Category Archives: Economy

भारतीय बजेटको तरंग

डा. हेमन्त दवाडी

भारतका वित्तमन्त्री अरुण जेट्लीले आर्थिक वर्ष २०१७/१८ को वार्षिक बजेट भारतीय संसद्मा प्रस्तुत गरेका छन्। सवा सय करोड जनसंख्या भएको र विश्वअर्थतन्त्रमा ‘ब्राइट स्पट’का रूपमा चित्रण गरिने मुलुकको बजेटप्रति अन्तर्राष्ट्रिय चासो हुनु स्वाभाविक हो। अझ नेपालजस्तो भारतसँग खुला सिमाना रहेको र आफ्नो दुईतिहाइ अन्तर्राष्ट्रिय व्यापारसमेत उसैसँग हुने मुलुकका लागि त त्यहाँको बजेट महत्वको विषय हुने नै भयो।

भारतीय बजेटले भारतमा आयात हुने वस्तुमा लाग्ने महसुल र भारतमा उत्पादन हुने वस्तु र सेवामा लाग्ने शुल्कमा खासै परिवर्तन नगरेबाट नेपालमा ती वस्तुको मूल्यमा तत्काल असर नपर्ने देखिन्छ। अप्रत्यक्ष करमा भएका सबै परिवर्तन अझै पनि उपलब्ध भइनसकेकाले तिनको विस्तृत लेखाजोखा हुन केही समय लाग्नेछ।

भारतका वित्तमन्त्रीले त्यहाँको सरकारको बजेट एजेन्डालाई रूपान्तरण, सशक्तिकरण र निर्मलीकरणका रूपमा चित्रण गरेका छन्। यसले नेपाललाई पनि आफ्नो अर्थतन्त्रलाई पारदर्शी एवं उद्यमशीलतामुखी बनाउन अभिप्रेरित गर्ने सम्भावना छ।

पाँच सय र हजार रुपैयाँका पुराना भारतीय नोटको ‘नोटबन्दी’पछि आमभारतीयले भोग्नुपरेको कष्टलाई दृष्टिगत गरेर तिनलाई खुसी पार्नेखालको ‘पपुलिस्ट’ बजेट आउने अपेक्षा धेरै भारतीय विश्लेषकको थियो। तर, अपेक्षाविपरीत पुँजीगत खर्चमा बढोत्तरी गरी सरकारले दिने अनुदानमा खासै परिवर्तन नहुनुले भारतीय बजेटलाई ‘पपुलिस्ट’ मान्न मिल्दैन। बजेट वक्तव्यपश्चात् भारतीय पुँजीबजारको मापक मानिने बम्बे स्टक एक्सचेन्जको सेन्सिटिभ इन्डेक्समा झण्डै ५०० अंकको (करिब १.५ प्रतिशत) वृद्धि हुनुले उद्योग व्यापार क्षेत्रले भारत सरकारको बजेटलाई सकारात्मक रूपमा लिएको पुष्टि गर्छ। भारतका कतिपय स्वतन्त्र अर्थशास्त्रीले बजेटको स्वागत गरेका छन्। भलै चरम राजनीतिक विभाजन भएको अवस्थामा केही प्रमुख राज्यको आमनिर्वाचनको पूर्वसन्ध्यामा ल्याइएको बजेटलाई विरोधी दलहरूले नकारात्मक चित्रण गरेका छन्।

यस  बजेटको प्रमुख विशेषता पुँजीगत क्षेत्रमा बढेका विनियोजन नै हुन्। ग्रामीण क्षेत्रमा गरिने पुँजीगत लगानीमा २४ प्रतिशतको वृद्धि गरिएको छ। यसले ग्रामीण भारतको पूर्वाधारमा ठूलो परिवर्तन ल्याउने र भारतीय कृषि अर्थतन्त्रमा सकारात्मक असर पर्ने अपेक्षा गर्न सकिन्छ।

भारतीय बजेटले त्यहाँका साना व्यक्तिगत आयकरदाता र सानो कारोबार गर्ने कम्पनीको आयकरमा कमी गरेको छ। अब भारु २.५ लाखदेखि ५ लाखसम्म आय रहेका व्यक्तिले १० प्रतिशतको सट्टा ५ प्रतिशतमात्र कर तिर्नुपर्ने भएको छ। त्यस्तै, भारु ५० करोडसम्मको कारोबार गर्ने कम्पनीले ३० प्रतिशतको सट्टा २५ प्रतिशतका दरले मात्र संस्थागत आयकर तिर्नुपर्नेछ। साथै, कर तिर्ने सबै व्यक्तिको कर दायित्वमा १२,५०० ले कमी आउने भएको छ। भारतले लिएको यस कदमबाट नेपालमा पनि साना करदातालाई लाग्ने करको भार कम गर्न दबाब बढ्ने निश्चित छ।

