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 visiting Nepali citizen would not be able to spend more than one lakh rupees every month while paying for goods and services in India and that the decision was taken to deal with the current account deficit of Nepal.
Historic first
The announcement is a historic first as it is the first time that Kathmandu is enforcing such a limit on spending ability of individual Nepali citizens and businessmen in India. The policy applicable to prepaid, credit and debit cards of Nepali banks came into effect on Tuesday.
Central bank spokesperson Narayan Prasad Paudel said the decision was part of the policy adjustments that the economy was making to overcome economic crisis in multiple fronts.
“The decision was taken to deal with the growing problem of current account deficit and the balance of payment crisis that our economy is dealing with,” said Mr. Paudel speaking from Kathmandu.
Capital flight
Bhisma Raj Dhungana, chief of the Foreign Exchange Management Department at the NRB, told the media in Kathmandu that the measure would however exempt payment in hospitals and pharmacies in India. He said the step was taken to control capital flight that emerged due to the spending trends of Nepali citizens in India.
Apart from impacting the spending trends of Nepali consumers and tourists in India, the measure is 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.
Nepal has been dealing with a series of issues with the Indian currency since the Narendra Modi government launched the process of demonetisation of high denomination Indian currency notes in November 2016. The recent steps indicate Nepal’s continued problem with the Indian currency that reportedly began after Nepal was left holding a large quantity of demonetised Indian notes.
The NRB spokesperson 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. Mr. Paudel 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.
“We await India’s response regarding our request to convert the old Indian currency notes in our banking system,” Mr. Paudel said.