Modi’s demonetisation policy affects neighbours

ISLAMABAD: While Pakistan is India’s immediate neighbour, the Modi government’s demonetisation policy has had no direct economic bearings and all one heard about were Pakistani travelers who were in possession of Rs500 or Rs1000 notes for which they got terrible exchange rates in the open market.

In India it was Pakistan’s High Commission that faced massive problems as Modi played politics and did not allow the HC to withdraw staff salaries which is paid in US dollars.

However, India’s other neighbours like Nepal, Bhutan, Sri Lanka and Bangladesh have not been so lucky and New Delhi’s monetary policy has hit them hard, according to media reports from these four countries.

On Tuesday Nepal took up the impact that demonetisation has had on this landlocked country, which appeared to be in a crisis mode as it is common for Indian high value currency notes to be in circulation there.

Nepalese media pointed out that the consequences that Katmandu faced included falling economic growth which saw Indian tourists, trade and remittances at an all time low. Tuesday saw the visiting Nepalese Foreign Minister Prakash Sharan Mahat raising the issue with Indian Finance Minister Arun Jaitley and Minister of State for External Affairs V K Singh.

The Indian government had set up a task force to facilitate exchange of currency notes in Nepal, which sees problems even with its reconstruction work after the 2015 massive earthquake.

In Bhutan it is not unusual to see Indian notes being included when a traveler uses the money exchange facility at the airports. Amongst Bhutanese currency notes several Indian notes are included as this is a legal tender here.

According to one report from Bhutan, demonetisation has affected farmers in Phuentsholing, a town bordering India, and they are struggling to sell potato and cardamom stocks to Indian traders who are finding it difficult to make cash payments.

More than 1,000 metric tons of potatoes are unsold as Indian traders are without cash. Tourism from India has also hurt the Bhutanese economy while Bhutanese pilgrims have been unable to go to India.

Meanwhile, even Sri Lanka has not been spared as foreign money exchange centres have stopped accepting the demonetised Indian notes. Indian banks in Sri Lanka also refused to touch the demonetised notes and depositors could not put this money in bank accounts in India.

In Sri Lanka frequent visitors to India were the first to be hit as they possessed the demonetised currency as exchanging notes was difficult.

There was a direct impact on the economy in Bangladesh, which imports a great deal from India, local importers with a weak Bangla taka was the first to be hit.

One report from Dhaka spoke of the retail price level of those products which carry inputs from India seeing an increase due to higher production costs. As a result, it was expected to adversely affect the domestic consumer and raising inflation.

The report also saw an increase in the trade deficit of Bangladesh.