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India's demonetization slows down Nepal's growth

15 Dec 2016 | Written by Supriya ; Edited by NewsBytes Desk

According to BMI Research, Nepal's economy is bearing the brunt of India's demonetization move.

Since India scrapped 86% of its cash in circulation, trade, tourism and remittances to Nepal have been dragged downwards.

BMI has revised its forecast for Nepal's economy for this financial year to July 2017, from an earlier estimate of 2.5%, it's now been reduced to 2.2%.

In context: Could India's demonetization impact Nepal's economy?

AboutNepal's fragile economy

Nepal and its economy has yet to recover from the devastating earthquake in 2015 that killed 9,000 people.

Its $21 billion economy had already been struggling with the aftermath of the earthquake; it grew at less than 0.8% in fiscal year 2015-2016.

Being a land locked country, Nepal has always been heavily dependent on India for trade, jobs and even aid.

Nepali migrants in India

Nepali migrants in India sent home $640 million in 2016 which is nearly 2.6% of Nepal's GDP. According to World Bank, in 2010, there were nearly 870,000 Nepali migrants in India but many believe the number to be much higher.
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15 Dec 2016India's demonetization slows down Nepal's growth

Indian currency banned in Nepal

HowIndian currency banned in Nepal

The Nepal Rastra Bank, its central bank, has banned Indian currency until it receives a formal intimation from the Indian central bank about issuance of new Indian currency notes.

This decision has left thousands of Nepalis in a lurch especially those who're involved in informal trade in the vicinity of the India-Nepal border; they're now unable to make cash transactions for their businesses.

Slump in Indian tourists

The inflow of Indian tourists to Nepal from January to November 2016 was a little over a lakh. Indian tourists to Nepal who usually carry and pay in Indian currency notes, have already begun to reduce.

12 Jan 2017Nepal seeks RBI notice to make Rs.2000 notes legal

Nepal has sought an official notification from RBI to make the new Rs.2000 note legal tender in the country; in Jan'15, RBI had issued a notification making the old Rs.500 and Rs.1000 notes legal tender in the country.

Without the FEMA notification the new currency cannot be legally used in Nepal.

Nepal's Foreign Minister Prakash Sharan Mahat will visit India next week.

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17 Jan 2017Nepal still impacted by India's demonetization

Nepal has been adversely impacted from India's demonetization.

Indian currency is widely used in Nepal and therefore many are still in possession of old Indian currency notes.

Nepali government buys Rs.600 crore of Indian currency annually however in the last few months they've received none.

According to Nepali officials, currency problem was serious and meetings were held with Indian finance ministry officials for resolution.