The government has lifted the ban on the import of vehicles starting from Poush after suffering an estimated revenue loss of Rs 25 billion, but this announcement has failed to end the dissatisfaction of automobile dealers who see business not getting back on track due to tighter monetary and arrangement of the central bank.
the HRM
In April, the government, on the recommendation of the Nepal Rastra Bank (NRB), imposed a blanket ban on imports of 10 items, which it termed as ‘luxury goods’, to stop the fast depleting foreign currency reserves which caused big imbalances in the external sector of the country’s economy.
According to the finance ministry officials who are familiar to the matter, the import ban was lifted as the International Monetary Fund delayed the second installment of a USD 400 loan to Nepal under the Extended Credit Facility (ECF). As the first installment, Nepal received a total of USD 110 million, but the IMF put pressure on Nepal to lift the import ban citing free trade arrangements of the World Trade Organization, of which Nepal is a member, to get the second installment.
Despite the restriction on imports in place for eight months, the forex reserves have not increased significantly. On the other hand, the government lost a huge amount in revenues during this period.
In the first quarter of the current fiscal year, the revenue collection has been recorded at Rs 208 billion, which was 18.65 percent less compared to the government’s target.
According to the Birgunj Department of Customs, the tax revenue from the import of vehicles decreased by a whopping 69 percent in the current fiscal year. Birgunj Customs is considered the most convenient transit point for automobile imports. In the last fiscal year, the imports of passenger vehicles (ICE), contributed Rs 37 billion to state coffers. “In the last eight months, the government lost at least 25 billion in revenue. Even the forex reserve has not improved noticeably. The move of the government was a failure–and it proves it was brought without any discussion with stakeholders and experts,” said Dhruba Thapa, president of NADA Automobiles Association of Nepal, adding, “The passenger vehicle segment has just a one percent contribution to the total imports of Nepal. But this sector generates 14 to 25 percent of revenue for state coffers.”
According to the data provided by NADA, up to 19,000 passenger vehicles (IEC) are sold every year in Nepal. According to Thapa, automobile dealers are not hopeful that the demand will rise in the coming months as the banking system is facing a massive shortage of loanable funds even though the import ban has been lifted. “The restriction has disrupted the entire automobile ecosystem,” he said. The import ban, according to him, has worsened Nepal’s image among automobile manufacturers. “Earlier, when we used to order vehicles, then manufacturers used to produce for us. After that, we would start the process to open Letter of Credit (LC) at the banks. The whole process would just take a month or two. However, manufacturers now are reluctant to take orders before we open LC,” he said, giving an example of the erosion of the credibility of Nepali automobile importers among vehicle manufacturers, “A few months ago, a few automobile importers ordered vehicles from several manufacturers from India after the government hinted to lift the ban on imports. But, as it didn’t happen, the manufacturers had to send the vehicles produced for the Nepali market elsewhere.”
According to Sandeep Sharma, Manager-Marketing and Communications of Laxmi Intercontinental, the authorized distributor of Hyundai vehicles in Nepal, even though the ban has been lifted, there is not much to be hopeful about. “The banking system is facing a massive shortage of loanable funds. As 90 percent of customers purchase vehicles through bank financing, there is a very little chance that sales would rise,” he said.
Although their demand is fulfilled, the NADA, as of writing this news report, has decided to continue its protest. NADA office bearers say they are not in a position to sell vehicles due to the policies of the central bank. The central bank has made it mandatory to maintain a cash margin of 50 percent for opening LC for importing vehicles. The automobile importers and dealers have also demanded that the central bank extends the renewal of the refinance facility for the next one year.
The automobile stakeholders warn that a massive number of jobs in the sector would be axed if the situation prolongs. According to NADA, as many as 100 dealers have already been closed across the country, another 30 showrooms are on the verge of closure and at least 40 percent of the workforce has already been laid off after the restriction was imposed by the government.
According to NADA officials, many dealers are not even in a condition to avail bank loans to clear the salaries of their staff. “It has been eight months since there has been no business at all. It is our responsibility to clear the salaries of staff. But the central bank has even tightened working capital loans. We are not in the condition to survive,” said NADA President Thapa.
The interest rate, which used to be at 7-8 percent, has now reached up to 18 percent. There is no way we can survive at such an exorbitantly high interest rate. The government must rescue us.” he added.
