India has asked Nepal to lift the ban it has imposed on new Indian currency notes of ₹500/2,000 as a first step to mitigate the problems Nepal is facing due to the demonetisation drive announced by Prime Minister Narendra Modi on November 8.

“Some kind of modus operandi is expected from our side. What kind of system and facilities we can provide, what we can do to get the problem eased.

“There is huge shortage of Indian currency. Almost ₹8 crore is stuck in the Nepal banking system that we need to exchange. But the main problem is the unaccountable money held with the households, remote villages of Nepal,” Deep Kumar Upadhyay, Ambassador of Nepal to India, told BusinessLine .

Nepal buys around ₹500-600 crore annually in lieu of US dollars in instalments. The trade deficit between India and Nepal has widened to ₹277.13 billion in the first four months of 2016-17 against ₹140 billion in the same period of the previous fiscal, according to a data by the Nepal Rastra Bank (NRB), their central bank. Earlier this month, a delegation led by the Deputy Governor of NRB and senior representatives from Nepal’s Finance Ministry met their counterparts in the Reserve Bank of India and Finance Ministry.

This was followed by the visit of Nepal’s Foreign Minister Prakash Sharan Mahat, who met Finance Minister Arun Jaitley and Minister of State for External Affairs VK Singh, mainly to discuss the issue of demonetisation.

During the meeting, the Indian side is reported to have asked Nepal’s Minister to lift the ban it had imposed on the use of new Indian ₹500/2,000 notes that has been termed “unauthorised and illegal” by the NRB, according to sources.

It was just last year, during Modi’s visit to Kathmandu, that India allowed Nepal to use higher denomination notes in their country, although ₹100 was freely exchangeable.

However, post-demonetisation, Nepal has imposed a blanket ban on the new notes being brought in by Nepalese migrant workers, traders and businessmen.

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