Econ-ity » November 12, 2014

Daily Archives: November 12, 2014

Misdirected goal (?)

In a bid to curb rising unemployment, and international migration of rural youth to seek economic opportunities elsewhere, Nepal Rastra Bank (Central bank of Nepal) has recently issued a ‘Working Procedure on Interest Subsidy for Agriculture Loans to the Youth.’ As the name suggests, through this document, the government and Nepal Rastra Bank (NRB) are aiming to revive the Nepalese economy through agriculture. The plan is to encourage the youth to work in Nepal itself, make them feel like the country values them and is constantly working to providing better economic opportunities to them in Nepal, and develop the agriculture sector of Nepal; a nationalist policy I’d say. While the intentions are highly commendable, there are a few things that the authorities seem to have overlooked.

More farmers does not mean a prosperous Nepal

fragmented farming in NepalFirstly, the goal of the state has been misdirected. The new move by the state aims to bring in more and more people into agriculture. As 66% of the total population currently depends on agriculture, the sector’s total contribution to Gross Domestic Product (GDP) is only 33%. Furthermore 85% of these people who practice agriculture are in the sector purely for subsistence. Despite the fact that there are around 4 million Nepalese youth toiling in the foreign land, this figure has not really changed. The productivity of the sector has not declined with respect to the number of people exiting the sector. During a consultation meeting of the Agriculture and Water Resource Committee at Singhadurbar, Honorable Hari Prasad Parajuli, the Minister of Agriculture Development himself clarified that given this background, Nepal won’t lose even a kilogram of food grain that lands in the market due to the fact the Nepalese people are going abroad for foreign employment, neither will Nepal gain a kilogram even if some of these people come back. This is the reality of our agriculture. Yes, agriculture will allow people to earn a living, but the kind of agriculture we practice today – farming in fragmented plots of land to feed one’s own family – will not offer better economic opportunities to the poor.

Remittance on the other hand

On the other hand, the scores of youth that have been forced to seek economic opportunities in foreign lands due to unfavorable enterprising environment in Nepal seem to have given some respite to poor Nepalese populace. In the last twenty years (mid-90s being the period when Nepal began to see an increase in outward migration of Nepalese people due to the civil war), remittance has grown 111 folds, from $50 million in 1994 to $5,551 million in 2013. This has contributed largely to reducing poverty in Nepal, raising the quality of life of rural Nepalese and enhancing their access to education, health education and services, and technology. If the state really wants these migrant workers to come back, then the economic gain that they get upon their return has to be greater than the one they are currently getting in foreign lands. But this aspect has not been addressed by the state plan.

The Bankers’ Dillema

The other problem with the NRB guideline is how it fails to see the impact of a policy like this on the bankers. The guideline fails to recognize the fact that the money that commercial banks hold is actually savings of the general public itself and the profits belong to the shareholders. The bankers are accountable and answerable to these stakeholders if their money is channeled into making risky investments. Banking is a business and it is guided by the prospect of making profits. If a project looks lucrative to the banks, it will finance the project. If not, not even the one being undertaken by the poorest Nepali will be financed by the bank in the pretext of helping the poor. Besides, the administrative cost of availing services to great number of small scale farmers (esp. when these farmers fail to produce properties that can be entertained by the banks as collateral) is far greater than availing services to their corporate clients. If the state fails to acknowledge this fact, then this plan is bound to fail like other similar programs where the bankers opt to pay the fines instead of complying with the state policies.

Therefore, under the current scenario, what the state really needs to do is ease the process of holding formal entitlements of the land, buildings and small enterprises that people have owned and run for years. What the state needs to do is acknowledge people’s property, secure their property rights and convert their ‘dead capital’ into ‘live capital’ such that these can be used as collateral in the banks to acquire loans to enterprise (not just farming but everything) and create wealth, instead of subsidizing an inefficient farming practice in the name of nationalism.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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