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Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

Market at work amidst Nepalese political-economic crisis

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.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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जलविद्युतमा पछिल्लो विकासक्रम

हाम्रो देशमा ठूला–ठूला राजनीतिक परिवर्तनहरु भए तापनि विविध कारणहरुवश हामी गरिब राष्ट्रकै रुपमा रहिरहेको अवस्था छ । नेपालको विकास भन्ने बित्तिकै जलविद्युत र पर्यटनलाई केन्द्रमा राखेर हेर्ने गरिन्छ । नेपालको १०३ वर्ष लामो जलविद्युतको ईतिहास खासै उत्साहजनक भने छैन । नेपाल उद्योग वाणिज्य महासंघका अनुसार नेपालको अहिलेको एक प्रमुख आर्थिक समस्या ऊर्जा अभाव हो । नेपाल विद्युत प्राधिकरणले आपूर्ति गर्ने विद्युत करिब ९ रुपैयाँ प्रति युनिटमा उपलब्ध हुने बिद्युत लोडसेडिगंको समयमा डिजेलबाट उत्पादन गर्दा करिब ३६ रुपयाँ प्रति युनिट पर्न जान्छ; जसले आम सर्वसाधारणलाई असुविधा त हुन्छ नै, यस अलावा वस्तु तथा सेवा उत्पादनको लागत पनि बढ्न जान्छ । नेपालमा प्रचुरमात्रामा जलस्रोत हुनु र संसारमा पानीको महत्व हरेक किसिमले बढ्दै जानु हाम्रा लागि धेरै अगाडीदेखि मौकाको विषय थियो । यद्यपि यो मौकालाई उपयोग गर्न हामीले धेरै ढिला गरिसकेका छौँ । पछिल्लो संविधानसभाको चुनावपछि भने नेपालको अर्थतन्त्र र जलविद्युूत क्षेत्रमा केही राम्रा संकेतहरु पनि देखिएका छन्; यद्यपि नीतिगत देखि अन्य सुधारको आवश्यकता धेरै ठाउँमा छ ।

भारतका प्रधानमन्त्री नरेन्द्र मोदीको नेपाल भ्रमणलगत्तै नेपाल र भारतबीच ऊर्जा व्यापार सम्झौता (पि.टि.ए.) मा हस्ताक्षर भएपछि जलविद्युत क्षेत्रमा केही काम भएको देखिन्छ । त्यसपछि काठमाडौंमा भएको अठारौँ सार्क सम्मेलनमा नेपालकै प्रयासस्वरुप सार्क ऊर्जा सम्झौतामा हस्ताक्षर भएपछि यसक्षेत्रमा उत्साह झन थपिएको छ । यद्यपि उत्साहलाई नतिजामा बदल्नका लागि धेरै काम गर्नुपर्ने देखिन्छ । सबभन्दा महत्वपूर्ण कुरा त यसबीच दुई ठुला आयोजनाहरुः माथिल्लो कर्णाली र अरुण तेस्रोको आयोजना विकास सम्झौता (पि.डि.ए.) भएको छ । यी दुवै आयोजनाहरु ९०० मेगावाटका हुन् । यस बाहेक करिब २ हजार १ सय ५६ मेगावाट बराबरका ९२ जलबिद्युत आयोजना निर्माणको चरणमा छन् । करिब १२ सय मेगावाट बराबरको जलबिद्युत आयोजना आगमी ३÷४ बर्षभित्र बनिसक्ने अवस्थामा छन् जुन अहिलेको लोडसेडिङ्गहटाउन करिब पर्याप्त बिद्युत हो । लगभग १३ हजार मेगावाट बराबरका ५ सय ४७ आयोजनाहरुको सर्वेक्षण र उत्पादन अनुमतिपत्र बितरण भईसकेको छ । करिब ७० आयोजनासँग प्राधिकरणले बिद्युत खरिद सम्झौता (पि.पि.ए.) गरिसकेको छ । यसैबीच करिब १८ बर्षपछि ६ हजार ७ सय २० मेगावाटको पञ्चेश्वर बहुउद्देश्यीय आयोजनाका बिवादहरु पनि समाधान हुने र निर्माण अगाडी बढ्ने प्रक्रियामा छन् । यसैगरी नेपालको चीन र बङ्गलादेशसँग पनि पिटिए गर्ने तयारीमा छ ।

