How much does half-a-kilo of Amul butter cost? One recent morning, this writer ventured to a local shop to fetch a packet. The MRP printed on the cover was Rs 235 (in Indian currency, which comes to Rs 376 in Nepali rupees). After ‘discount’, he ended up paying Rs 660 in his own currency. But why such a huge mark-up? Transport costs have rocketed during the pandemic, replied the muscular shopkeeper behind a blue mask, and it is unrealistic of shoppers to pay old prices for goods that have to travel some distance. Moreover, India’s inflation rate is inching towards seven percent, against the government target of under-four.
The economic numbers out of India are scary. In the second quarter of 2020, the Indian economy shrank by an unprecedented 23.9 percent, easily faring the worst among mid- to large-size world economies. In the same period, Japan’s economy shrank by 9.9 percent while the US economy was down 9.1 percent. Oh, and the Chinese economy continued to grow, if at a modest 3.2 percent. Widespread layoffs loom in India and it could be years before the Indian economy regains current losses.
Reliant on India for nearly 60 percent of both its imports and exports, and for the absorption of hundreds of thousands of its youths, this is a shocking development for Nepal. Given this overreliance, Nepal imports most trends of India’s macroeconomic indicators, and none of them looks good. The Indian rupee has rallied a bit against the dollar following the Indian central bank’s latest intervention. Yet the Indian rupee is expected to further lose its value to the dollar as the country struggles against the pandemic. As the Nepali rupee is pegged to the Indian currency, its value too will decline, making imports dearer still.
As the fifth largest economy in the world tanks, the Indian government wants to divert public attention. It has now banned another 188 Chinese apps, including the uproariously popular PUBG. India’s anti-China pitch has gone up a notch too, following yet another skirmish with the PLA in Ladakh. Presiding over such shocking economic numbers, PM Narendra Modi cannot be seen as weak against China, not the least because of the latter’s ever-increasing strategic proximity with Pakistan. Nepal faces a double-whammy. To emerge from its economic abyss, Nepal will need all sorts of trade concessions from India, which is itself in a fiscal mess. Nor will the Modi government be all that enthusiastic to help Nepal and its ‘pro-China’ government.
Oli and co. are perhaps banking on their excellent relations with Beijing. (After all, China is the only major economy that is growing right now.) Yet China can do only so much for Nepal. The only two border crossings between the two countries are half-operational, and most of the Chinese goods are still coming to Nepal via Kolkata. Making matters worse, the Oli government seems incapable of balancing India and China, which was the case even when India-China relations were far better. Nepal makes precious little of its own. Foreign goods here may not be that scarce in the coming days. But they may have few buyers. Now I think of it, isn’t Amul butter a little bitter?