भारतीय बजेटमा भुक्तानीको विद्युतीय माध्यमको प्रयोग बढाउन र मुलुकको अर्थतन्त्रलाई पारदर्शी बनाउन धेरै पहल घोषणा भएका छन्। भारतीय अर्थतन्त्र ‘क्यासलेस’ हुँदै जाँदा उद्योग एवं उत्पादनहरू थप प्रतिस्पर्धी बन्ने निश्चित छ। यसले भारततर्फ हुने नेपाली निर्यातमा थप दबाब पर्नेछ र नेपालमा भारतबाट हुने आयात बढ्नेछ। साथै, अर्थतन्त्रमा नगदको प्रयोग घटेमा कर छल्ने प्रवृत्तिमा कमी आउने र अनौपचारिकको सट्टा औपचारिक अर्थतन्त्रले टेवा पाउने देखिन्छ। बजेट वक्तव्यमा भारतीय वित्तमन्त्रीले राजनीतिक दलहरूलाई दिइने चन्दा सम्बन्धी नियममा व्यापक परिवर्तनको प्रस्ताव गरेका छन्। अहिलेसम्म २०,००० सम्मको चन्दा नगदमा स्रोत नखुलाइ लिन पाइने अवस्था रहेकोमा अबउप्रान्त २,००० सम्ममात्र स्रोत नखुलेको चन्दा लिन पाइने भएको छ। साथै, राजनीतिक दलले मात्र भुक्तानी लिन मिल्ने चुनावी ऋणपत्र(इलेक्टोरल बन्ड) को प्रस्ताव बजेटमा छ।

अपारदर्शी अर्थतन्त्र(ब्ल्याक इकोनोमी) बढ्नुमा राजनीतिक दलको अपारदर्शी वित्तव्यवस्थालाई नै प्रमुख कारकको रूपमा लिने गरिन्छ। राजनीतिक दललाई दिइने अपारदर्शी चन्दाले भ्रष्टाचार एवं आर्थिक विकृतिलाई टेवा दिने गर्छ। नेपालमा पनि राजनीतिक दलहरूको आय–व्ययमा ठूलो अपारदर्शिता रहँदै आएको छ। के हाम्रा राजनीतिक दलले अबउप्रान्त सबै चन्दा पारदर्शी रूपमा चेकमार्फत् लिन पहल गर्लान्? र, हाम्रा अर्थमन्त्रीले बैंकमार्फत् मात्र दलहरूलाई चन्दा दिन पाइने र राजनीतिक दलले आफ्नो आयको विवरण आयकर प्रशासनलाई दिनुपर्ने बाध्यकारी व्यवस्था लागु गर्ने साहस गर्लान्? यो हामी सबैका लागि चासो र चाखको विषय हो।

भारतीय बजेटमा वैदेशिक लगानीको क्षेत्रमा ठूलो प्रक्रियागत परिवर्तनको घोषणा भएको छ। हालसम्म भारतमा कतिपय क्षेत्रमा स्वचालित माध्यम(अटोमेटिक रुट) बाट र अन्य क्षेत्रमा सरकारको वैदेशिक लगानी प्रवर्द्धन बोर्डको पूर्वअनुमति लिएपछि मात्र वैदेशिक लगानी गर्न पाइने व्यवस्था थियो। वित्तमन्त्रीले वैदेशिक लगानी प्रवर्द्धन बोर्डको अन्त्य गरी सबै वैदेशिक लगानी स्वचालित माध्यमबाट परिचालन गर्ने प्रस्ताव गरेका छन्। नेपालमा पनि कतिपय वैदेशिक लगानीका निम्ति उद्योग तथा लगानी प्रवर्द्धन बोर्डको पूर्वअनुमति लिनुपर्ने व्यवस्था छ। पूर्वअनुमतिका लागि बोर्डमा प्रस्ताव लगिरहनु नपर्ने व्यवस्था गरिएमा वैदेशिक लगानीको वातावरणमा केही सुधार हुन सक्ने थियो।

