A week-old ban on the import of 10 products ranging from cars and mobiles to liquor and cigarettes has not ruffled the market any, but traders warn that contraband could flood the country if the embargo lasts in the longer term.

The government issued the ban on goods marked as luxury items to stem the outflow of diminishing foreign exchange reserves, and it will remain in effect till the end of the fiscal year in mid-July.

Automobile dealers say they have enough inventory to last a month. “But the market may see shortages by the beginning of June,” said Dhurba Thapa, president of the Nepal Automobile Dealers' Association.

Most dealers rush to import their stocks before the annual budget statement is issued in May-end because taxes are routinely jacked up in every successive budget.

Imports of jeeps, cars and vans (except ambulances and hearses) have also been banned. Motorcycles above 250 cc are among the prohibited items. "Motorcycles above 250 cc are hard to come by, and the import ban may lead to shortages," Thapa said.

"Automobile prices may not increase. But since prices in India have started going up, new vehicles will have higher price tags,” Thapa said.

The mobile phone market has been the first to see the effects of the import ban with costly sets in short supply.

Sanjay Agrawal, vice-president of the Mobile Phone Importers' Association, says demand for cell phones costing more than Rs70,000 has been growing. “Current stocks can fulfil demand for the next one and a half months only,” Agrawal said.

The government has banned the import of mobile sets costing more than $600 and colour television sets larger than 32 inches.

Chet Narayan Poudel, chief business officer at Salesberry Department Store, says the import ban on readymade cigarettes, tobacco and snacks has not impacted the local market.

“As domestic production holds a 70 percent share of the cigarette and snack market, there are sufficient stocks. Except for some specific brands that buyers may prefer, there is no shortage,” Poudel said.

He suggested that the government should conduct market inspections regularly to stop illegal imports of such goods through the open border.

Consumer rights activists have lauded the ban on luxury goods, but they say that opportunist traders will use that as an excuse to increase prices amid the ongoing election campaign.

“It will be a golden time for unscrupulous and opportunist traders who are looking for chances for black marketing,” said Prem Lal Maharjan, president of the National Consumers Forum. “Traders have hiked the prices of goods on the pretext of the Russia-Ukraine war even though they do not come from there,” he said.

"As the government has ordered 100 percent margin amount to open a letter of credit to import alcohol, illegal imports through the open border with India have proliferated," Poudel said.

“The ban on goods will definitely distort the market if the monitoring mechanism is weak at the time of elections,” said Madhav Timalsina, president of the Consumer Rights Investigation Forum.

Private sector leaders say the government should have consulted them before imposing the import ban.

“It would have been better if the government had made such a decision after discussing with the private sector,” said Shekhar Golchha, president of the Federation of Nepalese Chambers of Commerce and Industry.

“We also want to take responsibility for the economic situation of the country and want to solve the current economic problem, but the government keeps us out while making decisions,” Golchha said.

The Confederation of Nepalese Industries says the country's economic situation is not so bad that the import of certain goods has to be disallowed.

According to Nepal Rastra Bank, foreign exchange reserves with the banking sector are sufficient to cover prospective merchandise imports of 7.4 months and merchandise and services imports of 6.7 months, as per the imports of the first eight months of the current fiscal year 2021-22.

Consumer rights activists say that as the listed goods are not essential items, the market will not be impacted directly.

"They should have banned snacks like Lays and Kurkure many years ago as we have been asking because such products are not so good from a health point of view, and also because such products are being produced in sufficient quantities domestically,” said Maharjan.

"The government has banned the import of goods that are not needed in day-to-day life, and it will not impact the market," Timalsina said. “It will not only help to minimise the trade deficit, but also help to create balance in the market,” he said.

According to Nepal Rastra Bank, imports soared by 38.6 percent to Rs1.30 trillion during the first eight months of fiscal 2021-22, compared to an increase of 2.1 percent a year ago.

Nepal’s current account remained at a deficit of Rs462.93 billion in the review period compared to a deficit of Rs151.42 billion in the same period of the previous year. The balance of payments remained at a deficit of Rs258.64 billion in the review period against a surplus of Rs68.01 billion in the same period of the previous year.

The country’s gross foreign exchange reserves decreased 16.3 percent to Rs1.17 trillion in mid-March 2022 from Rs1.39 trillion in mid-July 2021.

On December 20, the central bank made it mandatory for importers to keep 100 percent margin amount to open a letter of credit (LC) to import goods like alcoholic drinks, tobacco, silver, furniture, sugar and foods that contain sweets, glucose, mineral water, energy drinks, cosmetics, shampoos, hair oils and colours, caps, footwear, umbrellas, and construction materials such as bricks, marble, tiles and ceramics, among others.

Banks discouraged the opening of LCs for non-essential goods from April 10.

Automobiles, cosmetics, dried fruits, betel nuts, gold and silver are classified as luxury goods.