A little over two months into the blockade of supply of basic necessity goods and services including the petroleum products from India to Nepal, Nepal is facing a severe economic as well as humanitarian crisis like one it has never seen before. Hospitals are running out of medical supplies, households are running out of cooking gas, industries are running out of fuel (which has led to the shutting down of hundreds of thousands of enterprises – big and small), majority of the people have been forced to resort to either walking or commuting on crammed buses that are carrying two to three times their capacity of passengers. During the second week of November, Nepal Oil Corporation (NOC) which is the government-owned enterprise with the monopoly of acquiring petroleum products for supplying to the entire country even asked the private consumers to not queue up in the fuel pumps for its stock had come down to a level where it could only supply to operators of emergency services, and even that was only for a few days.
Not a single citizen has been spared from facing the brunt of this crisis. Presumably, everything would have come to a standstill. But amazingly, people are still managing to continue to do what they do. Of late, the traffic is even getting heavier than what it used to be about a month ago. So what is this source from which people are getting fuel for their motor-cycles, cars, public buses and taxis despite the failure of the government monopoly that was responsible to do it?
The answer once again, when the government fails to deliver, is the market. Yes, it is the market. Or as the government likes to call it, “the black market!” Entrepreneurial private individuals around the Nepal-India border (from both sides) are coming together to “smuggle” the basic necessities into Nepal and then send them across Nepal; against all restrictions imposed by the state and risking being caught and charged for committing a crime. And why crime? Because the government has prohibited anyone other than its very own failure of an enterprise from importing petroleum products in Nepal. However, it is this black market that has helped us in our endeavor to live a normal life and do what we do. Yes, we can only do some 25-30% of what we would otherwise do, but still much better than the nil that we would be doing in their absence.
This might raise another question in our minds. How can the market arrange all these things so smoothly while the almighty government is having a hard time doing it? Fortunately, market makes necessary adjustments whatever the situation of the economy be, the very capacity the state lacks. After the supply shock of the petroleum, the higher demand couldn’t be catered to. But the people still needed fuel which resulted in people willing to pay higher prices. The willingness of the people to pay higher prices was communicated to other players in the market (people who did not have to be previously associated with the petroleum industry at all) to divert their resources to ensuring supply of petroleum. The higher returns incentivized them to devote their time, money, energy and most importantly to bear the risk of playing in the “illegal” market of petroleum and supplying them.
The people who valued the petroleum product more and were willing to pay more came in contact with the suppliers and thus made a deal in which both of them mutually agreed and benefitted in their own personal ways. The suppliers who were willing to risk it all got higher profits, and the consumers who needed fuel to carry on with their regular businesses got to use the fuel to do what they do and earn a livelihood by selling other goods or service that they produce. And this is exactly how the market works. Each individual consumer and producer based on his/her knowledge that he/she has acquired from the market, acts and reacts to the market situation in order to achieve personal expectations and benefits.
So what lesson do we draw from this real-life example? What we need to do at the moment is acknowledge and institutionalize this automation in the economy. If the private sector is allowed to enter into this business of petroleum trading freely and fairly easily, the possibility of another economic crisis will be substantially reduced. The government has to loosen all restrictions barring private sector from coming into the petroleum trading business. For instance, the minimum paid-up capital regulation should be dropped. Meanwhile, it should be ensured that exclusivity should not be offered to any private company in order to prevent private monopoly which is much worse than the government monopoly. Furthermore, the international companies interested to enter into the petroleum supply business should also be encouraged by eliminating various discouraging restrictions to them. For instance, tariffs on the import of petroleum product could be reduced to minimum. In this way, competition between various national and international companies should be encouraged. Hence, each and every player in the market will compete against each other trying to gain a large share of the market and therefore will try to supply qualitative product at cheaper price. In the long run, the players who cannot survive the fierce competition and are performing quite bad will exit the market. So, NOC wither will have to be really competitive and function efficiently or, it will have to be shut down.