An eagle’s eye look at Thimphu or for that any major town’s hazy outline denotes the growing air pollution impact of the increased number of vehicles in Bhutan, now approaching around 90,000 vehicles.
A look away from the evening skyline on to the roads, especially during office hours, will find nose to nose traffic on several roads moving like a long multi striped metal snake.
At the economic level vehicles have emerged to be one of the biggest and growing imports every year.
Linked to this high number of vehicles is our growing fuel import bill, which easily is the biggest import item every year and virtually wipes out any revenue earned from the hydropower sector.
In fact during the 2012 rupee crisis it was found that record levels of vehicle and related fuel imports went a long way in depleting our rupee reserves.
With the removal of the vehicle import ban from 2014 there has been an sharp increase in vehicle imports, whose demand is not plateauing as anticipated, but instead going up on a year by year basis.
It is thus no wonder that after the implementation of GST in India, the main worry for the government is the potentially sharp drop in car prices.
It is good that the government has been able to convince the Indian government to not exempt GST for car exports to Bhutan right now and maintain the status quo.
The Royal Monetary Authority (RMA) has already made the first move in bringing down the vehicle loan percentage from 50 to 30 percent.
The RMA which manages Bhutan’s rupee reserves has recommended that the government take fiscal measures.
However, the government on its part has a more complicated and nuanced position on the issue.
It is unlikely that there will be vehicle taxes to take the vehicle prices beyond the current levels, though other adjustments will be made to take care of GST related concerns.
The government’s position is that it increased taxes in 2014 and cannot keep increasing them to take away money from ordinary people.
A ground reality also is that elections are due in 2018 and until then it is highly unlikely that any additional tax burdens would be imposed on the public.
The government has also pointed out that congestion in some urban areas cannot be used to make the rest of Bhutan pay especially in rural areas.
In that sense it is good that the Ministry of Information and Communication will come up with separate plan for Thimphu’s traffic management.
However, be as it may, the main issue at hand is if the country’s economy can afford such large vehicle imports. The answer as seen from the RMA’s measure is no, especially in the light of the growing annual trade deficit of Bhutan. If this issue is not addressed by either curbing imports or encouraging exports we may had back into a rupee crisis like situation of the past.
It will be important for all stakeholders like the government, RMA, banks, private sector and consumers to be aware of where we are heading with our consumption trends and not be surprised when any economic challenges emerge.
“The only way to shrink the trade deficit is for the government to prohibit us from buying whatever we want.”