Deep-rooted poverty, inequality and underdevelopment have made it imperative to change ways in which planners do business in Nepal

By Shyamal Shrestha

The government of Nepal recently reconstituted the National Planning Commission (NPC) and assigned it the responsibility to revitalize national economy for the next three years. However, progressive economic reform has not been outlined. Only political issues are at the centre stage of national debate while economic ones are relegated. A new team has taken charge at the National Planning Commission (NPC).

Prime Minister Tanka Prasad Acharya, who chaired the first meeting of the planning body in 1956, outlined a vision for all Nepalis to have access to basic needs and improvement in their living standards. The reconstituted NPC has been given a three-year time-table for revitalizing the impoverished national economy, afflicted by civil war over the past decade.

Deep-rooted poverty, inequality and underdevelopment have made it imperative to change ways in which planners do business in Nepal. It is a bitter truth that hitherto, Five-Year Plans have never met their goals with regard to economic growth targets. Living standards have risen so marginally that in 2004, Nepal’s per capita real Gross Domestic Product (GDP), estimated at US$ 252, was ranked 37th even among the 50 least developed country (LDC) group.

30 percent of the people in Nepal may be living below the poverty line at US$1 a day but 82 percent of the population face economic distress when the poverty line is doubled. Slow growth, horizontal inequality and political underdevelopment fuelled ‘grievances’, leading to social instability and became a catalyst for conflict.

In the context of Nepal’s development crisis, ushering a progressive agenda that averts future conflict, lifts the majority of Nepalis out of poverty and generates resources for higher economic growth are vital. The country should prioritize meeting the Millennium Development Goals (MDGs) by 2015 and attempt to graduate from its LDC status by 2020. Considering past development failures, future policies will have to be based on the following four pillars so as to enable Nepal to attain inclusive, equitable and sustained growth.

A forward-looking industrial strategy must ensure that that India and China are not merely competitors in domestic and third markets but also sources of demand, co-ordination in global production networks and value chains, foreign investment, technology and market niches for the Nepali economy.
i) Human security and human development: As a country Nepal remained under autocratic rule for nearly three-fourths of its modern existence. Most Nepalis still live in fear for their lives or face deprivation of basic needs. Therefore, protection of human rights and expansion of capabilities are indispensable elements for economic growth. While democracy is imperative to achieve development, rule of law is indispensable for addressing injustice.

ii) Enforceable social contract: A democracy is “a government of the people, by the people, for the people”. “For the people” reflects the state’s raison d’etre. A state that cannot provide economic and political goods ceases to command legitimacy in the eyes of its citizens. In Nepal’s case, addressing horizontal inequality, exclusion of a large section of the population from the development process, from political participation and from access to education, health, jobs and opportunities remain prime challenges for policy-makers. An enforceable social contract is the realization of the above entitlements, which addresses equity and creates an educated and productive workforce. Women and marginalized ethnic groups should be given priority for fostering equitable and inclusive growth.

iii) Optimal resource allocation: When governments raid the national exchequer to purchase guns, Pajeros and undertake other wasteful spending; funds for building infrastructure are foregone, national savings are depleted and working citizens are made to bear the cost of unproductive outlays. Nepali rulers throughout the history have displayed ‘free-rider’ behavior to monopolize society’s resources, diverting them for personal welfare. Although dictatorships are inherently predatory, democracies are not immune from rent-seeking. Resource misappropriation vis-à-vis fiscal indiscipline throw macroeconomic stability to the winds as the Finance Minister’s White Paper on the Nepali Economy attests. Unless the malaise of unproductive economic leakages is tackled, Nepal’s development efforts – whether in harnessing its water resources, promoting tourism and in delivering public goods – would be second-best. Optimal resource allocation is the first condition through which new resources for economic development are generated.

iv) Industrial competitiveness: Nepal has miserably failed to catch up with other developing economies. International trade poses both opportunities and threats but the manner in which an economy adjusts itself implies whether gains or losses occur in the globalization process. Unless Nepal enhances its industrial competitiveness, achieving rising per capita and higher living standards remain elusive. The share of industry to national income is now below 10 percent of GDP, suggesting an industrialization crisis as a result of improper global integration and disruption of livelihoods due to the insurgency. Why cannot Nepal avail of its geographical location even as it lies between two dynamic economies? China and India are both reshaping the global order in terms of their impacts in terms of production, trade and financial flows.

A forward-looking industrial strategy must ensure that that India and China are not merely competitors in domestic and third markets but also sources of demand, co-ordination in global production networks and value chains, foreign investment, technology and market niches for the Nepali economy.

To summarize, Nepal’s development prospects thus depend on achieving human security and human development, social stability, economic prudence and industrial competitiveness, among others. In this regard, the economist’s role – according to John Manyard Keynes, who remarked during the birth of the Bretton Woods institutions – would (still) be “to act as a beacon of rationality and a trustee of the poor”.

A post-graduate in Development Studies from Institute of Social Studies, The Hague, Shrestha is currently affiliated with South Asia Watch on Trade, Economics and Environment (SAWTEE), Kathmandu. He can be reached at [email protected]

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