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The cash crunch (INR), post demonetisation of Rs 500 and Rs 1,000 notes is gradually showing signs of recovery. The doubling of ATM withdrawal limits in India, increasing the monthly quota from the Royal Monetary Authority (RMA) and in days the counter value of surrendered notes will be deposited in respective bank accounts.

In a nutshell, the Indian economy is on track to bring the state of its cash economy to normalcy and Bhutan will dwell in normalcy too.

The Central Bank did its job to keep the ship afloat, despite some inconveniences the people had to endure. We must understand the Central Bank had limited options, as the currency in short supply is a foreign currency, on which the country’s economy is heavily dependent.

The Rupee crisis has taught us adequate lessons and made us comprehend the significance of the Rupee in our import-driven economy.

While the demonetisation move did not put the economy to a halt as the Rupee crisis did, it has affected pilgrims, traders and farmers, who are struggling to sell potato and cardamom stocks to Indian traders.

For our economy to sail smooth, Rupee is the irrefutable currency we must possess as reserves. But there are many questions. Are we earning enough Rupee? Or is it just the flow of aid and loan that is bulking our reserve? Are we maintaining our reserves sensibly?

India’s assistance in the 11th Plan forms over 21 percent of 11th Plan size and these funds will eventually be held in the reserve. This is again exclusive of the grant and loan components of the hydropower projects. On a second look at the reserves, there is no reason for the government to boast of holding a huge Rupee reserve. Instead it is crucial to analyse how much we actually earn and spot where the milking cows are.

Yes, hydropower investments, in the long run will earn Rupees but that is generally an overly optimistic view, without realistic quantitative assessments in consideration to the cost escalations and delays.

In one of its studies the Asian Development Bank suggested that the net Indian Rupee earnings from hydropower, by deducting the hydro debt service, should be carefully estimated for the fiscal and monetary planning to be more effective.

But the truth herein is that almost all of our hydropower earnings, adjusting for the loan repayment is depleted in importing petroleum products.

More intimidating opinions could appear if we take a look at our trade statistics. Our trade balance with India is Nu 32 billion in the red. Last year’s trade statistics simply reveal that we spent Rs 22 billion more on imports than we earned from exports.

While private consumption has been blamed for the deteriorating trade balance, statistics reveal that government consumption is growing at an alarming rate. Consumption shot up from Nu 24.1 billion in 2006 to Nu 78 billion in 2013.

The tax policy to suppress import-oriented private consumption has not proved effective. It is indeed the government’s consumption and investment that will underwrite the current account deficit.

Be it developmental assistance or hydropower aid, the Rupee that flows in is bound to go back. The government should rather consider all Rupee generating activities a priority and facilitate their growth because in the last five years the country’s exports just grew by Nu 5 billion and imports grew by Nu 20 billion.

Stocking our reserve with aid and loan money is not a permanent solution.

More active roles have to be played through fiscal expansion, the cash flow management of the government and its agencies and export improvement plans. This will only be achieved if the responsible agencies have an aligned vision and target.

The reserve management, especially holding large convertible currency in comparison to the Rupee, also needs a re-look given the huge magnitude of trade with India.

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