A banknote shortage triggered by India’s demonetisation of 500- and 1,000-rupee bills has affected trade carried out in cash. However, transactions done through banking channels have not been affected much.

According to the Biratnagar Customs Office, third country imports and exports passing through Kolkata port have been affected severely as traders have been unable to arrange Indian currency notes to pay for their transportation.

“Trade, particularly of raw materials and petroleum products, done through banking channels has not been affected,” said Rajendra Dhungana, an official at the Biratnagar Customs Office. “Exports have fallen sharply from the first week of December.” He added that imports from India had also dropped significantly from last month.

According to the customs office, 75 percent of its total revenue comes from taxes on Indian consumer goods shipped to Nepal. Revenue collection from trade with third countries amounts to 25 percent. “As trade with India has fallen sharply, the office has failed to meet its revenue collection target,” said Dhungana.

During the period mid-October to mid-November, the office collected Rs2.03 billion in customs revenue against the target of Rs1.97 billion. The goal for the period mid-November to mid-December is Rs2.06 billion. However, collection totalled Rs1.98 billion.

“Due to a decline in imports, collection fell short by Rs80 million,” he said. Meanwhile, imports from third countries have been affected in the past month because of a shortage of Indian banknotes.  Before the shortage, the Biratnagar Customs Office used to see an average of 15 containers containing third country imports entering Nepal daily. After the shortage, shipments have plunged to three containers daily, customs officials said. 

Ganesh Prasad Ghimire, manager of Trans Nepal Freight Services, Biratnagar, said that the Indian banknote shortage had not affected other transportation services, but freight services had been hit hard.

He added that the number of trucks carrying commerce had dropped significantly except for trucks carrying raw materials and oil.

Indian currency is widely used in Nepal, particularly in the southern parts along the Indian border, due to the brisk trade that is conducted across the open frontier. After India pulled Rs500 and Rs1,000 denomination banknotes out of circulation, traders have been thrown into turmoil as it resulted in a shortage of small banknotes too.