भारतका वित्तमन्त्रीले त्यहाँको सरकारको बजेट एजेन्डालाई रूपान्तरण, सशक्तिकरण र निर्मलीकरणका रूपमा चित्रण गरेका छन्। यसले नेपाललाई पनि आफ्नो अर्थतन्त्रलाई पारदर्शी एवं उद्यमशीलतामुखी बनाउन अभिप्रेरित गर्ने सम्भावना छ। नेपालमा नियन्त्रणमुखी विचारधाराको बाहुल्य रहेको परिप्रेक्ष्यमा बजेटमार्फत् भारतीय अर्थतन्त्रमा आउने आर्थिक परिवर्तनबाट नेपाली अर्थतन्त्र अझै पछि पर्ने सम्भावना बढेको छ। व्यक्तिव्यक्तिमा रहेको उद्यमशीलताको उपयोग गर्दै प्रतिस्पर्धी अर्थतन्त्रको निर्माणको विकल्प नरहेको सन्देश भारतीय बजेटले दिएको छ।

Hemant Dabadi

About Hemant Dabadi

Dr. Dabadi is a Senior Fellow at Samriddhi Foundation.

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Restricting Investment Abroad and Illicit Capital Outflows

Given Nepal’s unfavorable business environment–Nepal ranks 107th in the World Bank’s Doing Business Report 2016—it is not very surprising if Nepalese wished to invest abroad for better returns. However, the Government of Nepal has barred Nepalese from making any foreign investments through the Act Restricting Investment Abroad, 2021B.S (1964) with genuine motives of preventing Nepalese capital to go out of Nepal so that it could all be channeled to Nepal’s economic growth. This Act was introduced 53 years ago when globalization was a far cry. However, the relevance of this law today is questionable.

The Global Financial Integrity (GFI) report released in December 2015, Illicit Financial Flows from Developing Countries: 2004- 2013, has ranked Nepal 86th out of 149 developing countries surveyed for Illicit Financial Flows (IFF). Nepal’s average illicit capital outflow from 2004-13 was 567 million US dollars per year. According to an article in Republica, economists reason, “prolonged political transition, lack of an investment friendly environment, and no guarantee of profit due to low productivity are encouraging the capital outflow.” The GFI report has drawn attention to the existing illegal means by which people have taken their money out of their borders. It is therefore clear that the government’s attempt at protecting and promoting the economic growth of Nepal through restrictive measures has failed to achieve its desired goals.

Circumventing laws in Nepal is not a new practice – Nepal ranks 131st in Transparency International’s Corruption Perception Index, 2016. If people with right connections are already capable of taking money out of Nepal despite the Act to Restrict Investment Abroad (1964), and it is agreed that Nepal’s investment climate is not very favorable, restricting its other citizens (without connections) from making more profitable investments does not sound like a 21st century idea of development. If there are better prospects outside, any rational investor will start looking for loopholes in the law to be able to invest outside. If a government so wishes for capital to channel it towards domestic investments, then it would make more sense to in fact frame policies that incentivize even foreigners to come and invest in their country. When even foreigners are coming in for this host country which now offers better returns and better investment climate, then fewer domestic nationals would take their money out of the country.

There are several benefits of globalization that Nepal has not been able to capitalize on. These are missed opportunities for Nepal and for Nepalese. The relevance of policies that bar Nepalese from making foreign investment needs to be reconsidered. It only makes sense to have laws that are implementable. Laws that are binding only upon those who are unable to violate them are of no good to the nation, and is clearly indicative of the public sentiment around it. Coercion has its own limitations, and even if Nepal tries to shy away from globalization, the citizens will not.

About Shalini Gupta

Shalini is a Research Officer at Samriddhi Foundation

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Is the idea of state running large buses the solution to improve public transport experience?

Every one of us commuting in public vehicles in the city can recognize the awful experience in travelling by heavily crowded unmaintained buses while being squeezed up among commuters in most uncomfortable ways. The chronic victims are in fact the ones traveling to work on busy commuting hours when this recklessness is at its peak. For such commuters as we know, travelling between home and work has mostly been the area of tension besides work.

In recognizing the tragedy of the commuters, the central government has made a decision to urge the municipalities of Kathmandu Valley to jointly form a company to operate 50 large buses running around the city. And, given our common belief that state is somehow responsible for taking care of our fundamental necessities like proper public transport system, this decision can easily be perceived as virtuous effort. After all, this government commitment to provide better public commutation service to people seems as a move to rescue us from the daily bad commutation experience. However, this common logic doesn’t draw the complete picture for this matter. There are actually relatively unaddressed but severe realities that can lead us to come at more thoughtful conclusions.

