-Pushpa Raj Pradhan
Chief Editor
The People’s Review weekly, Nepal

The country’s economic health is not good. The country faced a revenue deficit in the present fiscal year. Both in the customs revenue and also internal revenue targets, the government is seen as unable to meet the target.

It means the government is needed to take loans even to meet the general sector expenditure set by the budget.
The domestic as well as the international economic situation is not stable due to the Covid-19 pandemic and also the Russia-Ukraine war.

Nepali businessmen and industrialists are agitating due to the excessive incline on the bank interest rates.
Meanwhile, new Finance Minister Bishnu Poudel has assured the business community of addressing its problems and bringing an improvement in economic indicators, but how?

For decades, the government has not reviewed the exchange rates between the Indian currency and the Nepali currency. Nepal’s heavy economic dependence on India is very high.

Even to meet the demand for the Indian currency, Nepal is spending US dollars, which is an indication that Nepal’s currency is very weak than the formal exchange rate set by the government.

It could be above 2.5 rupees against one unit of the Indian currency. If we keep the exchange price lower, the informal or say Hundi transaction will flourish. Nepal frequently faces a liquidity crunch and one of the reasons for this is the flourishing Hundi transition. Accordingly, capital flight and hiding currency without a source are also the reasons for the liquidity crunch.

Nepal’s main problem is that the country’s economy has relied on customs revenue from imports of goods. The government, therefore, is encouraging imports even by discouraging local industries.

The government is conservative in giving subsidies and delaying payments against the subsidy, from which, local industries are discouraged.

They get better profit if imported goods rather than producing them in the country. Such an adverse economic policy introduced by the government is the main cause for discouraging the industrialization process.

This year, when the foreign currency reserve declined and also the balance of payments had gone negative, the government was compelled for imposing a ban on imports of some luxury items including vehicles. Such a ban directly affected the local dealers and they were compelled to launch an agitation.

Finally, the government had to lift the ban due to the pressures from the local dealers and also due to the negative customs revenue target. If the government will look towards meeting the revenue target and looking at the interests of those importers, again, it may face a decline in the foreign currency reserve.

If the government would have given alternates to the liquor and vehicle importers, they could shift their business. Without giving any suitable alternatives, when the government imposed a ban, it created a problem. For instance, there is a good market for establishing assembling industries.

Even by giving long-term subsidies to such industries and helping such industries for consuming their products from government organs, the government could attract investors in establishing assembling industries. Assembling industries for producing e-vehicles, and smartphone sets, among others, could generate employment opportunities to the local manpower and help the nation in the process of industrialization.

Accordingly, by imposing a ban on different agro-products, the government could help local farmers to get a market for their products. On the contrary, local farmers are facing different problems including scarcity of fertilizer, and the very nominal price of their agro-products as middlemen are exploiting both the farmers and consumers.

The government could help farmers for developing the market by discouraging those middlemen. By developing agro-products cooperatives, the government could help the farmers significantly. Unfortunately, the politics and bureaucracy are very corrupt and they sided with those middlemen and brokers, therefore, investors are discouraged.

Nepal is selling electricity to India at around eight rupees and buying by paying just double the amount to the same country. Always, those corrupt bureaucracy and politicos talk about exporting electricity to India. The country’s production could be cheaper if it would provide electricity at a subsidized price to the local industries.

Similarly, if encouraged electricity operating vehicles and also encourage individuals to use electricity for cooking purposes, Nepal could reduce imports of petroleum products significantly.

Increasing domestic electricity consumption would help make the economy self-reliant than exporting it at a low price.

Curbing corruption by introducing a strong corruption control mechanism, discouraging brokers and middlemen, and encouraging investors with attractive facilities would obviously help the country to transform into a self-reliant economy.

Besides, the government, to end the present crisis, should control its non-productive sector expenditure by increasing investment in the infrastructural sector. The only way to reduce the non-productive sector expenditure is to remove the federal structures and also reducing the number of local bodies and also ending the practice of assigning aides and experts by those people’s representatives.

If the government doesn’t think about the removal of such an expensive political system, very soon, the economy will face a further crisis.
End text.
Text courtesy: The People’s Review Weekly dated January 4, 2023: Ed.

Upadhyaya.