A familiar question that is thrown around these days, often too much, is: when is the rupee problem getting solved? There seems to be no easy answer to this question. But the fact of the matter is, it may actually take longer than anticipated. The rupee problem may persist and even turn out to be a long drawn economic reality of our time. For some time now, we do not have much choice but to live with it.
The fallout of rupee shortage is one too many – from restriction on import of cars, vegetables and Indian laborers to suspension of housing loans, to name a few. It has affected all and sundry. The scarcity of rupee has suddenly made life a tad difficult. Hasn’t it?
Such sudden change in fiscal and monetary policies introduced to rein in the problem is bound to have its adverse side effects. But what is important at this juncture is to clearly understand that these measures are responses that will address one of the major economic problems Bhutan is faced with in its entire history.
What caused the rupee shortage is now crystal clear. A combination of several factors has given risen to this problem. The task force report that was recently made public identifies a number of reasons that sparked the current rupee problem in the country.
One overriding factor is increasing imports from India against limited exports. What has added to the problem is Bhutan’s inability to up domestic production to substitute these imports, further fuelling rupee outflow. Bhutan’s major rupee earnings through export of electricity is not able to match up with burgeoning imports that far exceed rupee earned through export of electricity and other items like processed minerals.
The task force report has also pinned down increasing consumption, escalating external debt, and expanding domestic credit growth as crucial factors that have contributed to the rupee shortage. Other reasons are rupee outflow through education, health, pilgrimage and travel related expenditures.
Credit expansion that in return fuel consumption increased by 32% from Nu 36bn in 2010 to Nu 47.5bn in 2011. Similarly credit grew from Nu 26bn to Nu36bn in 2009 and 2010. This surge in credit further shot up imports of vehicle and fuel, striking a deeper dent in the already scarce rupee reserve. The task force report estimates that if 75% of the credit is used for imports from India, the rupee requirement would be about Nu 16bn.
The total value of vehicle import increased to 10% in 2011 against 3.1% in the previous year. In substantial terms, vehicle import grew from 1,103 worth Nu 309.8bn in 2020 to 6,893 vehicles worth Nu3.6bn in 2011. This staggering increase resulted in the outflow Nu 7.9bn in the span of 10 years.
Similarly, this has had a ripple effect on the import of fuel. Between 2002 and 2011, fuel import rose from 42.7mn liters worth Rs 720.89mn to 111mn liters worth Rs 4.25bn. During this period, import of fuel resulted in the outflow of RS 21.8bn altogether.
Import of food items also drained substantial amount of rupee from the economy. In 2010, Bhutan imported fish, meat, dairy and other animal products worth Nu 1,180.5mn, rice worth Nu 846.9mn and vegetable and fruits amounting to Nu 676.5mn.
On the contrary, export earnings increased from Nu 2.8bn in 2002 to Nu 25bn in 2011.
The need of the hour is a multi-pronged strategy to balance import and export and therefore rupee shortage. The government and the central bank have identified immediate, medium and long term measures to curb shortfall of Indian rupee in the economy.
The measures include: increasing GOI line of credit, rupee currency swap arrangement with India, and streamlining access to and use of rupee; imposing green tax on vehicle and fuel imports, levy of customs duty and sales tax on heavy earth moving equipment; promoting the use of local building materials, liberalizing policies for manufacturing industries to encourage import substitution, among a host of others.
The findings of the task force report have shed light on a lot of issues that concern the government, financial institutions, private sector and individuals.
For one, at the basic level, the heightened growth of private consumption needs to be controlled. Take for instance the voluminous growth in the number of vehicles and consequent increase in import of fuels. This has proved not only unhealthy for the economy but to the environment as well. Transport sector alone accounts for 45% of green house gas emission in the country.
Many families own more than a car. Green lifestyle isn’t seriously fashionable at that. We earn less, spend more, and some even take loans to go for a vacation. Nothing wrong there at the individual level but club it into a country of spendthrifts, doesn’t make much economic sense.
In a manner of way, this rupee crunch situation has exposed both our vulnerabilities and sham – an unGNH twist, so to say. On one side, we have espoused GNH way of life – balance between materialism and spiritual wellbeing. On the other, we have exhibited mindless rapacity through increased consumerism to the extent that it could reach unsustainable proportions.
Rupee shortage has also made our dependence on food import more pronounced. All this while, we have been talking about food self-sufficiency and self-reliance but we have realized we are far from being there. This calls for immediate relook into our agriculture sector whose contribution to GDP has been dwindling over the years. Simply put, we must grow our own food and vegetables!
May be it is time for a revamp. And it must start at home, at individual and personal level. Only then will we be able to rise out of the problem. Not just this one but many unforeseen ones in future.