Although the government has lifted the months-long ban on auto imports, dealers have started protesting against the policies adopted by the central bank.
The auto dealers have warned of further protests if their demands are not met. The automobile businesspersons said they are not in a position to sell vehicles due to the policy of the Nepal Rastra Bank.
In April, the government, on the recommendation of the Nepal Rastra Bank, imposed a blanket ban on imports of 10 ‘luxury’ items to stop the depleting of foreign currency reserves. The decision, according to the government, was made as ballooning imports led to massive depletion of foreign currency, pushing the balance of payments into a red zone.
Despite such restrictions, the forex reserves could not increase. Rather the government lost a huge amount in revenues in the last eight months.
The government and the central bank thought that automobile import was the main culprit behind the depletion of foreign currency reserves. “The passenger vehicle segment has just a one percent contribution to the total imports of Nepal. But this sector generates 14 to 25 percent of revenue for state coffers,” according to Dhruba Thapa, president of the NADA Automobiles Association of Nepal..
According to the data provided by NADA, up to 19,000 passenger vehicles (IEC) are sold every year in Nepal. “We [traders] are not hopeful the demand would be similar in the coming months as the banking system is facing a massive shortage of loanable funds,” said Thapa, adding that the import ban has disrupted the entire automobile ecosystem.
The import ban, according to him, has worsened Nepal’s image among manufacturers. “Earlier, we used to order vehicles, then manufacturers used to produce it for us. At that time, we used to open letters of credit (LC). The whole process would just take a month or two,” he said, adding that the manufacturers, now, are reluctant to take orders before we open LC.
A few months ago, a few auto businesses ordered vehicles from several manufacturers from India as the government said it would lift the ban on imports. But, as it didn’t happen, the manufacturers in India had to send the vehicles, produced for the Nepali market, elsewhere.
Although their demand is fulfilled, the NADA has decided to stage a sit-in at Maitighar in Kathmandu as the policies adopted by the government are hampering the business. Speaking at the sit-in, members of NADA said they are not in a position to sell vehicles due to the policy of the central bank.
“The government must bring businessmen-friendly policies. The protest will continue until the demands put forward by automobile dealers are addressed by the government and the central bank,” said agitated automobile businesses.
The central bank has made a provision to maintain a cash margin of 50 percent for opening the letter of credit for automobile imports. Also, the government has reduced financing on auto purchases to 50 percent. In addition, they have also asked the central bank to extend the renewal of the refinance facility for the next year.
The automobile stakeholders warn that a massive number of jobs would be cut down if the situation prolongs. “ As many as 100 dealers have already been closed across the country. Another 30 showrooms are on the verge of closure. And, at least 40 percent of the workforce has already been laid off after the restriction was imposed by the government. The number would increase every day,” they said during the protest.
According to them, they are even in a condition to take loans to clear the salaries of staff. “It has been eight-long months since there has been no business at all. It is our responsibility to clear the salaries of staff. But the central bank has even tightened working capital loans. We are not in the condition to survive,” they said.
“The interest rate, which used to be at 7-8 percent, has now reached up to 18 percent. There is no way we can survive at such a high-interest rate. The government must rescue us.”
The central bank has maintained two slabs for the banks and financial institutions when they issue loans against the working capital. As per the provision, the firm that has estimated transactions of Rs 20 million or less per year will be eligible to get loans only up to 20 percent of the turnover amount. And companies that have annual transactions of more than Rs 20 million will be eligible to get loans of 25 percent of the turnover.