The government is considering unbanning the import of some items with the country’s biggest festival and busiest shopping season approaching, officials said.

“Discussions are on to continue the embargo on the listed goods,” said an unnamed official of the Ministry of Industry, Commerce and Supplies. “But in view of the upcoming Dashain, Tihar and Chhath festivals, the ministry may lift the ban on some goods like liquor and mobile phones.”

An embargo on 10 types of products deemed as “luxury goods” has been in place since April 26 to conserve foreign currency. On July 17, the Nepal government extended the embargo till August 30.

The move has aroused resentment among traders who see it as a damper on business during a key holiday shopping season which starts in September.

A cabinet meeting may decide on the recommendation made by the ministry. The lifting of the ban will provide a small window to import goods for the festivals. Despite the belated response from the government, it will help to boost market confidence, traders say.

Analysts believe that the import restriction was prompted by fears of a Sri Lanka-type financial disaster after the island nation ran out of foreign currency to import essential goods.

When the ban was first imposed in April, the government prohibited the import of mobile sets worth over $600 and motorcycles with a capacity over 250 cc.

Harsher restrictions followed and mobile sets costing more than $300 and motorcycles with a capacity of more than 150 cc were embargoed.

Other items whose import has been forbidden are liquor and tobacco products; diamonds; television sets larger than 32 inches; jeeps, cars and vans except ambulances; toys; cards and snacks.

The ban failed to check the flow of foreign goods into the country, and imports actually surged by 24.72 percent to a record Rs1.92 trillion in the last fiscal year, according to the Department of Customs.

“This type of ban should only be for a short term and needs to be lifted after a short period. A long-term ban will affect revenue generation, impact choices of consumers and compel them to pay high prices for goods,” said economist Govinda Nepal.

Economists say such bans ruin the business climate too. “Obviously, such measures are taken in extreme situations. A long-term ban impacts the economic cycle," said Nepal.

Economists and the private sector accuse the government of not doing adequate homework before imposing the ban. "The authorities have been extending it without analysing how it can hamper the proper functioning of a free market economy,” Nepal said.

The government has increased taxes on vehicles that are not on the embargo list which has raised prices, ultimately compelling consumers to pay more.

The impact of the ban has been nominal as smuggling through porous border points has thrived beyond control. “The government is losing revenue while imports keep rising,” Nepal said.

Except for motor vehicles, all types of banned goods are arriving through illegal channels. There is no shortage of consumable goods which the country has banned completely, industry insiders say.

Last week, the Nepal Police arrested five people for producing and distributing counterfeit alcohol. The police seized four cartons of global brand liquors like Double Black Label, Black Label and Jack Daniels.

An initial investigation showed that the liquor was being supplied to nightclubs, lounges, discotheques, liquor dealers and dance bars, where demand went up sharply following the ban on branded liquors.

“Nepali traders are at risk of losing trust because illegal business is thriving due to the ban,” said Dinesh Shrestha, vice-president of the Federation of Nepalese Chambers of Commerce and Industry.

"The government does not have any data regarding the demand and consumption of goods, and no study has been done. The government has been making decisions based on its own assumptions and not consulting with the private sector," Shrestha said.

Despite the ban, external indicators have not improved. According to Nepal Rastra Bank, imports increased by 24.7 percent to Rs1.92 trillion in the last fiscal year, as compared to an increase of 28.7 percent in the previous fiscal year.

The current account registered a deficit of $5.17 billion in the review year compared to a deficit of $2.84 billion in the previous year.

The balance of payments remained at a deficit of $2.14 billion in the review year compared to a deficit of $3.1 million in the previous year. The gross foreign exchange reserves decreased by 18.9 percent to $9.54 billion in mid-July 2022 from $11.75 billion in mid-July 2021.

Based on the imports of 2021-22, the foreign exchange reserves with the banking sector are sufficient to cover prospective merchandise imports for 7.8 months, and merchandise and services imports for 6.9 months, according to the central bank.

"The government should review its decision and let the market perform independently," Nepal said.

Demand for TV sets increases during festivals, and this year because of the FIFA World Cup, traders expect sales to rise even faster. Worried television dealers have been urging the government to lift the ban as there could be a shortage of flat screen TVs in the market.

The ban on liquor imports has only encouraged production of counterfeit products, traders say. The hospitality industry has criticised the government move saying that it has planned to bring more tourists to boost foreign currency reserves, but banning liquor will make this harder because holidaymakers will not want to come.

Automobile dealers also say that prolonging the ban will hit their festive sales.

"The government claims that the ban has lessened imports, but it does not have any idea of the impact on other sectors," Shrestha said. "The government is not aware of the rise in contraband in the market and how it is losing revenue," he said.

“With the government failing to monitor the market properly, an extension of the ban will harm the economy while benefiting a handful of traders,” said Shrestha. “That will erode market and private sector confidence.”