नेपाल र भारतबीचको ऊर्जा व्यापार सम्झौताले नेपाल र भारतमा ऊर्जा किनबेच र लगानी आदान–प्रदानको बाटो खोलेको थियो भने सार्क ऊर्जा सम्झौताले अहिलेलाई सैद्धान्तिक रुममा मात्रै भएपनि नेपालको ऊर्जा कम्तिमा भारत, बङ्गलादेश र पाकिस्तान सम्म पु¥याउने बाटो खुलेको छ । यी तीनवटै देश ऊर्जा अभाव भोगिरहेका राष्ट्रहरु हुन् । नेपाल र भारतमा ऊर्जा बढी उत्पादन हुने र बढी माग हुने मौसममा फरक पर्ने हुँदा किनबेच अझ बढी सान्दर्भिक छ । बङ्गलादेश आँफै नेपालसँग विद्युत किन्न चाहन्छ । भारत र बङ्गलादेश बीच प्रसारण लाईन पनि बनिसकेको र नेपाल र भारत बीचको प्रसारण लाईनको क्षमता बृद्धि हुने क्रममा रहेका कारण बङ्गलादेश निकट भविष्य मै हाम्रो बजार हुनसक्छ । पाकिस्तान पनि भारत र अन्य देशसँग ऊर्जा किन्न चाहन्छ । भारतले पाकिस्तानलाई विद्युत बेच्छ भनेपनि अप्रत्यक्ष रुपमा हाम्रो बजार बृद्धि हुन्छ । चीन ऊर्जाक्षेत्रमा लगानी गर्नका लागि अत्यन्त सम्भावित देश हो । हालैको चिनियाँ विदेशमन्त्रीको नेपाल भ्रमण पश्चात चीनको नेपालमा सहयोग उल्लेख्य रुपमा बढेको छ । नेपाल उत्तर कोरिया पछि चिनियाँ सहयोग धेरै पाउने दोस्रो देश भएको छ । चीन अनुदान सहयोगका साथसाथ लगानी पनि बढाउने मनसायमा रहेको देखिन्छ । उनीहरुको ध्यान पूर्वाधार लगानी मै केन्द्रित रहेको देखिन्छ । नजीकैको अर्को राष्ट्र भुटान भने जलविद्युतमा नजानिँदो किसिमले हाम्रो प्रतिस्पर्धी बनिरहेको छ । भुटान अहिले करिब १७०० मेगावाट विद्युत उत्पादन गर्छ र यसको करिब दुई तिहाइ भारतलाई बेच्छ, जुन उसको प्रमुख आम्दानी बनेको छ र यही कारणले उनीहरुको प्रतिव्यक्ति आय बढेको छ । सन् २०२० सम्म भुटान १० हजार मेगावाट विद्युत बिक्रि गर्ने योजनामा रहेको छ । तर पनि तत्कालै भुटान हाम्रो लागि समस्या रहने देखिँदैन । भारत उदाउँदो अर्थतन्त्र भएको र उसलाई प्रशस्त विद्युत चाहिने हुँदा यदी नीतिगत तथा अन्य समझदारी भएमा बजारको समस्या हुदैन । यसैपनि अन्य स्रोतहरुलाई हटाउने हो भने हाम्रो आन्तरिक विद्युत माग नै ५२०० मेगावाट पुग्छ र नेपाल विकासशील राष्ट्र बन्ने तर्फ उन्मुख हुँदैगर्दा यो गुणात्मक रुपमा बढ्ने निश्चित छ ।

नेपालमा जलविद्युत विकासका लागि सबभन्दा बढी नीतिगत र संरचनागत सुधारको खाँचो छ । हामी अहिले सिगंल बायर (एकल खरिद) मोडेलमा छौँ । नेपाल विद्युत प्राधिकरण आफै बिजुली उत्पादन गर्छ, प्रसारण लाईन निर्माण, संचालन, विद्युत खरिद सम्झौता र विद्युत बेच्छ । जसले निजी क्षेत्रका उत्पादकहरुलाई प्रतिस्प्रर्धा गर्न गाह्रो बनाइदिएको छ । यसको समाधानका लागि एक अलग्गै विद्युत व्यापार कम्पनी चाहिएको छ । प्रशारण लाइन निर्माणमा निजी क्षेत्रलाई सहभागी गराउनुपर्ने देखिन्छ । यसका लागि विद्युत ऐनमा नीतिगत सुधार आवश्यक छ । यसैगरी विद्युत विकास विभाग आयोजना निर्माणमा सहभागी नभई नियमनकारी निकायका रुपमा मात्र रहनु अत्यावश्यक छ । प्रसारण लाइन निर्माणका क्रममा जग्गामा दिइने मुआब्जा र जग्गा अधिग्रहणमा समस्या देखा परेको छ । यो सम्पत्तिको अधिकारसँग पनि सम्बन्धित छ । यसको उचित समाधानका लागि वैज्ञानिक उपाए अवलम्बन गर्नुपर्ने देखिन्छ । लोडसेडिगं समस्याको दिगो समाधानका लागि बुढीगण्डकी जस्तो रिजर्भमा आधारित आयोजना अगाडी बढाउनुपर्ने हुन्छ । यसलाई अगाडी बढाउन आवश्यक लगानी जुटाउनका लागी निजी–सार्वजनिक साझेदारी देखि लिएर बन्ड बिक्रिसम्मका उपाए अवलम्बन गर्न सकिन्छ । यसैगरी केही विज्ञहरु जलस्रोत, सिचाँई र ऊर्जासँग सम्बन्धित एउटै मन्त्रालय भएमा काम गर्न निकै सजिलो हुने तर्क गर्छन् । यसकुरामा पनि ध्यान जानु जरुरी छ । आयोजनास्थलको सुरक्षा पनि एक सवाल हो । यसैगरी वैदेशिक लगानी आकर्षित गर्नका लागि अहिले प्रस्तावित वैदेशिक लगानी नीतिलाई बढी भन्दा बढी लगानीकर्तामैत्री बनाउनुपर्ने देखिन्छ । यी र यस्ता सुधार भएमा हामी जलविद्युतमा फड्को मार्ने संघारमा पुगिसकेका छौँ ।

