Bhutanese Potato Crisis!
Jaigaon traders boycott the import of Bhutanese potatoes
The issue:
On September 3, The Royal Monetary Authority (RMA) came out with a public notification stating that Bhutanese Exporters as per 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.
This notification created a sense of discontentment amongst Indian Exporters leading to boycott of “Import of Potatoes” from Bhutan.
On 5th of September, 23 major importers have come together to sign a letter which says that ‘all members of the fruits and vegetables group’ have decided that any party or parties cannot purchase potatoes or cash crops from Bhutan from 5 September 2022. They say anybody buying such potatoes will have their potatoes ‘seized’.
Most of the Potatoes Importers are listed with Food Corporation of Bhutan Limited (FCBL).
The letter reads, ‘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.”
Understanding the Potato Import procedure from Bhutan to India:
- As per Government of India, “Prior Bill of Entry (PBoE)” is to be filed by a Custom House Agent (CHA) before any imported items/vehicles reaches Indian port (Jaigaon Land & Customs). The importer/purchaser in India has to complete this process.
- Simultaneously, the vehicle carrying potatoes to India must complete the documentation process in Bhutan before exiting. Bhutanese authorities like Customs, BAFRA etc cross check the export documents and the invoice and then the vehicle is allowed to exit Bhutan.
- Next, the vehicle reaches Jaigaon Land & Customs. On arrival of the potato loaded vehicle, The CHA/Importer files Import General Manifest (IGM). Here the vehicle’s registration number is used to generate IGM by the CHA or by Customs. A unique six digit numeric code is generated.
- Now the Customs / CHA ‘TAG’ earlier generated ‘Bill of Entry’ with the ‘Import General Manifest’ so that the BoE is regularized for further process.
- Against the BoE, NOC is filed. NOC is generated by the “Plant Quarantine Management System” (PQMS) online portal which comes under the Directorate of Plant Protection, Quarantine and Storage, Department of Agriculture & Farmers Welfare, Ministry of Agriculture & Farmers Welfare, Government of India.
Here in the portal both the Importer’s & Exporter’s details are entered online. Jaigaon Land & Customs operates under ‘Plant Quarantine Station is headed by a Plant Protection Officer (PP). The “PQMS inspector” based at Jaigaon Land Customs Station cross verifies the transshipment that arrived from Bhutan and after checking the imported items and screening of import documents, he provides the NOC. The next step is the vehicle containing potatoes is all set for further registration process to be done by Jaigaon Customs.”Out of Charge” (OoC) is provided by Custom Superintendent after checking import-export details. Thereafter the Superintendent gives clearances for further shipment of the ‘Potatoes-Vehicle’.
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Modus operandi by Jaigaon traders:
Jaigaon importers / traders purchase potatoes from Bhutan on paying Ngultrum (Bhutanese currency) and further sell it to Indian purchasers in INR (Indian Rupees). Jaigaon traders sell the potatoes on “Cost to Cost” basis. The profit they earn is from the IC-BC exchange rate which is approximately 5%. The IC-BC exchange rates vary between 4% – 10%.
The RMA notification worried Jaigaon importers as many do not use formal banking channels for payment. At present, according to sources, Bhutanese traders export potatoes and other cash crops to vendors in Jaigaon, who then sell the produce to third parties across India.
Impact on taxation system & IC-BC Exchange:
The prevailing trading adversely impacts the INR reserves, maintaining a fixed exchange rate with INR and revenue leakages. Although Jaigaon parties are paid in Indian Rupee (INR), they pay Bhutanese in Ngultrum through informal means. Further, while Bhutanese exporters receive Ngultrum, the INR remains in Jaigaon. The same untaxed INR is then used for illegal INR-Ngultrum buying and selling (IC-BC), which has depreciated the value of Ngultrum. Today, INR is still sold illegally in Jaigaon at a 5 percent commission. INR 100 is sold for Nu 105. Such practicesnot only impacts India but also impacts the Bhutan’s taxation system as importers could evade tax.
Undervaluation and non-declaration of potatoes at Phuentsholing & Jaigaon Customs:
The quantity declared in Bhutan and the declaration made at Jaigaon Land Customs Station usually differs. According to the Bhutan Trade Statistics (BTS), total export to India, excluding electricity, accounted for Nu 26 billion. However, banking data shows the export receipts received through the formal banking channel amounted to Nu 21billion. This means there is an un-reconciled gap of Nu 5 billion, which is 19 percent of the total export remittances outside the formal banking channel.
