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Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an intern in the research department of Samriddhi Foundation.

The Trade-off Between Social and Economic Development

Nepal has recently adopted federalist approach with the aim to bring economic as well as social transformation. We aspire to become an egalitarian society, ensuring equitable economy, prosperity and social justice. We also aspire to achieve perpetual peace, good governance, development and prosperity. While as a political document there does not seem to be much of a problem with either one of these, from an economic perspective, there appears to be a slight bit of tension among these aspirations.

Both economic development and social development has been a leading concern for Nepal. On one hand Nepal aims for achieving high income equality and poverty reduction through inclusive growth, while on the other it aims for high economic growth with increased productivity. Both goals are such that, social development through inclusive growth needs economic compromises and economic growth through productivity enhancement is likely to create more unequal distribution of income and assets.

Nepal, since 2000 has been giving eminent priority to inclusive participation, gender mainstreaming and poverty reduction. A series of positive impacts – poverty reduction to 13% in 7 years from its initial 33%, decline in hunger by 22.5%, reduction in Gini Coefficient to 0.35, resolved gender issues with increment in household headed by females, increment in average household income by 2.5%, net primary enrollment ratio of 96.6% and improvement in overall health outcomes – to name a few, can be regarded as astonishing achievement for Nepal. These achievements portray the dedication of Nepal over the past decade towards social development. The government of Nepal allocated more than NRs. 33 billion for social security alone.

However, these achievements have not been able to tackle the underlying challenges of Nepalese economic concerns as in the same period Nepal also faced slow economic progress with low PCI of US$850 in 2017 and is still lying among the 48 least developed countries despite its goal to upgrade itself to developing nation by 2022. The decline in employment from 84.3% in 2000 to 81.7% today, despite of majority of people migrating for foreign employment shows lack of productive, employment generating activities. The slow industrial progress with decline in agriculture productivity with only 2/5th of arable land illustrates that Nepal has been deteriorating in terms of investment climate, industrial growth and agricultural productivity. The inability of government to invest in priority projects is hindering the expansion of other sectors as well, further leading to slow economic growth. This depicts a contradictory picture of Nepal’s progress than compared to social development.

We cannot completely deny the role of remittance, aid and migration in the various social achievements. Thus, we can say that there is food in our belly but yet we are not self-sustainable. Despite the deteriorating macroeconomic variables of Nepal, the indicators of social sector enhancement showed more positive results. This makes it apparent that in case of Nepal, the achievement of social progress is negatively correlated to the achievement of economic progress. One important question for Nepal to dwell over, at this juncture then would be, will it be rational to compromise, as a country, a fair portion of otherwise potential economic growth for social growth?

The achievement of both the goals together seems to be paradoxical. Economic growth being a pre-requisite, Nepal for social development can either aim for equality of opportunity or equality of outcome. Focusing on outcome equality is practically not a rational or possible goal and more equal distribution of income might create additional problems resulting in stagnant economy. Nepal can achieve economic growth and social development by focusing in equality of opportunity. However, we need to understand that this approach is likely to create social and income disparity. Equality of opportunity will hamper the equity and equality goals of Nepal as everyone is not equal and all will have different ways to avail the opportunities. Some will benefit highly while others might not. Which of the two is more logical approach, is for us to decide. It is a trade-off.

 

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an intern in the research department of Samriddhi Foundation.

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Automatic Route – A Prerequisite for FDI Inflows

Nepal Investment Summit, 2017 raised the aspirations of many investors and business opportunists as it unlocked various possible alternatives to promote investment-friendly policies and practices. Among the many commitments, political stability to attract foreign investors, huge FDIs from various nations including China and USA, and the assurance of Minister of Industry to promote friendly regulatory framework for doing business in Nepal were the major outcomes of the Summit. Parallelly, the MoI had also been working on reforming the Foreign Investment Act, and the provision of granting permission to some investors via “automatic route” seemed to be a good complementary move; there were also some genuine arguments about why it was limited to only some, and why not all.

However, a recent move by the MoI to remove the provision of automatic route from the draft of Foreign Investment and Technology Transfer Bill (FITTB) countervails these commitments. The removal of this policy requires foreign investors to enter Nepal through a long and cumbersome process—submit multiple documents to the regulator (Department of Industries, Investment Promotion Board, or the Nepal Investment Board, depending on the scale of investment), and additional documents to Nepal Rastra Bank (NRB). This approval system for Foreign Direct Investment has been one of the biggest tailbacks for investors to make actual investments in Nepal.

