Jaigaon importers trying to protect a black economy with boycott threat to Bhutan

A group of 23 major importers in Jaigaon have announced a boycott of all potatoes or cash crops from Bhutan from 5 September 2022 over a Royal Monetary Authority (RMA) notification stating that Bhutanese Exporters under Section 24 of the Foreign Exchange Rules and Regulations (FERR) 2020, have to receive money from residents in India as INR and that too through the banking channel.

The Bhutanese talked to sources in Jaigaon and Phuentsholing and found that the main reason that the importers have taken such a drastic step is to protect a thriving black economy in Jaigaon that runs on potatoes and cash crops trade, tax avoidance and INR and Ngultrum exchange.

Until recently, when Bhutanese Exporters sent out potatoes the Indian Importers would pay either in hard cash Ngultrum sent through Indian truck drivers or via illegal MBoB accounts they or other agents held. For MBoB they would charge the Bhutanese exporters Nu 200 to Nu 300 for every Nu 100,000 sent via MBoB in Jaigaon.

The Indian Importer after having gotten the produce would then sell it to Siliguri, Falakata or nearby areas and get INR.

The importers would bring this INR to Jaigaon and exchange it for the Ngultrums in Jaigaon for anything from three percent to five percent to as high as 10 percent profit.

The concern for RMA is that after the border was closed RMA kept facilitating large amounts of INR and Ngultrum change with no commission in multiple formal exchanges, but the Ngultrum stockpile in Jaigaon only kept growing despite a closed border. This meant that illegal trade and smuggling was happening and  so the source of the Ngultrum in Jaigaon was unknown.

The rise of a more sophisticated fake Bhutanese currency across the border also did not help matters.

A source in Jaigaon said, “These vegetable importers in Jaigaon are the King pins of the illegal currency exchange business in Jaigaon.”

Another way that the importers benefitted by paying in cash was in avoiding taxes and other charges. Potato going from Bhutan would incur INR 4,500 per 10 tons of potatoes as Plant Quarantine Management System (PQMS) charges for importers in Jaigaon, but they could bypass some of this by under declaring and some bribery in Jaigaon to avoid paying the full charges.

However, a formalized banking route payment would mean that this can no longer be resorted to.

One solution here suggested for this by traders in Jaigaon is for the Bhutanese officials to request the India government to remove the PQMS charges which is a recent pandemic phenomenon. 

The importers also want to avoid the bank charges which range from INR 150 to 500 to 1,500 per shipping bill depending on the bank in Jaigaon.

The importers are also playing up a new angle in Jaigaon saying that it is they who managed to get the Ngultrum in Jaigaon sent to Bhutan in the absence of the formal exchange not being possible and in the process helping business outlets in Jaigaon.

What the traders do not mention is that this informal exchange depresses the value of the Ngultrum which is actually equal to the INR and also earns them a lot of unaccounted money.

The source said that this is now a battle of who can bear more losses as the traders are trying to assert their monopoly position to make Bhutanese potatoes rot in Bhutan, but they would also suffer losses as there is no business.

A way out for Bhutanese exporters and FCB would be to start making contact with the actual and much bigger buyers in Siliguri, Falakata and other places as the Jaigaon buyers are essentially middlemen.

A source said that big buyers in these places are ready to buy from Bhutan if the Jaigaon importers do not buy.

The Jaigaon importers may try and create issues for these new players, but this is where law and order and officials in Jaigaon must come into play.

In the meantime, the Food Corporation of Bhutan Limited (FCBL) said the impact has been felt by the private exporters.

FCBL Chief Executive Officer, Naiten Wangchuk, said that private exporters export a large stock of potatoes and cash crops, and they are most affected currently with the new changes.

He said that since FCBL began exporting potatoes and other vegetables, they have sold around 400 metric tons till date.

“We don’t have much to export. Once the trade is formalized, we might be able to acquire stocks,” he said. He also said that FCBL is exploring other regions in India, which might impact the auction rate.

“If we are required to send directly, then the entire expense will fall on us. Therefore, a trade boycott may have that effect, but in the long run, we will benefit as we formalize,” he said.

He stated that since the system is formalized, there wouldn’t be any under declarations, as it will be reflected. If there is a chance of under declaration, neither the proportion nor the value will be known.

“Therefore, in the long run, we will benefit. Even if there are certain hurdles, overall, we will gain from formalizing and be able to sustain the quality,” he stated.

He further went on to say that FCBL requested the formalization for India, which is the country’s biggest market, and if the traders route the payment through bank systems, they will also benefit and will receive tax benefits, just as Bhutan will if it is done through formal channels.

“It will ultimately benefit both countries in the long run. Therefore, we should see it positively,” he said.

The RMA introduced a mandatory Bank Export Registration Form (BER) for all exporters to streamline the export process through banking channels prior to processing the export declaration at the customs point of exit as of 5 September, 2022.

However, this notification did not go down well with the vegetable and fruit importers in Jaigaon who are the main buyers of Bhutanese potatoes, vegetables, fruits and other cash crops.

The 23 major importers not only called for a boycott from 5 September 2022 but they also said anybody buying such potatoes will have their potatoes ‘seized’.

The group’s letter says, ‘If Bhutan government will agree to accept Bhutan currency then the whole members will arrange a meeting and then the decision will be taken. The members cannot purchase any cash crop from any gate after 5 September 2022.”

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