This adversely impacts the INR reserves, maintaining a fixed exchange rate with INR and revenue leakages. The RMA notification worried Jaigaon importers as many do not use formal banking channels for payment. At present, according to sources, Bhutanese traders export potatoes and other cash crops to vendors in Jaigaon, who then sell the produce to third parties across India. Although Jaigaon parties are paid in Indian Rupee (INR), they pay Bhutanese in Ngultrum through informal means.
A source at Jaigaon Customs confirmed that “almost 50% of Potatoes Vehicle exiting Bhutan never reaches Jaigaon Land Customs Station”. The 1 Km span from Bhutan Gate to Jaigaon Customs provide sufficient time and space to unload consignment at importer’s warehouse without the knowledge of JLCS. It is also a practice by Bhutanese exporters to ’partially declare’ the quantity of potatoes with Bhutan customs before arriving at Jaigaon Land & Customs Station.
The fees to be paid by Importers at JLCS comprises of PQMS charges & CHA fees. The standard rate set by PQMS is INR 3500 per 1 tonne of potatoes. Additional INR 200 is charged per tonne exceeding 1 tonne thereof. Non declaration of vehicles at JLCS further allows the traders to evade customs duty (PQMS charges, CHA fees etc.) and other taxes that allow traders to save INR 5000-10000 per vehicle.
Potato traders / importers also complain that the PQMS fee is very high which results in increase in the rate of potatoes in wholesale & retail market.
Present day payment mode by Jaigaon traders:
Prior to 5th September the payments in lieu of potatoes imported from Bhutan were paid in hard cash (in Bhutanese currencies) generally to the drivers of the consignment or through MBoB banking app. (MBoB is a mobile banking application of Bank of Bhutan). There are hundreds of Jaigaon traders and agents using MBoB app to transfer cash to the exporters based in Bhutan. As per a source, MBoB agents based at Jaigaon charge 0.2% – 0.3% per One Lakh Ngultrum as ‘service charge’.
It is to be learned that MBoB can easily be operated from any smart phones registered with any Bhutan number (B Mobile or T Cell) from anywhere. Usually the registered owners of the bank accounts are Bhutanese. Such account holders are also paid certain commissions or service charges by their Indian counterparts who are operating the MBoB app that are registered in their names.
Effect of ‘Potato Boycott’:
Prior to 5th September, the wholesale rates of Bhutanese potatoes in Jaigaon were priced between INR 16-35 per Kg, depending on the size, source and quality. There are 4-5 varieties of Bhutanese potatoes being imported to Jaigaon. In the retail market, the price is somewhere between INR 21-40 per Kg. Since the boycott, the price has further shoot up by additional INR 5 per/kg in Jaigaon market. It is also learned that shortage of Bhutanese potatoes can be seen with vegetable vendors. Connecting Nations tried reaching CEO of the Food Corporation of Bhutan Limited and Royal Monetary Authority but officials said that the orders were from higher authorities. Assistant Commissioner of Jaigaon Land & Customs Station denied any knowledge of such boycott.
Importers and traders at Jaigaon had scheduled a next meeting on 11th of September where the final outcome shall be decided. There is no official communications from RGoB regarding the boycott yet.
Conclusion:
Bhutanese potatoes are said to be of good quality and organic in nature and have huge demand in India. India is importing Bhutanese potatoes since many decades without any serious issues or much restriction from Indian or Bhutanese Government. Connecting Nations learned that importers pay Ngultrum (cash) and don’t want to agree to the formal channel as they are also alleged to maximize profit from evading taxes and also fear losing the illegal INR-Ngultrum exchange business. The statistics say that there is an un-reconciled gap of Nu 5B, which is 19 % of the total export remittances outside the formal banking channel. Also there is no uniformity because there are more private Bhutanese exporters involved, who collude with Indian traders and make payments through informal channels.
Nevertheless, proper channelization of payment system will stop the prevailing informal mode of payment and create transparent trade practices. RMA said to Kuensel that “RMA’s intent will bring reform in terms of good practice and formal trading between Indian & Bhutanese traders.”
As potatoes are said to have perishable life, such boycott if not lifted soon may result in huge economic loss to farmers & RGoB. Further the RGoB & GoI may work together to minimize the PQMS fees. As per source, there is about 1.5 billion Ngultrum (Bhutanese currencies) in Jaigaon. Implementing the guidelines by RMA may also increase in Ngultrum reserve in Jaigaon. The IC-BC exchange rates will further rise. The payment of imported potatoes in INR through proper banking channel will also account to rise in Bhutanese currency reserve and circulation in Jaigaon and vicinity. Bank Payment is yet another hassle for Jaigaon traders as different bank charges between INR 100-2000 per shipping bill.