Nepal does not need such a complex approval process. What Nepal actually needs is simple Acts and regulations to attract as many investors as possible in order to meet saving-investment gap, technology and skill gap and generate ample employment opportunities. The many goals of the GoN – completion of national pride projects, building of satellite cities, infrastructure development projects, energy development projects and an aim of achieving double digit industrial growth rate – cannot be fulfilled with limited domestic investments. Foreign direct investment is an irrefutable factor for the economic development of Nepal and thus, we cannot afford to offset our potential investors.

Nepal already ranks in the 109th position in the World Bank’s Index of ease of Starting a Business. Moreover, Nepal is the only country in South Asia to have a two-layer approval system and extensive paper-works to bring in foreign investments – a major comparative disadvantage which makes Nepal less attractive to the foreign investors. Foreign investors are likely to explore more favorable alternative investment destinations within the markets of South Asia rather than investing in Nepal. Nepal already lags behind in numerous ways than other neighboring countries. In such scenario, a policy change that enables easy entry of FDI in Nepal could be a competitive factor among its South Asian counterparts.

Automatic route could indeed be a defining factor for economic transformation of Nepal through which foreign investors could bring in investments without government approval, reducing the lengthy and cumbersome processes. Nepal, in this matter should comprehend India’s reform. After the adaptation of automatic route for FDI, India was able to attract $44.20 billion in 2015, a rise by 28%. The FDI contribution in GDP of India during that period was 14-15%.

It is apparent that Foreign Direct Investment is crucial for the economic growth of Nepal. Automatic route could be seen as the most rational step for the government to take in order to attract these FDIs for executing all its committed plans. However, the removal of this principal provision by the MoI is unconceivable.

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an intern in the research department of Samriddhi Foundation.

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Maximum Tuition Fee Limit Regulation That Backfires

In advocating for equal access to quality education in Kathmandu valley, Ministry of Education (MoE) has recently devised the regulation to set maximum limit on the tuition fees of private and boarding schools based on official categorization of the schools and the grade standards they conduct. While the maximum tuition fees limit per student studying at 9th and 10th standard for grade-A school is set at NRs 3,600, the tuition fee limit is set varying for other schools belonging to different category for the grade standards they conduct.

Given that the appeal for this price/tuition fee control is justifiable in order to make sure that quality education as a fundamental need of the society is affordable to all income holders, the side-effect of such restrain regulation that distort the balancing mechanism of the market is unfathomable and historically observed. Simply take the cliché case of maximum rent price regulation practiced in different cities of the world that brought the entire tenancy housing market into dire straits. New York City stays as a classic example whereby setting maximum rent price below the usual market price at tenancy housing market not only disturbed the incentive to supply enough apartment to meet the growing demand for it, but it also resulted to degradation of housing quality as house-owners could not afford to upgrade and maintain the housing standard while depending on below feasibility rent revenue. Alas, it led the city to only offer the fiasco of inadequate-barely livable residential housing thanks to rent price control legislation.

Importantly, it is necessary to recognize that the disastrous unintended consequence of rent price control has less if any to do with the unique characteristics of the housing industry of a particular city, but more if not all to do with distortion of the governing market fundamental (i.e., price) that allows the supplier of a particular commodity to supply it in a particular quantity and in quality as demanded by the market.  Similarly, in implicating the distortion of same market fundamental or price in the private education market in Kathmandu, the exact same horrendous consequences are likely to be observed.

At first and foremost, when private schools are forced to depend on limited tuition fees set by the maximum limit regulation, they are also forced to invest limitedly on infrastructure maintenance, upgrade, and in adopting innovative education practice in order to break-even. And, if the legislation prescribed tuition fees or the revenue is below what the market would offer, investment on increasing the education related infrastructure and the quality of the education will also be below the pace of what price liberalized private school market would have offered. And henceforth, the quality of the private education system is more likely to be compromised.

Likewise, the ability to charge below-feasibility maximum tuition fees as per the regulation shall also discourage new investment in private schools enough to meet the demand growth of private education possibly triggered by the guardians who are encouraged to transfer their children from public schools. A research from Samriddhi Foundation clearly states that cost structure and initial investment outlay for opening schools with infrastructure required for meeting Grade-C category cannot be feasibly fulfilled by the maximum tuition fee limit set for them. Therefore, a rational investor willing to make profit will not have incentive to establish schools of such category in order to meet the growing demand of private school education. Given the widening gap in supply and demand of private school education as the consequence of this regulation, the motive of this very regulation to make private school education affordable to normal people can instead backfire. With virtually no growth in number of private schools in compared to demand for it, the supply-shortage will rather create an underground economy whereby people with better connections and willing to pay more money off the table are more likely to get their children admitted at private schools while the marginal ones are left out.

