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Vehicle loan directive: Headed right

The Royal Monetary Authority’s (RMA) directive to reduce the loan to value ratio for vehicles from 50% to 30% has sparked off ambivalent reactions from different sections of the society including stakeholders.

While some banks and dealers are worried that their customer base might be affected, some are of the opinion that instead of cutting down the loan that could be availed, it would have been better if taxes were imposed on vehicle imports: this they say would help achieve the end of curbing vehicle imports.

It is expected that people will be worried about not having access to bigger vehicle loans now but the country stands to gain from the vehicle loan directive in many ways than one.

To understand this move from the RMA, we need to do a little digging up of history. In 2007, when the Tala Hydroelectric Plant was commissioned, Bhutan was the second fastest growing economy in the world.

Year 2009-10 saw the middle class economic boom: luxury commodities like mobile phones and cars could be purchased easily and on an unprecedented scale.

Then in 2011-12, the economic indulgence led to the Rupee crisis, and RMA had to take swift measures including imposing the vehicle tax and increasing of interests on housing loan.

Now it is projected that with the commissioning of the Punatsangchhu Hydroelectric Projects, the middle class will grow more affluent therefore the vehicle loan directive, experts say is an apt austerity measure to curtail lavish spending.

Apart from seeing the directive in the context of the bigger scheme of things, we are also looking at something as seemingly simple as traffic and public transport dynamics, an area where the government has failed miserably.

A few months back, the number of vehicles in the country stood at 85,000 plus; also 4,000 vehicles were imported into the country in the past year at INR 2bn. All this even after the former government imposed a two-year ban on vehicle imports.

Now, the question is: why are vehicles being imported? Anyone in the capital can tell that the Bhutanese are not thinking of long journeys when they purchase a vehicle. Vehicles are being imported because people need transport to make immediate and urgent short rides to town for shopping or the outskirts for an outing, and so on.

Public transport in the country is extremely unreliable and inefficient. We not only need a network of public transport services that are efficient, fast and well-managed but the authorities need to seriously explore and encourage alternatives like car pooling, which is popular in certain countries.

Carpooling is the sharing of car journeys so that more than one person travel in cars. By having more people use one vehicle, carpooling reduces each person’s travel costs such as fuel costs, tolls, and the stress of driving.

Carpooling is also a more environment-friendly and sustainable way to travel as sharing journeys reduces air pollution, carbon emissions, traffic congestion and the need for parking spaces.

The urgency for a good public transport system is additionally felt because Bhutan is supposed to be a GNH-country with green policies and importing vehicles at this rate could endanger not only the country’s goal of maintaining a pristine environment but also encourage a high degree of materialistic preoccupation.

The central bank, we could assume, was thinking long-term when it issued the vehicle loan directive. The move could force the government to take the public transport system and its inadequacies seriously.

Having a public transport system that caters to the needs of commuters from every walk of life including the marginalized like the physically challenged, pregnant women and the elderly would bring in its wake great benefits apart from curbing vehicle imports.

The move should also serve as a wake-up call to the relevant authorities to avoid another economic predicament.

The RMA has taken a step toward initiating a reform that can set off many positive repercussions. Therefore, the government should ideally act with alacrity and intelligence to meet the needs that have been borne as a result of the directive.

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