In digging deeper down in search of the root cause of the terrible realities of our public transport service, one has to come across the existence of mafia-like transport syndicate. The transport syndicate being formed by influential associations of transport operators has enabled them to dominate the public transport sector in Nepal despite the horrible transportation service they are providing since decades. By preventing the entry of new transport entrepreneurs in the public transport sector by means of coercion and vandalism, the syndicate of public transport associations has heavily protected the limited number of below standard service providers from the mechanism of free competition that guarantees quality service. Meanwhile, their strong political connection and presence in regulatory committee (i.e., Transport Management Committee) that awards permits to new entrepreneurs in this sector has retained their impunity from law despite their illegal attempts to maintain monopoly.

The idea of government running its own bus fleets to put competitive pressure on the syndicate is understandable. But, it may not be the most sustainable solution to the benefit of public vehicle commuters and taxpayers at large. To clarify such contention, one can always refer to the misery of the state-run enterprises in having to hugely rely on state coffer financed by taxpayers to somehow run its inefficient and loss making operations producing below standard services. Though they carry the objective of running in a profit-model concept that expects them of surviving on their own revenue, the state-system instead offers them the facility to encroach on tax payer’s wealth indefinitely as they lose track of profits. And, given the upcoming transport company is to be functioning within the same system and incentive, we can logically expect same fate for this transport based public enterprise too. Alas, state could be only adding another avenue to leech taxpayer’s wealth in name of providing so-called “basic transport service” to the people without considering the financial burden it generates among the very people.

Having said this, utilizing regulatory tools to establish competitive market environment in the public transport sector can instead lead the state to create an effective solution that doesn’t require manipulating taxpayers’ wealth. By neutralizing the condition generated by the syndicate to keep new transport entrepreneurs away from the market, such measure will compel service providers to compete among each other to provide competitive service efficiently to survive in the market on profits. Most importantly, besides preventing taxpayer’s from the burden of financing transport service, it will enable commuters to travel more conveniently with impressive solutions that yield out of continuous innovation through sustained competition.

Prience Shrestha

About Prience Shrestha

Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics

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Impediments to hydropower development in Nepal

This article was originally published in The Himalayan Times on 8 January, 2017

Hydropower development has been a matter of huge discourse and discussion for years in Nepal – a country distressed by hours and hours of load shedding – now. Earlier last year (in February), the Ministry of Energy came up with an action plan on National Energy Crisis Prevention and Electricity Development Decade, 2016 (NECPEDD 2016). This 92-step strategy provides steps to increase electricity production to 10,000 MW in the next decade. However, in retrospect, the government’s plans and strategy have seldom proven to work. The 10,000 MW production had already been envisioned in 2008, almost a decade ago, and still no progress can be seen, let alone achieving the target. Seeing the dismal state of various other plans and strategies of the government in terms of achieving the desired results makes one doubt the efficacy of “this” strategy as well. A number of policy and practical aspects of hydropower sector will have addressed if we are serious about hydropower development.

Political and Policy Problem

For the generation of high volume of electricity, a huge level of investment is required in hydro power sector. As the government cannot finance all hydro power projects, a large part of the investment has to come from private sector and foreigners. Greater degrees of foreign and domestic private investment requires stable political and sound policy environment. These factors reduces risk and enhance profitability of the investment. However, unstable political environment, frequent changes in government, inefficient and extremely politicized bureaucracy and unclear regulations in Nepal have increased the risk and uncertainty of the return on investment and thus made the investment climate in Nepal unfavorable. Once the government changes, the strategies and policies brought by the preceding government is not followed by the successor. This has hindered the development of hydropower sector in Nepal.

Furthermore, multiple government agencies involved in the whole process of hydro power development is a major problem. Under the current policy framework, seven ministries and 23 government departments are involved in the development phase; a total of 36 Acts and Regulations guide hydropower development. The involvement of various government agencies and lack of coordination among them delays the development of the project and further increases the uncertainty.

Benefit Sharing

One of the biggest problems faced by independent power producers is the problem of benefit sharing. The idea of benefit sharing is to make sure that part of the benefits that power producers derive out of their hydropower projects also accrue to the locals in some way for what they have to give up; for example, land, access to water, access to forest, environmental safety and sources of livelihood like farming and fishing.

Electricity Act (1992) requires projects larger than 1 MW to obtain license and pay royalty to the government. The Local Self Governance Act and Local Self Governance Regulations in 1999 required central government to allocate 10 percent of the royalty received to be used in districts where projects are located. This was increased to 12 percent by the amendment in 2004. However, these provisions have not worked as planned.

