Inr Shortage in Bhutan

In: Social Issues

Submitted By tcnsl123
Words 296
Pages 2
The Rupee shortage has emerged as a major issue due to the recent increase in demand for Indian Rupees to meet transactions related to trade in goods, services and capital and financial transactions. This is not surprising since Bhutan imports most of what it consumes from India, including construction workers. There is also a huge outflow of Rupees annually on education, health, pilgrimage and other travel related expenses as well as remittances out of the country.

To meet the increasing demand for Rupee, the Royal Monetary Authority (RMA) had to resort to purchase of Rupee through the sale of 200 million US dollars from international reserves in December 2011 and as the INR became acute again, by July 2012 Bhutan’s borrowing stood at INR 11.6 which includes INR3.6M from State Bank of India, INR 6M from Government of India and 2M from Druk Punjab Bank.

The present Rupee shortage in the country can be attributed to two main factors (i) rise in aggregate demand; and (ii) limited supply. The increase in aggregate demand has led to surge (increase) in imports as the domestic production capacity is unable to support the demand. On the supply front, the earnings from electricity exports to India remain Bhutan’s single largest export item, followed by exports of processed minerals like ferrosilicon, calcium carbide, cement, etc.

Demand factors

Major imports
Major imports include fuel, vehicles, heavy earthmoving equipment, industrial raw materials, food items and other essential commodities. These have exerted significant pressure on the Rupee every year.

The total number of vehicles imported from India was 1,103 (Nu. 309.83 million) in 2002, which has increased to 6,893 (Nu. 3.6 billion) in 2011. Of the total vehicle imports during 2002-2011, 83.4% were from…...

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