जलविद्युतको विकास नेपालको समग्र विकासको आधार हो । जलविद्युत नेपालमा रोजगारीको सृजना गर्ने, निर्यात बढाउने र सम्पूर्ण देशको काया पलट गर्नसक्ने क्षेत्र हो । यसले अन्य क्षेत्रको विकासका लागि समेत जग बसाल्ने देखिन्छ ।वैदेशिक सम्बन्धहरुलाई आर्थिक अवस्था, व्यापारको मात्रा र आयात निर्यातले परिभाषित गरिरहेका नयाँ परिवेशमा यदी हामीले जलविद्युतमा अपेक्षित विकास गर्न सक्यौँ भने हाम्रो भारतसँगको सम्बन्धमा नयाँ आयाम थपिने मात्र होइन नेपालको नयाँ अन्तर्राष्ट्रिय पहिचान बन्न पनि निकै सहयोग पुग्ने देखिन्छ ।

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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Four Problems in Credit Market of Nepal

Every year, the Canada-based think tank, Fraser Institute, publishes the Economic Freedom of the World Report. Samriddhi, The Prosperity Foundation releases the report in Nepal as the country partner. This time around, Samriddhi Foundation also undertook a Country Audit process to test how truly the numbers in the Index reflect the attributes of the economic sector of Nepal. The process further studies how the economic freedom of the Nepalese people has been restrained.

Out of the five major components and forty-two sub-components of economic freedom, Nepal score a 7.28 (out of 10) in the Credit Market Regulation sub-category under the category “Regulation”. The country audit process has identified the following 4 problems in the credit market sector as the major challenges to instating economic freedom in Nepal.

  1. The first major problem in Nepalese banking sector is low public participation. A large proportion of the people do not have access to banking. In real 1984/85 terms, the per capita cash deposit in the banks and financial institutions was as less as Rs. 20 in the year 2007. This figure depicts that a large number of people are deprived of banking services, and consequently, of credit as well. This deprivation is one of the main hindrances for capital accumulation and formation, and thus, higher economic growth.
  2. The direct control of the government over the banks has added more problems. The government has pressured banks to provide collateral-free loans at low interest rates to some ‘deprived/marginalized’ groups. This has compelled banks to make riskier investments in order to increase revenue generation from alternative sources. Also, there is a provision in the monetary policy of 2012/13 that prohibits banks and financial institutions from charging interest of more than 9 percent for refinancing in the productive sector. Such interest caps can also been seen in some other sectors too. It is true that these sectors may get loans at cheaper interest rates; but only at the cost of interest expenses of other sectors, meaning, banks will charge higher interests in other sectors to cover up the loss.
  3. The Central Bank has also regulated the spread. In July 2014, the Central Bank issued a directive that restricted the spread rate –the difference between interest charged to borrowers and that paid to the depositors –at 5 percent. These controls over the credit market, in the pretext of benefitting some groups, have hampered the growth of a free credit market.
  4. Another problem in the credit market is lack of alternative channels of investment. There are inadequacies of the entities like hedge fund, mutual fund and venture capital. These alternative forms of investment provide opportunity to the people to invest in various forms and gain higher returns instead of saving in the banks and earning negative real interests or investing in the physical assets. Development of these alternatives will lead to more choices to the investors and will induce more investments.

