By Prajwal Shrestha
At a time when all the economic indicators are showing negative trends, our currency has become stronger against the US dollar. The US dollar had already reached above 110 rupees per unit of dollar. At present, it has come down to around Rs 104 per unit of dollar.
We need foreign currency to import goods. As our imports are high, we need more foreign currency, i.e. US dollar. As per the demand and supply theory, higher the demand, higher will be the price. If so, the dollar price could have been fixed on the basis of its demand. However, in Nepal, the basic guidelines of economics don’t apply.
Our import from India is very high. We need Indian currency to import goods from India. As our export to India is low, we don’t have enough Indian currency to meet its demand. Therefore, the Nepal Rastra Bank buys Indian currency by paying US dollars in reserve. Even though, our currency has become stronger against the US dollar.
As our currency has set a fixed rate with the Indian currency i.e. one unit of the Indian currency equals to 1.6 Nepali rupees. The Nepal Rastra Bank has not revised this exchange rate for many years. The currency price should have been determined on the basis of trade with the concerned country. In trade with India, every year, our import has increased, on the other hand, our export has declined, but the currency exchange rate has not been affected, which is astonishing. The real value of our currency is down to the surface, however, we are retaining on the artificial value.
According to a recent report, in the past seven months of this fiscal year, the trade deficit has already crossed 500 billion rupees and if the present trend will continue, the trade loss in the current fiscal year will cross 800 billion rupees. And if the reconstruction works will take momentum, the trade deficit may cross 900 billion rupees. According to PoshrajPandey, economist, as we don’t have our domestic products, there is no chance of decline in imports. Pandey further warned that if the price of petro-products will increase, it will further contribute to increase trade deficit. In the last ten years, trade deficit has increased by eight times, he said.
The increasing trend of trade deficit is not the symptom of a healthy economy. Even when the economic exports are indicating towards such a worst scenario of our economy, there is no reaction from the government authorities, including the prime minister and the finance minister. Yes, we know, even if they are doing small things, they make loud noises. By considering the silence maintained by the government, we should understand that the government has no plan to reduce the size of trade deficit. It seems, it is beyond the government capacity to reduce trade deficit as for the last ten years, the size of trade deficit is continuously increasing.
There are two major actions from which we can reduce our trade deficit. They are, giving priority to import substituting industries and then increasing domestic products with the aim of exporting such products in the international market. By giving discount, incentive and tax exemption to the industries, we can boost our domestic products. Besides, by creating public awareness among the citizens and encouraging them to use domestic products, we can reduce the size of imports and we can support local entrepreneurs. Until now, the government has not taken such initiatives. Instead of putting imported carpets in the government offices, if it will be made compulsory for the offices to put “Radi-Pakhi” made by those people from remote Humla and Jumla, obviously, it will be a great initiative in uplifting the living-standard of these people and also contributing to the national economy.
When Nepali rupees become strong
By Prajwal Shrestha