Reactive move

The decision to ban import of gold has exposed how poor our government is in managing crisis. The import of the yellow metal was identified as the major reason for the country’s trade and balance of payment deficit that started showing from September 2009. Still the government took months to bridge its tariff gap with India, the prime reason behind the precious metal’s massive import and its illegal outflow into the Indian market. The government, through an ordinance, bridged the tariff difference between the two neighboring countries a few months earlier. To some extent, the move helped to bring the situation under control. But since the ordinance was set to expire on Friday, thus nullifying the decision that raised tariff, the government imposed an import ban beginning the same day to prevent a sudden surge in import, which would have once again put a tremendous pressure on the country’s depleting foreign currency reserves. That’s fine but the point is that the government should have seen this coming and done its homework on how to manage and rein the looming crisis when there was time rather than waiting to act when the problem reached its doorsteps.



The government decision will certainly curb the outflow of the hard earned convertible currency but what is also true is that its latest move would not do much to plug unauthorized trade. The festival season is round the corner and people will be more than eager to purchase gold irrespective of the price that dealers set. Sadly, the prices are already high as Nepal Rastra Bank (NRB) in recent months has controlled the import of gold to 10 kgs a day. But this volume is so little that it has created a substantial mismatch between demand and supply, triggering prices. Nepali consumers, who tie gold with social status, are so desperate that they are readily paying an additional Rs 3,000 per tola (11.664 grams). This has already sparked smuggling of gold from India to Nepal. The ban, on top of it, will surely escalate the trend, which means Nepal will continue to lose Indian currency, which is already in short supply, from the market. This will give one more reason to vested interest groups to halt return of Indian currency in the system and spur currency black marketing.



Understandably, the ban is only an intermediary step and the government will revoke it once it gets the bill on raising the duty of gold through the parliament. But given the immediate business cycle it creates in the informal market, the step will not serve the purpose of NRB. The only sustainable way out of the situation is to increase export income and focus on domestic production of key items like meat, so that the country could check import surge. The government should focus its attention on this and work out ways to address constraints like rigid labor law, weak industrial security situation and high cost of production. It should implement programs like special economic zones with high priority, lay down infrastructural support and foster investment-friendly environment. This will not only create more employment opportunities, but also help narrow down trade gap and generate additional income.

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