Hence, the regulatory control of the authority over banks seems to be the main reason behind the underdevelopment of the credit market. Freeing the credit market may help boost up the financial system and thus yield higher levels of growth. Although the regulator had not set forth any regulation over the specific interest rates since liberalisation started in Nepal in the early 1990s, the 2014 directives of Nepal Rastra Bank (the Central Bank of Nepal) instructing commercial banks to keep the spread rate within 5 percent is against the principle of liberalisation and economic freedom. This has shown the Central Bank’s duality in its commitments and actions. The end of this control seems more justifiable to resolve the problems of the credit market.

Another potential solution could be pooling up the various government funds such as Youth and Small Enterprise Self-Employment Fund into a single larger fund and mobilizing it through a private party. Similarly, in order to increase the banking habits of the people, the provision of the bill-payment of the various public utilities through banks should be executed. Another requirement for an improved Nepalese banking sector is competitiveness. Allowing the foreign financial institutions to enter the Nepalese market freely can promote competition, lead to innovation, increase choices to the consumers and thus improve the whole financial market.

Along with the free entry of foreign banks, a liberal Foreign Direct Investment (FDI) policy should also be implemented for an easy inflow of capital. Allowing FDI would also help local banks, enhancing their client base.

In addition to these, a liberal financial policy that will foster alternative channels of investment such as hedge funds, mutual funds, and venture capitals may provide capital owners with choices beyond conventional banking and real estate.

For more details on the 2015 Economic Freedom Country Audit Report Nepal, please click here

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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Rule by (Making) Law… That’s what they mean

On august 16, Bizmandu published a very bothersome news which paints a bleak picture of the business environment in Nepal. A Himalayan Java (restaurant) employee had been apprehended for black marketeering. Here is what happened:

A customer orders a bottle of water… as per the price on the item menu, he is charged Rs. 130 for the bottle of water… the customer thinks he is being over-charged, following which, he lodges a complaint at the nearest police station…the police apprehends an employee of the restaurant…The owners are then asked to present themselves before the police (one of them has to make it back all the way from the US)… the employee is released by now… the owners are then forced to pay a fine of Rs. 75,000 to bail themselves out as professed by the CDO of Kathmandu, Mr. Eknarayan Aryal.

This particular case raises various questions like:

• Is this offense by the authority justified?
• On what basis were the restaurant owners charged?
• Should the price be determined by the government? If so, on what ground? Does the government’s intervention and price control have real benefits?

“The Black- marketing and Some Other Social Offenses and Punishment Act, 2032 (1975)” explains the process of the determination of the wholesale and retail prices of the goods. It further goes on to talk about the punishment in the case of violation of the Act. However, no clause defines the process of price-determination in case of a service; in this case, the bottle of water being sold by a restaurant. In this regard, the CDO has rightly remarked that there is no clear policy; however when questioned on what ground, the restaurant was charged a fine of Rs. 75,000, he reverted back to the same Act. Now, this raises concerns on two fronts. First, if a specific sector doesn’t fall under the jurisdiction of a certain Act, is it legal to charge the sectorial entrepreneur on the basis of an irrelevant Act? Second, there is no provision of charging the guilty a sum of Rs. 75,000, not even in the case of the sectors that fall under the Act. So, on what ground did the authority fine the entrepreneur?

This Act shows that the authority thinks it is above the law. Today, it fined somebody Rs. 75,000; who will stop it from fining somebody a sum of Rs. 500,000 for a crime that is not even committed (as per the law)?

The government has intervened between the producer and the supplier and has tried to set the price. But on what basis has the government tried to do so? If the customer at a restaurant himself cannot decide how much value the restaurant is offering him, how can the government suddenly determine how much value is being created for the customer? So, the setting of the price by the government is not really justified. It cannot just set the prices neglecting various factors in the market!

Looking superficially, the price control may seem like a nice action from the government, but there are many unintended consequences it can bring along. First of all, it reduces the profitability for the entrepreneurs. This may very well lead many of them to exit the industry in addition to discouraging new entrants which may cause a shortage in the market. The consumers will then have to queue up to get a service, pay black market prices to get the service faster, or pay high price for mediocre service. And that’s still not all that there is to it. When the market is set free and the prices are not controlled, the service providers compete among themselves to provide better services in cheaper prices and you never know the market price may fall well below the government mandated price while the services get better and better. Moreover, the producers that charge higher prices get less customers and vice versa. The customers always have a choice not to go to a producer that charges too high for his liking.

When the price is determined by repetitive interaction between the producers and consumers, both are better off. The transaction will only occur between the two if both find it profitable i.e. if both find they are getting something that they value more than what they are giving up; or the transaction would not take place at all. So, it’s a mutual exchange of benefits.

The government, by making intervention strips down the benefits of the mutual exchange in the free market. The government, by intervening, like in the case of Himalayan Java, only negatively impacts the economy and risks stagnating the economy.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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