This directive on setting maximum limit of tuition fees can be a costly constraint on growth of private educational institutes of Nepal. The directive meant for ensuring quality education to all at affordable prices, in itself can be a major factor hindering the growth of educational sectors. There are numerous reforms required in Nepal regarding its quality of education. In current scenario, the government must instead focus on improving the quality of public schools and not on decreasing competitiveness among private schools affecting its quality and lowering the possibility of low income household children to get a quality education.

 

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an intern in the research department of Samriddhi Foundation.

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Honking Prohibition: The ineffectiveness behind a popular policy

In addressing the grievance of city dwellers about excessive noise pollution from the traffic in the busy roads, the Department of Transportation Management (DoTM) in association with the Kathmandu Metropolitan City Office is enforcing the regulation to prohibit honking except in the emergency situations. This regulation is scheduled to be enacted in the start of Baisakh, the Nepali New Year. According to the department of transport management, any motorist acting against the regulation will be subject to penalty of NRs. 5000. Meanwhile, ambulance, fire brigade, security vans, government vehicles and tourist vehicles are exempted from this regulation.

This good intention behind the enforcement of this regulation to reduce vehicular sound pollution is quite obvious. However, the enactment of this regulation completely ignores the genuine compulsion or the root cause behind honking for motorists, while jumping into the measure of controlling the consequence (i.e., honking) regardless. Therefore, the effectiveness of this proposed regulation can be doubted as it is also bound to victimize innocent motorists and provoke unintended consequences as discussed below.

First and foremost, the regulation is clearly unconcise and obscure. While it only tolerates honking in situation of high risk of accident and emergency, it does not define the characteristics of high risk and emergency explicitly. It is not clear whether the situation of high risk only refers to the times when the motorists are sure to collide with the passer by, or it also refers to the situations when some motorists are being cautious by signaling stationary pedestrians to not cross streets while they are in considerable speed. While making such criticisms might sound picky and paranoid, a motorist traveling in the busy streets of Kathmandu clearly acknowledges coming across multiple situations that require blowing horns even if it is debatable if the situations fit as being “an emergency situation” after all.

Secondly, it is outright clear that most motorists do not honk simply to disturb the residence or contribute to the noise pollution. While exceptions exist, it is often the haphazard traffic situation in the city that compels motorists to blow horns. We all know that the grave conditions of the roads require pedestrians and vehicles to share the same pathway frequently. Thus, honking is the only method to communicate with the pedestrians to ask them to make way for motorists who are at least traveling 5 times speedier than the walkers. Likewise, lack of traffic management at cross-roads and junction require motorists to honk while passing across as a caution even during light traffics. Besides, there is hardly any other decent way to signal public buses often stopping in the middle of the road at their own ease while mischievously blocking the entire traffic. In saying so, it does not seem quite justifiable to prohibit honking when it currently is the important part of usual driving function.

Government, when identifies a potential problem, often goes for the simplest solution, i.e. to pass policies and laws targeting the end consequences that results more bad than good. The policies restrict the rights of the citizens even on conducting general activities that is not opted to cause harm to anybody. Recently, the government formulated the policy to restrict the sale of cigarettes and liquors on certain times and now it plans to ban honking. Further, it is also preparing to ban Nepalese from visiting the gulf countries. In saying so, this spree of legal bans is unintentionally encroaching on our civil liberties from all direction while it is trying to reduce certain consequences.

In conclusion, haphazard policies and regulations as such that attempts to counter the explicit end-consequences without respecting the root causes and incentives of it can often result in punishing the innocent than the culprit.  Given that it is at least 40% of the time that motorists are honking for genuine purpose in the disorganized streets of Kathmandu despite it not fitting under the general understanding of being emergent, it still means that the regulation carelessly charged 40% of the innocent. Therefore, the better government strategy would be to act upon particular compelling factor for honking that would ultimately relieve motorists from honking in the first place. Enforcing Public buses to only stop at designated spaces, assuring separate commute pathways for pedestrian and traffic, and enforcing effective traffic management at junctions and cross-roads could actually be the decent efforts to organically reduce honking.

Ayushma Maharjan

About Ayushma Maharjan

Ayushma is working as an intern in the research department of Samriddhi Foundation.

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