Rupee crunch leads to soaring informal exchange rates in border towns
On the surface, the border towns may seem to be on a rupee famine, but, the informal market exchange on Rupee against the Ngultrum is on a slow but steady rise
The rupee crunch hullabaloo has just begun. On the other side of the border, the Jaigaon Merchant Association has openly declared that the shopkeepers will not accept BTN while in Bhutan, non-Bhutanese clients closed their bank accounts.
In the midst of it all the central bank making announcements for rupee adjustments sounds like a hoarse whistle in the rupee hustle.
Despite the chaos, what in interesting is the soaring of exchange rates for rupees in the border towns.
In Gelephu, the current informal exchange rate is Rs 90 against Nu 100. This is practised by a few grocery and garment shops but the big players lie across the Gelephu border in Dadgari.
According to a source, three players have captured the rupee market, namely Bhandari electronics, Mamaji electronics and Pawan grocery shop which are reported to have huge amounts of rupee.
As much as Nu 0.1 mn is being exchanged at the rate of Nu 100 against Rs 75.
A source told The Bhutanese that business had flourished for these players but this in turn hampered small exchange returns; small shop keepers are accepting only notes like Nu 100 and Nu 50.
It was reported that a few merchants were accepting the BTN at equivalent rate for business purposes but the now the suppliers are asking for 20% commission.
A private contractor, Jambay, said her Indian brick supplier was charging 20% extra against the Bhutanese currency.
Contrary to the popular beliefs that big merchants are doing the informal exchange, it is actually small pan shops (beetle nut shops) in Jaigaon that are dominating the market on the rupee exchange.
Till last week, the paan walas were charging 12% on denominations starting from Nu 100, but now, it is being reported that they have now increased their exchange rates by 15%.
These paan walas’ exchange amounts mostly rangesfrom Nu 5,000 to Nu 30,000 but sometimes the amount is said to exceed to Nu 0.1 mn.
The exchange is done within a day’s time, say for instance, one makes a deal in the morning, and the INR is handed over in the evening.
Shops like Kanaiya and Surender pan shops are mainly into this informal exchange, however, it is said that almost all the pan shops are doing tidy business.
These paan shops not only have INR of their own but they also go on a collection spree to nearby places like Birpara, Dalsingapara, and Jalpaiguri among others.
Currently, the border towns might seem deprived of rupee but it is from within Bhutan that the rupee is being circulated.
Many Indians come to the border towns to purchase liquor and cements in large amounts and these agencies who sell the items in black accept INR.
Then these rupee flows to the border areas and gets circulated.
Earlier, a number of Bhutanese carrying an identity card was withdrawing Nu 10,000 from the banks and exchanging the amount with their Indian counterparts for a commission of Nu 500 but now this practice is said to have curtailed.
In Samdrup Jongkhar the exchange rate of INR is increasing from 5% to 10% of the value and the ones exchanging notes are the small shops across the border.
According to Karma Wangdi, a businessman who is also one of the members of the Private Sector Development Committee, the rupee crunch was causing an adverse effect on the small business houses.
He said business was going on as usual for the big companies because they either directly dealt with the companies or the main distributers from India whereas the small businesses dealt with the sub-agencies for the suppliers.
With the rupee problem cropping up, he said the system of payment had changed because the agencies were asking for direct payment in INR involving a lot of paper works, “which has led the supply to dwindle, and it has been causing hassles for Bhutanese businessmen.”
The other side of the rupee crunch
Fake BTN currency production in places like Falakata, Cooch Bihar, and Siliguri have also gone down.
Even the goonda tax (illegal tax) that was being paid by some Bhutanese and most Indian businessmen is under control,
Whenever there are vegetable and vehicle auctions on vehicles in Bhutan’s border towns, there is an involvement of goonda tax, in which the businessmen have to pay the tax for transportation of goods from Bhutan.
The so called groupies from nearby villages like Ratangamati, Bipara, Dalsingapara and Jaigaon impose 2% goonda tax; this has been an ongoing practice and it has showed no signs of stopping until recently, as the Indian border police are bribed by these gangs.
Although it is said that the gangs accepted BTN, the rupee crunch has put this practice to a halt to some extent.
The sale of pharmaceutical drugs has hit rock bottom, the shopping spree in border towns are dying and even gambling dens are facing problems, all due to the want of the hard currency by the Indian border towns.
There is a misconception that the rupee crisis is on the way to recovery in about a month’s time, due to which the people are doing swift business through informal exchange of INR with BTN.
But this strategy may backfire as the aid coming from India is just an interim measure.
“This will need to wait till April when the new fiscal year commences for India, that includes the stand-by credit line to be increased from 3bn to 6bn,” said the Finance Secretary, Lam Dorji.
Lam Dorji said this will suffice for replenishing the commercial banks with INR and essential imports.