Econ-ity » June 16, 2016

Daily Archives: June 16, 2016

Budget and the Transportation Sector – Promising yet Incomplete

The budget allocated for the development of transportation sector for the upcoming fiscal year is Rs 24 billion (approx.). This year’s ambitious budget plans for building fast tracks, highways, and even foresees Nepal using trains and ships. Although the budget might look like the government has acknowledged that travelling in Nepal (both public and private) is arduous and inconvenient, it does not solve the major problem in transportation sector of Nepal – syndicate.

It is an open secret that the transport association practically controls the entire transport system in Nepal. It decides who gets into the industry and who doesn’t; it lobbies on price setting, among others. The budget envisages a country full of excellent roads with the aim of facilitating cheap and easy transportation of goods and people, but if the budget cannot (followed by pro-competitive policies) limit this anti-competitive practice by the syndicate these policies might not be efficacious.

In addition to this, one of the provisions (i.e. No. 85) of the budget mandates all taxis plying in Kathmandu valley to be equipped with a digital meter system. Although this looks propitious, the government’s inefficient monitoring system would make existing day light robbing perennial. Even with the existing meters in taxis, taxi drivers, on their discretion, decide the price before taking in passengers. But, due to the limited number of taxis plying in the valley, passengers have no choice but to agree on the rate drivers set. Although, one might argue that even passengers could bargain on the price but, how convenient is it if you commute on taxis everyday? When the number of passengers is far more than number of plying taxis, the drivers would always have better bargaining power.

So how can the government achieve its intended result of smooth and cost effective transportation system? One way of achieving its goals is by encouraging competition in this sector. To make it competitive, there are several provisions the government could make. The most important is by facilitating entry of new public vehicles by limiting syndicate’s influence in the registration process. From 2001 to 2011, the number of registered vehicles in Kathmandu valley increased 3.75 times. But public transportation comprises of only 1% of those vehicles. This shows there is a barrier that stems entry into the transportation industry. Similarly, with regards to taxis, since the year 2000, the number of taxis has dropped from 8000 to 5500, while the population of Kathmandu valley has risen from 1.6 Million to 3.5 million from 2001 to 2011. Opening up new taxi registration (it was closed in 2000; once opened in 2015) would reduce the ratio of taxis to population, which would instead increase passengers bargaining power, as now taxis’ would compete for passengers not the other way around.

Although the government has prepared and allocated budget for transportation sector development in good faith, it still doesn’t address Nepal’s major problem of anti-competitive behavior in transportation sector. Policies such as limiting syndicate’s influence in public vehicle registration, and opening up taxi registration are two of the several ways that government’s policies could engender competition.

 

Abyaya Neopane

About Abyaya Neopane

Abyaya Neopane is an independent researcher. He comes from an Economics background.

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