Reserves- Royal Monetary Authority. While essential imports and others of equal importance will be allowed, construction of new buildings and import of private vehicles could come to a standstill, according to the central bank’s temporary measures to rein in Indian Rupee spending.
It comes at a time, when demand for housing continues to rise in urban centres, and cars are being treated as a necessity in the absence of an efficient public transport system.Prioritising imports is a temporary measure and, when the situation improves, it will, although cautiously, open up possibilities of importing items of secondary importance, central bank officials explained.The royal monetary authority’s (RMA) circular on imports from India does not cover luxury items. “Luxury goods need to be defined and, if it does not fulfill any important requirements, it cannot be imported,” deputy governor Pushpalal Chhetri said.The circular says applications to build houses that received approval on or before April 8 will be provided with rupee to pay for import of construction materials. Letters have been sent to lending institutions not to approve any new housing loans for the time being.To make possible essential imports, the central bank yesterday released around Rs 1B to domestic banks, borrowed directly from the state bank of India. This could be exhausted in a couple of weeks.Prioritising imports was recommended by the task force constituted to study the situation, which recently submitted its findings to the cabinet.The task force identified excessive lending as the primary cause of the rupee shortage the economy has been facing so far. Credit from the financial institutions was around Nu 47B in 2011.While it was not possible to slow down lending, it recommended imports from India be discouraged. “Banks as of now do not have enough liquidity, therefore stopping loans is not a wise option,” deputy governor Pushpalal Chettri said.The task force is yet to complete the study on the crunch, with the prime minister instructing a re-look into a situation of national importance.At a press conference yesterday, with the finance minister Wangdi Norbu, a statement prepared from the government says that, while there has been a shortage in Indian currency, the foreign exchange reserves are still at a comfortable position, covering 13.5 months of essential imports.It also mentions that relief would be in place from April, during which time, limits on the two lines of credit will be enhanced by around Rs 7B altogether. The other is a currency swap arrangement, which would create a pool of SAARC currencies, making it possible for a country to withdraw any currency it is facing a shortage in.“Although the right thing was to increase export, the situation as of now demands immediate action, and the only thing left is to reduce imports,” Wangdi Norbu said. He also said that parliament might consider increasing import duty on vehicle imports, which averages 8,000 a year.On why the government did not foresee such a situation coming, the finance minister said the government had to concentrate more on its fiscal policy. “The government is the largest spender in the country, so its methods and implementation need to be carefully adopted,” he said. “The situation worsened within a very short period of time, it took the government by surprise.” It is estimated that around Rs 14B was borrowed in three months starting December.The crunch, he said, was also because monetary instruments used by the RMA were not very effective. “The RMA didn’t have proper monetary tools to reduce excessive lending and the existing tools, such as the cash reserve ratio, which has already been used to its full capacity, hasn’t been very useful,” the finance minister said.On whether it was prudent to rely on hydropower export earnings to solve the crunch, Lyonpo Wangdi Norbu said the government has to invest in potential areas. “We simply don’t have other resources beside hydropower, and we must capitalise on it,” he saidThe RMA has also disallowed foreign businesses, including Indians, who do not have Bhutanese licenses, to hold accounts in Bhutanese banks. This, Pushpalal said, would bring down the volume of exchange of ngultrum and rupee in the informal market.Critics however point out that such a move would discourage Indian businesses to accept ngultrum and, if the crunch continues, the economy would be rendered incapable of buying even essential items from border towns, which accept ngultrum.Courtesy -Kuensel