- Created on Sunday, 12 October 2014 09:58
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(Fake currency identification weblink-Image courtesy: RBI)
The Prime Minister’s Office (PMO) is pushing for lifting of the ban on circulation of Rs 500 and Rs 1000 notes in Nepal following PM Narendra Modi’s visit to Nepal in August. It also wants Department of Revenue to relent in its opposition to accepting the Nepalese request for exemption of countervailing duty (CVD) on exports from Nepal to India.
Nepal’s repeated demand for withdrawal of this restriction did not figure in the Joint Statement by the two countries issued at the conclusion of Mr. Modi's visit to Nepal on 4th August 2014. PMO is, however, pursuing this issue along with several ongoing proposals on which Indian side has to take decision under the larger agenda for ‘Follow-up of PM’s Visit to Nepal.’
Information flowing from PMO shows that Department of Economic Affairs (DEA) has conveyed Finance Minister Arun Jaitley’s approval to allow circulation of Rs 500 and Rs 1000 notes in Nepal. DEA has also requested the Reserve Bank of India (RBI) to carry out necessary amendments in the rules framed under the Foreign Exchange Management Act (FEMA).
The Ministry of Home Affairs (MHA) has, however, thrown a spanner in the proposed liberalization by pointing out that it has not been consulted on this issue. PMO recently desired that DEA would consult MHA and indicate the outcome within a certain time frame.
MHA’s concern is obviously over fake Indian currency notes (FICN), an issue that appears to have been glossed over both by PMO and DEA. It is here pertinent to quote Indian Ambassador to Nepal, Ranjit Rae. In an interview with two leading Nepalese publications given in June 2014, Mr. Rae reportedly stated: “This is a very serious issue. There are many agencies and organizations involved in taking a decision on this issue. First and foremost, there is a fair amount of smuggling of fake Indian currency through Nepal to India and you may have noticed in the newspapers that large size seizures have been made. So, there is clearly a very concerted effort to pump in fake Indian currency and the problem is that if these high denomination notes are allowed then it will become much easier for fake Indian currency smugglers. There are security dimensions of this issue but at the same time I agree that many genuine traders and tourists suffer because of this.”
Indian side has largely been cautious on this issue during the bilateral talks. This is evident from the minutes of the meeting of Nepal-India Inter-Governmental Committee (IGC) on Trade, Transit and Cooperation to Control Unauthorized Trade held in December 2013.
As put by the Minutes, “the Indian side stated the banking channels should be utilized to repatriate money by Nepali citizens working in India. Likewise, the existing banking channels would be utilized for transferring money for legitimate needs of Nepalese students pursuing their education in India. The Indian side stated that it would examine the matter for further liberalization.”
According to an existing circular of Central Board of Excise & Customs (CBEC), “the export and import of currency notes of Government of India and Reserve Bank of India of denominations of above Rs.100 is not allowed to and from Nepal and Bhutan in terms of Notification No. FEMA 6 / RB-2000 dated 3.5.2000 issued under Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 by the Reserve Bank of India. Similarly, the Indian currency notes of the denomination of Rs.1000 and Rs.500 are not permissible for exchange for banking transaction in Nepal in terms of guidelines issued by Ministry of Finance, Government of Nepal and Nepal Rashtra Bank. In fact, the current legal provisions in Nepal provide that notes of these denominations are liable for seizure and the persons carrying them are to be fined or imprisoned for upto three years.”
As for Nepal’s repeated request on CVD waiver, this issue figured in the Joint Press Statement issued at the conclusion of Mr. Modi’s visit to Nepal.
According to the Joint Statement, “The Nepalese side stressed that the countervailing duty (CVD) being levied by the Indian authorities on Nepalese exports including readymade garments, copper, brass utensils, Kattha and other products have had negative impacts on key Nepalese exports to India and requested the Indian side to remove it. The Nepalese side also requested to remove Quantitative Restrictions (QRs) on the four Nepalese export products namely Vegetable fats, copper products, Acrylic Yarn and Zinc Oxide. The Indian side assured to consider the requests by the Nepalese side. The Indian side also reiterated that problem of trade deficit could be best bridged by development of hydropower in Nepal and export of surplus power to India.”
India levies CVD on imported products, equivalent to excise duty on domestic manufacture, to create a level playing field for domestic manufacturers and foreign producers.
After Mr. Modi’s return to India, PMO found that during the UPA regime, the Finance Minister had concluded in March 2014 that it is not possible to accede to the Nepali request.
PMO has thus now decided that Revenue Department would re-examine this issue taking into account the request made by Nepalese leadership to Indian PM. The Department is required to indicate its decision by mid-October 2014.
