Introduction

Nepal and India have undergone a significant financial understanding. Nepal's Ambassador to India, Shankar Sharma, praised the Reserve Bank of India's or India's new guidelines that have now enabled multiple financial services between India and Nepal. The news is that QR’s can now be used to facilitate digital transactions for travelers, students, and business people from both nations! 

Walk-in clients may remit Rs 50,000 each transaction, while nationals of Nepal can now transfer up to Rs 2 lakh every transaction to Nepal. The requirement to carry cash would be further eliminated by the future Unified Payment Interface-Nepal Clearing House Ltd. This initiative follows the collaboration between NPCI International Payments Limited (NIPL) and Nepal Clearing House Limited (NCHL)  to facilitate cross-border digital payments between the two countries.

Developing The Need

Every year, hundreds of thousands of Nepalis travel to India for academic and medical reasons. Because they must visit banks, they encounter difficulties converting their money or pay big commissions to money exchanges at border points. For Nepalis holding debit cards, the transaction fee to withdraw from Indian banks is expensive.

Since the ban on high-denomination Indian currency notes, Indian tourists have been facing difficulties paying for services in Nepal as they are allowed to carry notes of up to Rs100 denomination. Debit card usage is limited to mostly urban areas in Nepal.The Indian government, in a surprise move on November 8, 2016, pulled INR500 and INR 1,000 out of circulation to unearth unaccounted wealth and fight corruption. The central bank of Nepal subsequently outlawed all Indian notes valued at more than INR 100 in Nepal as a tit-for-tat measure. Additionally outlawed was the 2,000 rupee note that the Reserve Bank of India had released on November 8, 2016.

Source: Indian Tourism Statistics

Similarly, Nepal welcomed 1 million tourists in 2023 following record arrivals from India. Over 315,000 Indian visitors arrived in Nepal via plane last year, a milestone for the country. No records are kept since Indian visitors arriving by land route are not considered tourists.

However, a survey of overland Indian visitors conducted by Nepal Tourism Board in 2017 shows more than 1.2 million Indians came to Nepal by land. The survey showed that the average length of stay of Indian tourists coming overland was 5.8 days. The average expenditure per visitor was Rs11,310.

While Indian Rupees are sometimes accepted in Nepal in border areas , the acceptance is not universal. Many businesses, particularly hotels and larger establishments, prefer payments in Nepalese Rupees or even foreign currencies like US dollars or Euros. Similarly, Nepali tourists visiting India are also bound to make payments in Indian Currency only. Access to ATMs that accept Indian debit or credit cards might be limited, especially in rural areas. Even in urban centers, tourists may face issues like long queues, malfunctioning machines, or language barriers. Banks often charge additional fees for international transactions, including cash withdrawals and card payments made in either of the countries. These fees significantly increase the cost of transactions for tourists.

Timeline and work progress

The Foreign Exchange Management (export and import of currency) Regulations, which were implemented by the Reserve Bank of India in February 2015, permit nationals of Nepal and Bhutan to carry INR500 and/or INR1,000 notes of the bank up to a maximum of INR25,000.

A memorandum of understanding for cross-border digital payment was signed between Nepal and India on June 1st of last year in an effort to facilitate digital transactions for travelers, students, and businesspeople from both nations.

Likewise, On February 15 this year, the Nepal Rastra Bank and Reserve Bank of India signed and exchanged Terms of Reference for interlinking the Unified Payment Interface (UPI) of India and the National Payment Interface of Nepal.

With the integration, users of the two systems will be able to send money instantly and affordably, which should ease cross-border remittances between India and Nepal.

As of now, Quick-response (QR) code cross-border payment service has been launched in Nepal by two digital wallets, Khalti and Fonepay Payment Service, in collaboration with India's NPCI International Payments. Over 20,000 Nepali businesses can easily take payments from Indian visitors by using Khalti's QR code technology, which increases their revenue streams.The two Indian digital applications are now where the payment services are being launched.

Conclusion

Even though Nepal would gain a great deal from this agreement in terms of trade, tourism, and business, Nepal's development has been unsatisfactory. It has been over a year since both nations began working to create the cross-border digital payment system, thus Nepal's delay demonstrates the central bank's slack attitude.

Nevertheless, a bilateral agreement on digital payments is believed to streamline cross-border transactions between India and Nepal, making it easier and more cost-effective for individuals and businesses to conduct financial transactions between the two countries.

Simplified digital payment mechanisms would facilitate trade and commerce between India and Nepal by reducing transaction costs, eliminating the need for physical currency exchange, and speeding up payment processing times. By promoting bilateral digital payment integration, India and Nepal commit to strengthen their economic ties and foster greater cooperation in various sectors, including tourism, remittances, and investment.