Trade: The Association of Bhutanese Industries (ABI) has submitted recommendations to the Royal Monetary Authority (RMA) that could help industries in Pasakha.
Pointing out the many ways the industries have been hit by the demonetisation process in India, ABI presented both short- and long-term recommendations.
The association requested RMA to allow the industries to operate their Indian Rupee (INR) bank accounts as a short-term measure. If approved, the industries will be able to withdraw in local currency until the INR problem is normalised.
Prior to the demonetisation process being declared on November 8, industries earning INR were credited with the equivalent amount in Ngultrum. Banks also provided a facility to use 10 percent of the INR earnings to pay truckers for expenses they bear while delivering their consignments.
However today industries are not allowed to use the 10 percent facility and their INR accounts have been frozen.
“RMA should not lock-in the accounts of INR earning companies,” ABI general secretary Jochu Thinley said. “It will totally stop their manufacturing activities because they will not be able to pay or meet other financial commitments.”
Industries also avail loans from banks as working capital (rolling money) to purchase raw materials and to manufacture goods. The loans are subject to 13-14 percent interest per annum.
Following the manufacturing process, the finished goods are then exported and the sales proceeds deposited in the banks. As the industries are completely dependent on Indian transporters for both inward and outward movement of goods, the ABI general secretary said all genuine and legitimate business entities earning INR are affected with access to INR blocked for the last one month.
“Industries require INR to pay the truckers for transportation of finished goods,” Jochu Thinley said, adding that some portion of the transportation charges payable in INR are paid in cash and in advance to meet their road expenses such as fueling, toll taxes, and other miscellaneous costs.
“Non-availability of INR has led to a delay or inability to dispatch goods and an increase in outward freight costs.”
Since denominations of INR 500 and 1,000 notes are not entertained in fuel depots and tolls from December 15, it has become difficult for the industries when there are large volumes of goods to be transported, ABI submitted. Exports to Bangladesh are also affected, as industries are unable to pay drivers in INR to meet their travel expenses. It takes four to five days to reach one truckload to Bangladesh.
ABI has asked the RMA to provide INR 10,000-15,000 to those companies requiring INR to pay truckers for outbound transportation so that the daily dispatch of goods are not affected. For security reasons, ABI also submitted that RMA could ask undertakings from the industries, while issuing equivalent amounts in Ngultrum.
RMA, on the other hand has approved providing INR 5,000 per truckload to meet the en-route expenses for daily dispatches of consignments, the ABI general secretary said.
“We acknowledge this support,” Jochu Thinley said. “With this facility extended, daily dispatch, which was a serious concern, will be addressed.”
INR 5,000 for each truck and a total of 80 truckloads for both perishable goods and non-perishable goods was approved. However, with the orange season in full wing, INR 5,000 per truckload will not suffice for non-perishable goods.
Further, about 190 truckloads of perishable and 400 truckloads of non-perishable goods are expected to be on the move every day.
“We don’t expect INR for all 400 trucks,” Jochu Thinley said, adding that it would be okay to receive INR for at least 80 more truckloads for non-perishable goods.
RMA should be giving INR 800,000 for 160 truckloads daily.
At present, RMA provides INR 5,000 for 200 pilgrims each in a day.
Other areas affected
Payment for raw materials: The industries’ current payment system is through RTGS or other bank instruments and the restriction on withdrawal amounts has affected the payment for the purchase of raw materials.
Labour payments: Industries pay the daily wageworkers from India some amount of their wages in INR for their daily expenses. These wageworkers are not exposed to digitisation and have difficulty in managing with local currency, which has led to some of the wageworkers not turning up for work.
Emergency purchases: Due to wear and tear of spare parts or break down of equipment and machineries in the plant, industries are required to procure replacements. Industries purchase in cash due to the urgency and such purchases get delayed while following the due process of transferring the funds.
Official travels: India is the major market for industries in Pasakha. Marketing executives need to travel regularly to India to meet clients, address their issues, and attend fairs in order to penetrate this market and boost sales. Extensive travelling is also required to purchase raw materials, visit a client’s site to pre-check materials before dispatch and to take other purchase decisions and negotiate deals.
ABI stated that it has already been over a month since the industries deposited their INR in the banks. The companies are undergoing a difficult financial situation not being able to cover the loan installments, and creditors and employee payments.
Should the restrictions to withdraw equivalent amounts of INR in Ngultrum continue and if the banks don’t provide INR for daily dispatch of goods, Jochu Thinley said the companies may have to shut down some of the business operations.
“There has been enough time to verify whether the notes are genuine or was earned legally or not,” he said.
“Moreover, most businesses have been in operation for a long time with credible records and should be provided the benefit of doubt.”
The government should make arrangements to provide equal amounts of INR deposited in Ngultrum to maintain uninterrupted operations of legitimate business entities, ABI submitted.
ABI also requested a long-term solution in its submission to RMA by asking the authority to reconsider the INR and Foreign Currency (FC) management rules and regulations to enable the local industries that contribute to those reserves, to further enhance exports and substitute imports.
FC should be made available to the industries for import of raw materials that can be value-added and sold in the Indian or international market to earn more INR or FC.
At present INR is not considered a convertible currency and FC is provided only for those industries that earn FC. After meeting the constitutional requirements, FC should be made available to all industries as long as they earn FC or INR, the ABI submitted.
Meanwhile, ABI also acknowledges RMA and its governor for the unprecedented reduction of loan interest rates.
“Such fiscal reforms would go a long way to enable a robust economy,” the general secretary said.
“We would like to express our gratitude to the RMA for conducting research on the convertible currency and INR earnings.”
Such proactive measures by the Central Bank will build trust between the government and the private sector, the ABI general secretary said.
Rajesh Rai | Phuentsholing