Modi’s demonetization scheme is approved by the Indian Supreme Court, raising concerns in Nepal

KATHMANDU: Nepal’s banking system holds demonetized Indian currency (IC) worth over Rs 50 million, which the Indian authorities have refused to take back.

With the Indian Supreme Court on Monday validating the government’s move to demonetize the Indian currency in denominations of IRs 500 and 1000, everyone in Nepal is asking a question: What will happen to the cash amount held by Nepali banks prior to the Modi-led government’s decision to demonetize Indian currency with the denomination of IRs 500 and IRs 1,000.

“India’s Supreme Court on Monday upheld the legality of the government decision in 2016 to demonetize 86 percent of the country’s cash in circulation,” Indian media reported on Monday. “The Supreme Court said there was consultation between the Centre and the RBI before demonetization.”

The government authorities of Nepal at various levels have requested the Indian authorities time and again to take back the banned Indian currency. Prime Minister Pushpa Kamal Dahal, in his previous stint as the PM, had requested his Indian counterpart Narendra Modi during his state visit to India in 2017 to take back the banned banknotes.

Nepal had also requested high-ranking officials of the Reserve Bank of India during their visit to Nepal in January 2017, to consider taking back the Indian currency held by the Nepali banks.

But all these requests from the highest political level in Nepal have gone unheard.

The Indian government had earlier formed a committee to look into the issue of demonetized Indian banknotes that Nepal and Bhutan hold. However, there has not been any concrete decision from the Indian side despite repeated pleas from Nepal at the government level.

Former Finance Secretary Shanta Raj Subedi said the Indian government has to take back the banned banknotes that are held by Nepal’s financial institutions before the demonetisation move was enforced. According to him, the high-level government officials and Nepal Rastra Bank should put a meaningful approach before the Indian authorities to provide compensation.

An official at the NRB expressed frustration over the response given by Indian authorities to the genuine request made by the Nepali side. “As multiple efforts made in the past simply failed and there is no positive indication from Indian authorities, it is less likely that they would take back the banned banknotes,” said the official, on condition of anonymity.

In a surprising move, India’s Premier Modi on November 8, 2016, announced to scrap the high denomination Indian currency. The move was targeted to close down the booming economy of untaxed cash transactions, which allows corruption, the funding of terrorist groups, and keeps counterfeit notes in circulation.

Giving a deadline of 50-day window, the Indian government had asked people holding high denomination banknotes to exchange their money within the given timeframe. However, the timeline was limited to the Indian citizens alone.

It is said that a large number Nepali nationals, who travel to India for work, also hold significant amounts of banned currencies with them. These poor migrant workers, who rarely keep their money in banks, are also made to suffer a lot due to the demonetization move of the Indian government.