My take on Rupee Crunch

Over the last couple of months, the Bhutanese print media has been flooded with nothing but reports on the rupee crunch also known as rupee crisis. This is the second wave of information-flood in Bhutanese newspapers, the first being an extensive coverage on the first democratic elections of Bhutan in 2008. This crisis has been scrutinized by various academic scholars, financial analysts, economists, politicians, reporters and their findings reported in the media and blogs. Since an indepth explanation of "how" and "why" has been thoroughly covered, I thought i would skip my part and let the wave settle by itself with time. However, weighing the gravity of the situation, it would rather be an injustice for me not to make a mention in my blog. The fact that I as a business student having studied macroeconomics in depth, makes all the while more persuasive to poke at this topic.

There have been many school of thoughts hypothesizing so called foreign currency crunch, in our case being the Indian Rupee (INR). Many a time,one could see blame-games being played by our politicians on the television. Nobody was responsible and yet everybody was responsible. Initially, people neglected this news overlooking it as something which would bother only the government and the central bank. Eventually, as the darkness creeped in, the effect of this "financial tsunami" was felt even by a farmer living in the remotest part of the country. The lifeline of the Bhutanese people were slowly being squeezed with the Ngultrum getting valueless across the border. The prices of the commodities sky-rocketed overnight and the private constructions brought to a standstill. The situation has still not been tackled despite the very many proposals.

For those who still ask "What the heck is this Rupee crisis?", let me explain it in simple terms without using the concepts like balance of payment, trade deficits, fiscal and monetary policy, etc. Bhutan's largest trading partner is India where imports far exceed the exports. Although we as end customers pay for the products in ngultrum, the dealers and distributors pay in INR to import the products from India. With increasing consumption(includes everything) over the years, the demand for INR increased year after another until such time when the credit limit reached the maximum. Bhutan can borrow a maximum of 3 billion INR from the government of India and a maximum of 10 billion on overdraft(OD) from the State Bank of India with 10% interest payment. These are called Lines of Credit. The total INR that Bhutan can borrow is 13 billion. The crisis was slowly building up in silence until it could not hold any further and the first mayday was announced when the ceiling of 3 billion(max limit) was hit. As of now the total borrowings have already reached 12 billion (9 billion on overdraft).

The central bank/RMA sold USD 200 million for INR from the foreign currency reserve as a speed breaker to this crisis but the forces of crisis was still too strong. The goverment of Bhutan has also appealed the government of India to raise the borrowing limits to 10 billion but the deal is still not finalized. However, these are all short and medium term remedies even if the approval comes along.

How can we as a citizen avoid the crisis? It is difficult, yet simple if each and every one of us act responsibly and consciously. Along the lines of Sogyal Rinpoche "If you cannot help others, atleast harm them not" which when applied to this case "If you cannot export, atleast reduce the import". Let me skip the remedial actions on macroscopic level and instead come to an individual level. The best way to reduce the import is by resorting to our indigenous products as a substitute to the imported goods. We could burn less fuel, avoid junk foods, save electricity so that we can export more, maintain backyard gardens,develop an entrepreneurial mindset and so on. If each one of us do that, one day we can say "Bye Bye INR". Last but not the least, be happy with what you have.

P.S: The above explanation on Rupee crunch is just my point of view and might not necessarily concur with the rest.