Despite numerous natural bases and opportunities of economic transformation, Nepal's economy over the years has always been in shambles, thanks to our proven inability on economic governance. Daily news headlines paint a dismal picture of the state of economic affairs. Economic growth has stalled; inflation remains untamed; imports have surged; exports declined; capital expenditure is unspent; and banks are unable to invest. These headlines cast a gloomy outlook of the economy.When the constitution of federal democratic republic of Nepal was finally announced in September 2015 after nearly a decade of political transition, there was a sense of euphoria among the public. The constitution, it was hoped, would provide a perfect setting where all Nepali people would get fair and equitable opportunity. It was widely expected that the new constitution would reverse past trend and encourage political leaders to emphasize economics over politics and give our shabby economy a much-needed lift. It was hoped that all major parties would agree on a common economic framework and work collectively to jumpstart the economy.
But, alas, this sense of optimism was short-lived. The moment of disillusionment came when the Tarai-based parties (Madheshi Morcha) announced an agitation including a border blockade against the new constitution, which in their perception was discriminatory and anti-Madhesh. In this confrontation over the new constitution, the real victim was the economy that had to suffer five long months of trade blockade, resulting in a paralysis of the national economy.
Today the Madhesh agitation has subsided and some degree of calmness and normalcy has been restored in the economy, thanks to the first amendment of the constitution and government's rigorous diplomatic maneuvering. However, this seemingly serene atmosphere may soon be clouded as the Morcha still feels its demands are largely unmet and is threatening to go for another round of protests.
Although the political environment is still nebulous, the government cannot and should not stay quiet in its efforts to revamp the economy, the source of livelihood for nearly 30 million Nepalis. As the government is currently preparing the fourteenth plan and the budget for 2016/17, this is the right time to resuscitate the economy battered first by the April earthquake and then by the trade embargo. The following are the key economic aspects our policymakers would do well to consider in the forthcoming fourteenth plan and annual budget.
Economic objective
Article 50 (3) of the Constitution of Nepal states that the economic objective of the state shall be to achieve a sustainable economic development, while achieving rapid economic growth, by way of maximum mobilization of the available means and resources through participation and development of public, private and cooperative sectors. It aims to develop a socialism-oriented, independent and prosperous economy while making the national economy independent, self-reliant and progressive, and with the ultimate goal of building an exploitation-free society by abolishing economic inequality.
Any economic policy, be it the fiscal policy reflected in the budget or any other policy mentioned in the plan document, must mirror the state's economic objective, which is also one of the directive principles of the state. Failing to do so would mean the policy would be constitutionally illegitimate and against the will and aspirations of the people of Nepal.
Economic growth
The only way for Nepal to graduate to the status of a developing country is to increase economic growth to 8-9 percent as against the current sluggish average annual rate of less than four percent. Higher economic growth is the precondition to eradicating poverty through massive job creation. Okun's law, in economics, posits that a decrease in unemployment of 1 percentage point is associated with additional growth in real GDP of approximately 2 percent.
Considering the implications of economic growth on unemployment and poverty reduction, our policymakers should allocate scarce resources to sectors that are critical to growth such as human resource, commercialization and modernization of agriculture, energy, small and medium enterprises, and entrepreneurship development. But for this, our policymakers must base their decisions on objective economic analyses and be willing to do away with the traditional practice clientele politics and squandering hard-earned resources on unsustainable populist programs.
Social justice
Economic growth without social justice is inhuman. Growth without social justice is also the root cause of growing inequality of income and wealth in societies across the world. The government has a role to ensure social justice, even as economic growth accelerates.
Government can ensure social justice by designing and implementing development strategies and programs that promote economic equality and discourage social exploitation. Fixing of appropriate and justifiable minimum wage, control of inflation, progressive income and wealth taxes, progressive land reform, provision of land and housing for the landless, subsidized health care for the poor, reforming public education system, etc. could go a long way towards addressing the issue of social justice. Efficient and effective public service delivery is another important determinant of social justice. The government must make every effort to ensure that basic health and education services, drinking water, electricity and other services reach those sections of population that have hitherto been denied the access to these services.
Cooperatives
The constitution of Nepal has identified 'Cooperatives' as one of the three pillars of Nepal's economy—the state and the private sector being the other two. Simply put, a cooperative is a company owned and managed by those who work in it. Managed effectively, cooperatives along with the state-run enterprises and private firms could be a powerful tool to achieve the twin objectives of economic policy: growth with social justice. Promotion of cooperatives will also help decentralize economic activities from metropolises and big cities to far flung rural areas.
Self reliance
Nepal's economy is excessively dependent on India. More than two-thirds of our external trade is with India. The extent of our economic dependence on foreigners is worrying, as evidenced by practically non-existent export earnings in comparison to ever-swelling import expenses. What could illuminate the dangers of overdependence on foreigners better than the recent trade embargo?
Excessive trade liberalization without corresponding strengthening of the domestic economy; acceding preferential rights to India in bilateral trade treaties, enabling it to have an upper hand over us in trade matters; failure to connect adequately to the northern neighbor; overreliance in foreign aid; overemphasis on revenue generation through imports; and easy availability of foreign exchange through remittance are factors responsible for Nepal's current economic status.
It is high time we reviewed and corrected these policy mistakes in order to reshape and rebuild our economy. The upcoming fourteenth periodic plan and annual budget for FY 2016/17 should introduce measures and incentives to stimulate import-substitution and export promotion, encourage greater use of domestically produced goods and services and spur agricultural revolution leading to food security and independence. The policymakers should also consider ways to control imports of non-essential goods.
In Nepal, as far as the memory serves, the economy has always been sacrificed at the altar of politics. The result is here for all to see—our dissatisfied neighbor can bring our economy to its knees at a time of its choosing. Such is the extent of our vulnerability. Let's hope economics prevails over politics this time.
The author is a Section Officer at the Office of the Prime Minister and Council of Ministers, Government of Nepal
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