The ride to the economy is not easy for the new government. For
years, Nepal's economy has long been entangled in its structural problems. The
economy is in ruins--as per some indicators, and a sign of improvement is looming.
Now, adoption of an appropriate fiscal
policy is the way forward. In order to
stabilize the macroeconomic balance, we have to promote a new round of reform. The
country is still pursuing dual economy. Owing to majority—more than 65
percent—of rural population, a single economic development strategy will not
reap the advantage. For crafting Nepal’s
economic reform, the political leadership should take a bold decision.
Before exploring Nepal’s new economic development
possibilities, it’s worth knowing the challenges.
Uneven development
Nepal has been facing the problem of imbalanced development
for decades. Since the fifth 5 year development plan the concept of regional
development emerged, thereby allocating budgets in equitable basis. However,
the distribution was never justifiable. Surprisingly, some influential
districts have been disbursed up to a quarter of the national budget, while
others were granted only an amount less than a hundredth. The situation worsened
after the political change in 2046 BS. Some influential—leaders, MPs and
bureaucrats, due to their higher echelon gave out more to their particular
districts. For example, in Morang and Sunsari districts, where most of the
Prime Minister, Finance, Home and other ministers belong to, have been given a
big chunk of the national budget. Likewise, top bureaucrats from National
Planning Commission, department of Irrigation, Physical Planning and the local development
division also used their power to draw budget into their home town or
districts.
The unequal distribution battered hard on other developing
regions. They barely received regular development budget. It affected more to
Karnali and Far Western districts. Beside the western hill areas, some
districts in the plains—Mahottari and Dhanusha also got to suffer by budget
crunch. As a result, these areas have human development index below the
national average. People in those areas could never feel the presence of the
state.
Highway Economy
The construction of East-West highway by the then King
Mahendra helped to foster economic activities around the areas; however, only
the eastern part of the country reaped benefits. High way helped to develop
small market towns around it, which has reached up to 125. Another road,
mid-hill highway has also laid foundation for most market towns and increased
trade and industry in those mountain patches.
In fact, the lifestyle change in the eastern part of the
highway is clearly visible whereas the western part still struggles to thrive. The
insufficient infrastructure and scattered settlement-- necessary for the growth
of economic activity is somewhat lacking in the west. For example, 1993 BS, Biratnagar-Sunsari has
been developed as an industrial area. Later, Birgunj and Bara-Parsa were
developed as Industrial Corridor. In contrary, poorly developing manufacturing
units in Butwal , Rupandehi , Banke - Kohalpur, Kailali are besieged for market
access long distance of transportation, that have severely obstructed the
economic activities.
So far, except in some binding conditions, the mid and far
western districts didn’t feel the presence of the state. After the people’s
movement, 2046 BS NGOs finally accessed to Karnali, identified injustice, and
started pouring some fringe support. Though, the NGO culture merely made them
more dependent.
Poor Industrial
Development
Although industrialization began quite late, in 1993 BS, the
progress is still infantile. During Rana Regime some Jute and match factory
were established. In Panchayat era, other countries--Russia, China, and India
supported to lay the foundation of the textile, sugar, cement, leather shoes, paper,
pharmaceutical and additional factories. However, approval of establishing
industries was very difficult because of the intervention of the palace. By
acquiring shares up to 51 percent, absolutely for free, the Palace used to
ascertain license to such industries. Therefore, no industry, including
multinationals, could thrive during the autocratic rule. Its contribution to
the GDP, once reached to 19 in 1995/96 has plunged to 15 percent as of now.
Moreover, more than a thousand of large and medium scale
industries were closed due to a decade long people’s war. In addition, around
twenty thousand of small and cottage industries also followed the similar fate.
Worsening
agricultural sector
Agriculture sector contributes 35 percent to Gross Domestic Product
(GDP) and 65 percent of employment is also degenerating. In the 1970's, Nepal
was exporter of agro products, contributing up to 40 percent of GDP. However,
total production of food in the country is not sufficient to feed us. Therefore,
we are importing hefty sum of grain and vegetable to suffice our need. Due to
low production and productivity, agriculture is being abandoned. The production
cost exceeds farther than the cost of the same imported goods.
High unemployment
Unemployment is towering because of the lesser opportunity
in both the agriculture and industry sector due to their sluggish progress. For
example, one in eight youths entering the job market every year gets a job. The
only door open for them is to pack their bags, cue on the line, and go for foreign
employment. Currently, the rate of out-migration
of 18-40 years of youth is more than 65 percent. The fleeing of working age
population abroad is a great risk for the growing economy.
Lack of good
governance and opacity
From the good governance perspective, Nepal is in dismal
condition, as the corruption index says. Lack of good governance has
contributed to deterrence in the economic development. Lack of good governance
and opacity is regarded as the main cause of Nepal’s underdevelopment. It increases the cost of development projects,
and reduces spending. Donors also question on the expenditure thereby reducing
their aid and investment. This is a great setback for countries like Nepal who
depends heavily on foreign aid.
High trade deficit
Nepal is hit hard at present by a massive trade deficit of nearly
5 billion Rupees. The total income of
over a year is merely sufficient in importing petroleum. Substituting import
has become just a daydream. At this juncture, there is a dire need to think
about a policy—if implement—can substitute imports and increase exports.
If we have to drive the economy towards sustainability and
stability, there is an immediate need of the second round of reform. And it
should address all those aforementioned challenges.
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