Citing the liquidity crisis in the market, Nepal’s regulatory bank, Nepal Rastra Bank, on Monday introduced a new policy that is expected to increase the cost of various products ranging from alcohol and cosmetics to vehicles.

The new policy states that importers must deposit 50 to 100 percent of the import amount if they want to import anything into Nepal. Previously, importers only had to deposit 10 percent of the import amount into the bank.

This, according to many importers and industrialists, will certainly increase the price of various products because, according to them, it will be consumers who will bear the brunt of such a “regressive” decision.

Widespread impact

The new policy attempts to discourage the importation of furniture, playing cards, alcohol, dried fruits, chocolates, sugar, lactose, treated drinking water, tobacco and cosmetics, among others. The NRB required importers to deposit 100 percent of the amount for all of these products before applying for a letter of credit.

The same applies to items such as helmets, toothpicks, matches, shoes, caps, wooden sticks, marble, bricks, bottles, thermos and decorative items.

The NRB on Monday wrote to all banks ordering them to ensure that the letter of credit (LC) only offers importers who have deposited 100 percent of the margin amount. For vehicle importers, the amount of the margin is set at 50 percent.

Businessmen say the government cannot restrict imports, although the policy attempts to alleviate the current cash shortage. While many are quite positive about the 100% margin on items like alcohol, tobacco, cigarettes, chocolate, and cosmetics, people have been puzzled by the NRB’s plan to include vehicles. , balls and tiles in the list.

Dhurba Thapa, president of the Nepal Automobile Association NADA, says this new policy was put in place to discourage all kinds of imports.

“This kind of policy that requires such huge investments doesn’t make sense,” Thapa says. “Its effects will soon appear on the market. “

Others argue that the policy will end the importation of many items, leading to an unprecedented increase in the price of those items. They also say the policy will also break a cycle that will hurt a lot of people.

Discouraging business environment

They say this because companies received the LC before the cash crunch, even with a 10 percent margin if they said they would pay the margin amount within 60 days. But, the new policy will end this practice which will affect the business cycle that has been going on for years, said Durga Raj Shrestha, outgoing president of the Nepal Retailers Association.

He says the policy also means companies can’t even apply for loans from banks to import items.

“We used to give companies a month to pay us back, after which we pay back the banks. But now this policy has closed all doors, ”Shrestha said, adding that imports would decrease dramatically as only a handful of people in Nepal have the money to do so.

NADA President Thapa said even vehicle imports would be affected as traders will struggle to recoup the amount from the market even if it is only 50% margin on their case. .

“We need banks to do LCs for us at least twice a month. But now we have to accumulate money and that’s going to be a lot of problems, ”Thapa explains.

Even the Federation of Nepal Liquor Associations says the policy will strongly affect the market’s cash flow.

The consumer in the face of shock

The main people to suffer from this policy are importers of vehicles, beauty products and textiles. Since they are already struggling to balance their books, it is highly likely that the cost of the products will increase significantly. Along with this, it is also possible that people bring these products through other channels.

The Nepalese Foreign Trade Association’s first vice president Binod Kumar Sethia said the policy will also affect the construction sector, as the import of marble will also decrease.

NADA’s Thapa says another reason for the price increase will be that businesses will take loans from people other than banks.

“This policy will affect the import cycle. I don’t know what’s going to happen, but with declining imports and still high demand, I’m sure the cost will go up, ”Thapa says.

Just a temporary policy: NRB

But, the central bank says the policy is only temporary and will not be applicable in the long run. He said he was only implementing the import control policy which had increased massively in recent months, negatively affecting the Nepalese economy.

Ramu Paudel, executive director of the NRB’s foreign exchange management department, said the central bank had to take the step due to a liquidity crisis in the country that had significantly reduced the country’s foreign exchange reserves.

“We will reverse this decision as soon as the economy returns to normal,” Paudel said.