The fast unfolding saga related to huge misappropriations of Indian currency through the use of fake import documents from various commercial banks has once again exposed how weak our monitoring mechanisms are for checking such financial crimes. Though the Department of Revenue Investigation and Nepal Police, in collaboration with other government agencies including Nepal Rastra Bank, have initiated in-depth investigations and a number of arrests have been made, the failure of similar probes in the past leaves no room for believing that investigations this time would be able to nab the mastermind behind the racket.
As of now, the investigating team has traced eight firms directly involved in the misappropriations amounting to around one billion Indian rupees, and they have arrested six persons associated with those firms, including five Indian nationals. However, as the investigations, which began a week ago, have been uncovering new cases each day, it is difficult to guess how long the list of the culpable will be.
Unlike similar foreign currency misappropriation cases that used to occur in the capital, this Indian currency scam is taking place in the border city of Birgunj, which alone handles two-thirds of Nepal’s foreign trade. The illicit players have easily been getting hold of Indian currency, something which has been in short supply due to tightening by Nepal Rastra Bank on suspicion of growing unauthorized cross-border trade. There is no doubt the perpetrators have been facilitating capital flight from the bordering towns by getting the IC transferred to different banks in India. They have also been using their IC withdrawals to finance unauthorized trade and under-invoicing. A chunk of their withdrawals have helped create an informal currency market, particularly as IC has been selling at a premium, given the demand and supply imbalance.
Thus, the racket has spun out multiple adverse impacts on the economy. First, it has exerted direct pressure on foreign currency reserves. At a time when the country’s exports have not been growing robustly and the state is relying heavily on remittances to build the foreign currency reserves, seeping out of IC from the system can render the economy more vulnerable. Secondly, the racket has been contributing to unauthorized trade and indirectly inflicting a loss of revenue on the state. Thirdly, it has spurred an informal currency market, something that poses a direct challenge to formal economic operations.
The racket has exposed much to risk. Hence, we urge the government to take instant and stringent action against the perpetrators. NRB, the Customs Department and DRI must develop a mechanism whereby the authenticity of import documents can be cross-checked. So far, the anomaly has been found only in Birgunj. But notorious traders in other major trading hubs along the border could also be using the same tactic. The authorities must act swiftly to assess the situation.