Dr Yuba Raj Khatiwada says that stocks of demonetized Indian currency notes are lying in his country and hopes the issue will be sorted soon.
Kathmandu: Nepal’s Finance Minister Dr Yuba Raj Khatiwada is one of the most respected economists of his country. He was the Governor of the country’s central banker Nepal Rastra Bank and two-term Vice-Chair of its National Planning Commission. He did his PhD from Delhi School of Economics in 1991.
Dr Khatiwada spoke to The Sunday Guardian on wide range of topics such as what Nepal expects from India, how it intends to balance ties with India vis-a-vis China and the need for India to quickly settle the large number of demonetized currency notes that are still lying with Nepal. Excerpts:
Q: What is “Prosperous Nepal and Happy Nepal” campaign, which was announced by your Prime Minister in April last year, all about?
A: It is about the wellbeing of Nepali citizens in terms of physical wellbeing, in terms of quality of life, quality of environment, safety and security and in terms of sustainability of the peace process that the country has started witnessing. When we are out of absolute poverty, out of deprivation, illiteracy, ill-health and when people’s minimum basic needs have been met because of the government’s policies and programmes, then we will be “Happy Nepal”.
Q: Your appointment as the Finance Minister in February 2018 was seen as a masterstroke considering your educational qualification and experience. One of your promises was to increase the annual income of Nepali citizens from the present $740 to $5,000? What is the present status of this promise?
A: The present disposable income is already close to $1,200. If we grow by 12% to 13% in nominal terms, we will be achieving $5,000 in 10 years’ time. That’s arithmetic. The challenge is: can we really maintain this kind of high economic growth and also keep injecting remittances from abroad?
This is the third year where we had a growth of more than 6%. The forecast by World Bank says that we will continue to cross 6% growth in real terms, which in nominal terms will translate to 12% to 13%.
We not just have to increase the income in rupee (Nepalese) terms but we also have to maintain our external security and stability so that we can maintain the exchange rates at a reasonable level. All this is dependent on two things, our economy and the Indian economy. We are affected by the Indian rupee. When the Indian rupee has a free fall, we happen to fall. We are hopeful that the Indian economy will
expand.
Q: How will you describe Nepal’s present relations with India?
A: We are very close to India in several terms. We have a very liberal cross-border movement of people without any visa or any other formality. One can do trade without any interruptions, there is no restriction on carrying things. Religious tourism sites in both the countries are very popular for people of both the countries. Cultural relations, family relations are very old and firm.
Our economic relations are very strong; all our rivers flow towards India and anything that happens upstream will have an implication for India. So we have a coordinated approach in our water resource management particularly in flood controls. India is our big market for several things, including energy, tourism, exports and primary goods, since we cannot export primary goods to far-off countries because we are landlocked.
The other aspect is investment. India is becoming one of the largest middle income countries, so we expect a large amount of investment from India to come to Nepal, given the age-old ties we share. India is our natural investment partner and with investment, we expect technology transfer from India because India’s advancement in technologies is one of the best. We also want to benefit from that.
The other subject is the kind of direct assistance that we expect from India in terms of aid. India being a neighbour that is growing, it has the capacity to support its neighbours to come out from poverty. I think India has the capacity and will to do it. We expect that this support should be upscaled for sometime to come, particularly when it comes to developing our infrastructure.
On our part, we will also do a couple of things. First, we do not want to let anyone disturb the peace, harmony and security of India and Indian people. We will have to be very careful of that; we are very responsible that no such irritants are allowed in our territory; we don’t allow that. Secondly, we would like that some common understanding on global issues, since we both are developing countries, should be there.
We want to see that the common issues and goals are carried forward with concerted cooperation through the SAARC window, through BBIN (Bangladesh, Bhutan, India, Nepal) Initiative and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) window. India being the largest country in this region, must take the lead in the process. On the whole, Nepal wants to see a prosperous India and wants to benefit from that.
Q: Has Nepal got over the ill-feeling that was generated during the 2015 economic blockade?
A: That is a matter of past. That happened because of circumstances that were created by certain political developments. Since then, we have understood each other closely, there have been several visits from the heads of the governments from the both sides; we have had enough discussions and agenda for cooperation.
At the diplomatic and government level, we have overcome those kind of past. At the people to people level, people want more confidence that we will not be suffering tomorrow because of misdeeds of any government—it could be ours, it could be theirs (India’s). At the people to people level, memories of the past are there, but I think it is a distant memory and is getting faded now.
Q: How are you balancing your relationship with India vis-a-vis China? I am asking this question because there is a concern among the strategic experts in Delhi that China is interfering too much in Nepal’s affairs.
A: This is a very common issue. India has a very good trade and investment relations with China. If India and China were fighting each other, then the question would have arisen that how Nepal will balance its relationships. India and China are good neighbours and good friends. So what is the difficulty for Nepal when it comes to balancing its relationship between two friendly countries? Nothing. Both the countries want Nepal to prosper, both the countries want that Nepal can become the transit point for trade among the countries. I don’t think there is any issue that puts Nepal in an awkward position when it comes to relations between India and China.
People do raise questions about investment relations (when it comes to Chinese investment in India) but that is something which is based on market principle. If you have opportunity, then any private company is allowed to come and grab that opportunity—that can be Indian or Chinese. We have no bias towards anyone.
Nepal has been a Non-Aligned (NAM) country throughout its history and it is very sensitive to both its neighbours’ interests. I do not think there is any problem in balancing the two big neighbours.
Q: What is the status of the huge number of demonetized Indian currencies that are lying with Nepal?
A: When I was the Central bank Governor, I took all the trouble to convince the Indian officials to allow carrying big currency notes to Nepal because that was a practical issue. Finally, we were allowed (to carry) Rs 500 and Rs 1,000 notes up to Rs 25,000. That went very well. But suddenly when the Indian currency was demonetized, we were not able to surrender all the currency notes to India and we still have stocks of it lying with us. Our Foreign Minister has already taken up this issue with his Indian counterpart. I don’t want to go into it since this is a process that is between the governments.
But regarding the new currency notes that India issued, there is no clear mechanism regarding accepting those currency notes. So they are not allowed in Nepal. One cannot take the risk of carrying those new currency notes into Nepal as it could be taken as an illegal activity. We have also issued notice in this regard. We are hopeful that this issue will be sorted out.
Q: So the old currency notes are still lying with Nepal even after more than two years of demonetization?
A: They are still lying with us. It has been more than two years. Keeping even that aside, what is important is that movement of people across border carrying larger denomination notes, without proper understanding, there might be several legal risks to people. It will lead to heavy penalty on those who are carrying it. This is many times not justified as normal workers bringing in genuine money may end up violating the law unknowingly. That’s why we hope that the issue will be resolved soon.