Blockade by India resulted in losses totalling Rs202 billionNepal’s private sector suffered losses totalling a staggering Rs202.5 billion ($1.96 billion) as a result of the recent blockade by India which lasted four and a half months.
Nepal’s private sector suffered losses totalling a staggering Rs202.5 billion ($1.96 billion) as a result of the recent blockade by India which lasted four and a half months. That is equivalent to almost 25 percent of this year’s national budget, according to a report entitled Post Disaster Assessment: Blockade 2015-16 prepared by the Nepal Economic Forum and Alliance for Social Dialogue.
The impact of the embargo that continued from September to February was felt across the economy as essential imports were stuck on the Indian side of the border and crippling fuel shortages badly hit the production, distribution and consumption processes of the economy, said the report released on Monday.
“While the impact of the blockade transverses across sectors, its impact on border economies in particular has been far reaching putting multiple livelihoods at stake, particularly that of daily wage labourers who depend on cross-border trade for their livelihood,” said the report.
The country’s commercial and industrial sector, according to the report, faced threefold challenges during the blockade. As tra-de between Nepal and India was obstructed, not only did hundreds of cargo-laden trucks get stuck on the Indian side of the border, Nepali importers and manufacturers had to pay demu-rrage and detention charges for goods and raw materials they could not clear from Kolkata port. Severe fuel and raw material shortages sent production and distribution haywire.
As per the report, the impact is particularly visible in the drop in production of two major cereal crops in the country. Paddy output is projected to decline 10.22 percent and wheat is projected to fall 6-20 percent. “The impact on the agriculture sector is particularly important as farmers are likely to fall into the vicious cycle of farmers’ poverty of low output-low investment-low income,” said the report.
Likewise, the tourism sector that was starting to recover slightly following a devastating earthquake saw arrivals plunge to a six-year low after the blockade. “The hospitality sector also witnessed a slump in earnings as hotel occupancy rates dipped to as low as 15 percent,” said the report. On the other hand, hotels and restaurants witnessed a large spike in operating costs as they had to switch to firewood for cooking and buy high-priced diesel on the black market to run their backup generators.
The blockade also led to an expansion of the black market. “This came at a huge cost in terms of exorbitantly priced fuel, lost revenues for the government and adverse social implications,” said the report.
Political commentator Chandrakishore Jha said that the reason behind the uncontrolled growth of the black market was the protection provided by the state to key players.
As the blockade stretched into months and essential supplies dried up, people were forced to turn to the black market for basic commodities, especially fuel. As the black market flourished, a large amount of black money was created in the economy which spawned various social activities and spurred new consumption patterns. While towns like Birgunj and Janakpur beca-me agitation hotspots, adjacent towns like Simara and Bardibas came alive attracting newfound illicit wealth which drove consumption there. “During the Madhes protest, black marketeering thrived in towns along the highway such as Bardibas,” said Surendra Labh, board member of the Alliance for Social Dialogue, speaking at an interaction programme. “During the blockade, black marketeers became dominant.”
The sharp drop in the cross-border flow of goods and people led to a shortage of Indian currency on the Nepal side. The exchange rate witnessed a massive rise in the first couple of months. While in normal times the informal exch-ange rate stood at Rs164-165 per IRs100, it went up to Rs200 during the blockade.