Article by Kabita Chaulagain | A temporary remedy on paper to a long-rooted planning problem
The government of Nepal has banned the import of luxurious goods, non-essential goods and goods above $600. This includes the ban on mobile phones, laptops, televisions, and other technical devices costing more than $600. There has been a significant trade imbalance in Nepal for many years. The ban on imports was implemented due to the declining foreign cash reserve and to save our country from being the next Sri Lanka.
Restriction on trade that threatens national security is plausible like arms and ammunition, explosives or narcotics. But the recent act of banning the import of goods above $600 is downright impractical as $600 for a technical device like phones, laptops or television is trivial. Though it appears to be assisting in keeping foreign financial reserves in the country, it is not a permanent solution.
Nepal is facing a severe liquidity crunch in the present context. This is also an impact of the election. Some experts believe that the crucial reason LC was banned was to keep money in the nation for prominent politicians’ election campaigns. Another reason is Russia-Ukraine war, has led to severe inflation throughout the globe. Nepal imports crude oil and petroleum hydrocarbons heavily. The inflation of oils has hurt the foreign cash reserve of Nepal even more.
Nepal imports almost 65% of its total imports from India. With the open border with India, the grey products entering Nepal through the illegal channel are already high. This decision of the government leads many self-employed traders to get their work displaced, as the stocks may not be able to hold up to the demand. With this, the sellers might then resort to those illegal channels. This will severely impact the government as a vast amount of tax is being paid to the government for importing. This will also inflate the cost of these products further.
Banning imported goods that are already produced in Nepal does look like an encouraging step for domestic and local manufacturers. But, Nepal’s manufacturing strength does not incline toward technology. Since we are weak at manufacturing cost-efficient high-quality tech products, it looks more efficient to import them. This also helps the traders and middlemen to earn a significant amount of profit, thus, they pay taxes to the government. It’s a win-win situation.
More than 70% of Nepal’s economy is an informal economy. So, the crucial problem here is tax evasion. Instead of restricting imports, the government should focus on strict tax collection and transparency.
Moreover, Nepal will not likely turn into Sri Lanka as Nepal’s foreign debt is 42% (much lower than Sri Lanka’s). With the ease of the Covid crisis and increase in remittance, Nepal will undoubtedly bounce back.
