The central bank, in its monthly macroeconomic update launched today, has said the recent demonetisation of Indian high value banknotes is likely to adversely affect tourism and export of agro products to the southern neighbour.
The warning is a major dampener to tourism entrepreneurs looking forward to gradual recovery in the sector following the devastating earthquakes of last year and months-long blockade that finally ended in February.
“Following the shock move of the Indian government to ban INR 500 and INR 1,000 banknotes on November 8, we have witnessed mass group cancellations from Indian tourists, who used to travel via road,” said Binayak Shah, spokesperson for the Hotel Association Nepal — the umbrella organisation of hotels in the country.
Following the announcement in India, the Nepal Rastra Bank also directed all banks and financial institutions to stop accepting demonetised notes in the country the very next day.
“Many Indian tourists used to come to Nepal as Indian currency was widely accepted here,” explained Shah, adding that they have postponed their travel plans as the country is yet to take a decision on the legal tender of the newly issued INR 500 and INR 2,000 notes.
“As long as the issue of demonetised notes and whether we will accept the newly issued currency is not sorted out, the flow of Indian tourists will be hit.”
Moreover, the demonetisation of Indian banknotes had halted trade of cardamom in the eastern region. Of the total cardamom produced in the country, 65 per cent is exported to India, from where it reaches world markets.
“Though Nepal’s trade with India through the formal channel may not be affected much, trade via informal channels, which is mostly conducted in cash, is probably going to take a hit,” said Nara Bahadur Thapa, executive director of the Research Department at the NRB. He, however, added that demonetisation would have a more visible impact on tourism.
The negative outlook issued by the central bank due to India’s demonetisation move follows a similar recent report by BMI Research, a group company of the Fitch rating agency.
The agency had revised down its forecast for Nepal, saying ‘India’s demonetisation could shave Nepal’s growth down to 2.2 per cent for this fiscal, from an earlier estimate of 2.5 per cent’.