Demonetisation impacts India’s border trade with Bhutan

Source: Times of India, Dec 01, 2016

NEW DELHI: The November 8 demonitisation initiative has adversely impacted India’s border trade with Bhutan, Delhi’s closest neighbour in South Asia.

Farmers and exporters in Bhutan’s Phuentsholing town bordering India has been hit following the currency ban. The move has led to cardamom and potato sales from Bhutan to India dropping drastically as Indian traders have been struggling to arrange cash for making payments, informed persons familiar with the developments. Indian currency is used as legal tender in Nepal and Bhutan. Phuentsholing is the main land border entry point between India and Bhutan.

Sufficient cash is not available for the export-oriented businesses in Phuentsholing market, according to the persons familiar with Indo-Bhutan border trade. Bhutanese traders ruethey get to withdraw only Rs 2,500 from ATMs in a day which is not enough. Most of the transactions are cash based.

The price of cardamom mid-November hit a record low of 700 Ngultrum per kg, which was between 800 and 900 Ngultrum a week ago. Ngultrum is the currency of Bhutan. One Bhutanese Ngultrum equals One Indian Rupee.

Indian traders have informed their Bhutanese counterparts they would be able to import agro-products only after three months. Some Bhutanese traders have not been able to export any cardamom since November 8. Cardamom export has drastically gone down in Silliguri, which is a major market for Bhutan. If the trend continues the cardamom price will decline further and there is risk that exports from Bhutan will get further affected, according to informed sources.

Similarly potato exports from Bhutan to India have also slowed down. Some Indian exporters also paid their Bhutanese counterparts in old currencies. India is Bhutan’s largest trading partner. A free trade regime exists between India and Bhutan. Major items of exports from Bhutan to India are electricity, ferro-alloys, carbides, bar and rods, cement, copper wire, semi finished products of iron and non-alloy steel, Dolomite, gypsum, agri products such as oranges, cardamom and potatoes.

Meanwhile, Bhutan’s mineral exports to Bangladesh has also been affected. While Letter of Credits are being used for payments, transportation has been proving a challenge.

Trucks from Phuentsholing and Samdrupjongkhar, on the border with Assam, take minerals until Burimari, border area between India and Bangladesh. Indian currency is required for logisticssupport in this trade which is currently not available in the market.

Bhutan has been taking up the issue of currency ban with India ever since the PM’s announcement on demonitisation as the Himalayan State is also being faced with the crisis of cash crunch. Nepal and Bhutan, two major recipients of Indian financial aid, have taken up with New Delhi the issue of demonetisation of high-value currency bills and the impact it could have on financial assistance to them. India has earmarked Rs5,490 crore for Bhutan and Rs300 crore for Nepal in this year’sbudget.

The Bhutanese Central Bank has informed all banks in the country to freeze, until further notice, withdrawals of Ngultrums in exchange for demonetised INR notes of 500 and 1,000 denomination by Bhutanese individuals and companies.

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