Bhutan credit delay due to change of request

NEW DELHI: As the Himalayan kingdom of Bhutan faces a severe shortage in Indian rupees - it requested India to increase the standby credit facility of Rs 300 crore to Rs 1000 crore to help it

Published: 15th April 2012 02:27 AM  |   Last Updated: 16th May 2012 07:32 PM   |  A+A-

NEW DELHI: As the Himalayan kingdom of Bhutan faces a severe shortage in Indian rupees - it requested India to increase the standby credit facility of Rs 300 crore to Rs 1000 crore to help it tide over the current crisis.

However there was some delay in processing the request. Indian officials point out that the reason for the delay was that Thimpu had first only asked for a doubling of earlier standby credit facility of Rs 300 crore to Rs 600 crore. “We had already processed the request, but then Bhutan asked for the increase to Rs 1000 crore, so we had to start all over again,” he said.

The proposal will have to be approved by the Cabinet and then stamped by the Parliament, which will reconvene from April 24.

In addition, Bhutan has an overdraft facility of Rs 1000 crore with the State Bank of India, though it is at the higher market rate, compared to the Indian government’s credit facility.

Currently, the total Indian rupee borrowing for Bhutan already stood at Rs 970 crore. Bhutan’s well-being is of enormous concern to India, as a strategically placed friendly nation in the Himalayas with China looming to its north.

India has had always cited its relations with Bhutan as a model for bilateral relations with other south Asian countries.

Also, the hydro-power projects are important revenue generators for Bhutan, but will also plug the huge hunger for energy in eastern India.

In the last two-three months, Bhutan has witnessed extraordinary scenes, as the government had to take measures to curtail distribution of Indian rupees, which has hit the economy severely as distribution of rupees has been severely curtailed by Bhutanese banks.

It has hit nearly all sections of Bhutanese society, as nearly all its needs from essential food items to cars are imported from India - its large South Asian neighbour which surrounds it on three sides.

On Thursday evening, the Bhutanese Prime Minister Jigme Y Thinley gave a televised address to the nation, admitting that the expenditure had been increasing so rapidly, that revenue can’t catch up.

Last year, Bhutan earned Rs 580 crore from the selling electricity to India. But, it spend Rs 510 crore alone in buying fuel from India.

The crisis had been triggered by a consumer boom following the construction of three mega hydropower projects - Punatsangchhu-I, Punatsangchhu -II and Mangedechhu, for which assistance has been given by New Delhi.

As per the Royal Monetary Authority, the rupee outflow in 2010-2011 from Bhutan due to the construction boom of the mega hydropower projects, including import of heavy machinery from India and payment to labourers has been Rs 220 crore - an increase of 75 per cent from the previous year.

It also fuelled consumer boom, with 8,000 new cars imported last year from India.

The increase in automobiles has also steadily raised the fuel bill for the small country.

Not surprisingly, the policy measures taken by the government include instructions to Bhutanese banks not to give credit to buy new cars, and also for private construction from March. The Bhutanese premier also announced that it was also going to start replacing the registered 51,616 foreign workers, mainly from India.


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