana is President of Tara Management Pvt Ltd,a group of companies that invests in sectors that include automobile and allied businesses, hydropower, travel and tourism, trading and private equity. Prior to joining Tara Management, Rana was CEO of Sipradi companies.
Through his career, he has been associated with Surya Nepal, ITC Ltd. (India), Grasim Ltd (Aditya Birla Group, India and Philippines), Hoare Govett (UK) and Holland, Hannen & Cubitts (UK).
Rana is a prolific business person with a high level of attention to detail and clear articulation and direction in business. He is currently President of the Nepal India Chamber of Commerce and Industry (NICCI) and Past President of Nepal Automobile Dealers Association (NADA).
The recent decision of the Indian Government to demonitise INR 500 and 1,000 notes has drawn immense attention from Nepal’s private sector. The Nepal government’s negligence in helping its citizens ensure convertibility of the demonitised notes in circulation here has become a source of dilemma. Ashok Thapa from Business 360° spoke with Rana to get his views and possible solutions on the same.

Since the demonetisation of INR 500 and 1,000 denominations, there has been a lot of hue and cry in Nepal especially among the private sector. What’s your response?

My initial assessment was that it was an aggressive and emboldened move by India to tackle the scourges of corruption, tax avoidance, counterfeiting and terrorism. However, the planning of the impact across sectors needed a deeper study prior to implementation. Per se, banning high denomination notes alone is only a short term panacea to tackle the scourges I mentioned above. There will definitely be a plethora of short term issues that need to be resolved, primarily tackling the fact that India and Nepal are cash based as opposed to plastic based economies. In the longer term adjustments need to be made.

How do you think the move of demonetisation will affect the Nepali economy?

There will be a short term impact on the Nepalese economy. The quantum of Indian rupees in our economy is open to debate as Nepal Rastra Bank (NRB) assesses it as Rs 34 million in the banking system while Federation of Nepalese Chamber of Commerce and Industry suggests a whopping figure of Rs 10 billion. The key factor here would be how much money is held by the average Nepali as safety net. Particularly, the unfortunate impact of this move on migrant workers, patients, students, pilgrims and traders along the border is worrisome. The ripple effect on tourism, freight forwarders, cost of imported supplies will be substantial over the course of at least three months. I also need to clarify a commonly held misconception that the Indian Army pensions are paid in Indian currency, they are in fact paid in Nepali currency.

How will it affect trading with India?
Those trading through the legal banking channels ought not to have too many problems; however border traders will certainly be hit in the short term. We are already witnessing shortages in supplies from India as truck operators’ work on a cash basis with their drivers who require cash to pay for food, fuel, and ‘naka’ payments etc. on the road.

As President of NICCI, how is NICCI working to help resolve these issue, since the Nepal government so far has not been able to give a clear voice ensuring currency convertibility?

I have been closely liasoning with the Indian Embassy on how to resolve this issue. We are all awaiting the decision of the high level committee set by India to address the problem in Nepal and Bhutan. We are hoping that a decision will be announced shortly. We are of the view that at least INR 25,000 should be allowed to be exchanged to assuage the poorer sections of Nepali people. How this can be done is the crux of the problem. India has fears that permitting such exchange will an opening up a Pandora’s box of potential ills such as how does one ensure that bonafide Nepali citizens receive this facility, how does one ensure Indian and other citizens do not misuse this facility, how will Nepal ensure that counterfeit notes are not being exchanged and a host of other such questions.

How do you view Nepal India trade against the backdrop of growing trade deficit?

This is a key concern for Nepal expressed universally. There are certain imports like petroleum and vehicles/spares which constitute nearly half the total imports value from India. if the prices were cheaper from other countries then the imports would be classified from another country. Hence the trade deficit will continue to widen unless we can substitute the products internally. I have been a proponent of hydropower export as the major thrust area for reducing trade deficit for many years, however the government has been dithering over the last two decades. We now have a situation wherein current electricity tariff rates in India have dropped by such an extent that run of the river projects may not be in a position to supply energy at a viable cost. The government will now need to look at reservoir or peaking type projects to resolve this anomaly. Worryingly large hydro projects under the Investment Board of Nepal (IBN) umbrella have still not fructified. Nepal cannot expect investments in manufacturing unless we have a stable, economical and uninterrupted supply of electricity. Availability of such electricity would also help in reducing petroleum imports and in substituting fossil fuel vehicles at least in cities; this would in turn also improve our environment friendliness.
Similarly tourism, high value added agricultural products, export incentivisation still require substantial governmental inputs.

Despite efforts, Nepal has not been able to draw significant investment from the Indian private sector rather China is increasingly coming to the forefront. Your observations.

Firstly, I do not think such is the case. Currently, Indian FDI stands at around Rs 80 billion and Chinese FDI, including Hong Kong is limited to around Rs 54 billion. Yes, the number of projects from China is substantially higher but the investment per project is substantially lower. Usually, large single investments in hydropower skew the FDI figures. Secondly, the private sector views are dependent on an entity’s analysis of their individual perceived risks and returns. The key issue is whether private sector investments are coming into Nepal from whichever country around the world, and if not, why not.
I have, over the past years, been on two official Prime Ministerial delegation visits to India. Investors’ loathe political instability and that is the primary reason why we are not seeing any significant investments. Unless, we can showcase a business which indicates a comparative advantage and an acceptable return on investment, businessmen will be reluctant to invest. We must not forget that we are facing competition from the whole world in trying to obtain FDI.
NICCI has been recommending a whole host of changes required by large Joint Venture Companies to attract investments. These recommendations were made by the JV companies themselves but have received scant attention from all government ministries; unless we redress their concerns, attracting sizeable investments may remain a pipe dream. These recommendations covered areas like ease of dividend repatriation, ease of exit, updating Intellectual Property Rights and IT laws, progressive labour laws, setback of business losses, matching of duty structures and set offs, limited trading permission from parent companies, ratification of Bilateral Investment Protection and Promotion Agreement (BIPPA), etc.

Published Date: December 19, 2016, 12:00 am

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