On the other hand, locals expect the hydropower projects to provide basic infrastructure and service like schools, hospitals, roads etc. They also seek shares in the project and have at times been accused to have floated other unreasonable demands. But, as hydropower developer seeks profit and always tries to reduce cost, they cannot fulfill all the demands of the locals. In this scenario, locals group together to halt and obstruct the hydropower project and force the developer to fulfill their demands. The obstruction of the locals delays the projects and increases the cost. There are also chances that the project would be stopped.

There is no clear answer to what the locals can demand from the developers, what the developers are supposed to give back to the locals, and what role the government is supposed to play in terms of mitigating conflicts of interests between the two former groups, should they arise (and many a times, they do). Hence, the lack of proper regulatory framework regarding benefit sharing mechanism has increased uncertainty and risk. This discourages and demotivates the investors to invest in the hydropower sector.

Availability of finance

The cost of generating 1 MW of electricity has been estimated to be about Rs. 180 million. Taking this into consideration, if we calculate the cost for 10,000 MW, it would be Rs. 1.8 trillion, which is pretty much close to our GDP of Rs. 2.3 trillion. Apart from this, hydropower projects have long gestation periods, so they need long-term financing. For commercial banks on the other hand, short-term investments with greater returns would appear to be more lucrative.  Hence, financial deficit is a major problem. In order to cover the deficit, investment from the foreign investors can have a good deal of contribution. Greater degrees of foreign investment would mean that Nepal can harness more and more of its hydropower potential in the future, if not 10,000 MW in 10 years.

These are three out of many problems faced by hydropower sector of Nepal. Several studies have figured out many other problems. Underdeveloped capital market, lack of adequate transmission lines and insufficient capacity of existing and planned cross-border transmission lines for evacuation of electricity are some other major problems. As there are lot of problems to be addressed, we might not be able to solve all these problems at once. However, if we are committed to development of Hydropower sector, we could resolve one issue at a time. Breaking these bottlenecks is the need of the hour for Nepal, in terms of Hydropower development.

 

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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Dissecting the Industrial Enterprise Bill 2073

This article was originally published by Prience Shrestha on December 25, 2016 in The Himalayan Times.

The Minister of Industries has been making a number of headlines lately. One of the latest ones was when he directed the Department of Industries (DoI) to complete the registration of local industries within 30 hours and those with foreign investment within seven days of having submitted the documents for registration. Similar good news is the fact that the Ministry is currently engaging in drafting the new Foreign Investment and Technology Transfer bill which has a lot of welcome developments for Nepalese economy. Furthermore, the Minister has been very vocal in his other public appearances where he has committed to improving the doing business scene.The new Industrial Enterprise Act has also recently been endorsed, and its potential contribution to enterprise development seems promising.

In short, the reform initiatives being undertaken by the ministry are commendable. There however are areas that seem to have been overlooked in the midst of all of these reforms initiatives. Here I dissect the newly-endorsed Industrial Enterprise Bill from this very lens of how some of the provisions could create nuances in the future or even yield unintended consequences, and hope that these issues will be addressed as we move towards the implementation of the bill (in the form of an Act).

Limitlessness in directives

The bill requires registered enterprises to follow the forthcoming directives of the registration office without specifying its limit. Such limitlessness of what can be ordered by the office will ultimately create uncertainty and confusion among enterprise operators/owner about how they may be influenced in future, thus demotivating them to register their business formally. Laws should be able to give a clear picture to the entrepreneurs in terms of what all they are expected to comply with – offer predictability – so that they can then plan their activities under such clear regulatory framework.

No Maximum Time Limit for Initial Environment Examination (IEE) and Environment Impact Assessment (EIA)

The bill does not stipulate the maximum time limit for the IEE/EIA committees to give clearance to the submitted IEE and EIA reports which are essential for registering certain enterprises.

There have been cases where getting an EIA (say) clearance from the committee has stretched for years for some businesses in the past. While there is a provision that stipulates that the enterprises be registered within seven days of having produced the EIA clearance, the Bill still fails to offer a mechanism on who should, how, and by when to communicate the shortcomings in the EIA should the committee find such shortcomings in the report.Setting a time limit by which the committee should communicate the limitations of the EIA reportwith the entrepreneur/industrialist citing the specific limitations could further hasten up thebusiness registration process. This would allow the applicants to address those issues at the earliestand complete the process sooner. Failure to hold the committee accountable on this front is boundto keep registration of a number of businesses in limbo, and worse even, create room for corruption.

Composition of the Industry and Investment Promotion Board (IIPB)

Though it is mentioned in the Bill that IIPB should decide on whether or not to permit the establishment of certain kind of enterprise within 30 days, the ex-officio status of the board members can likely not allow them to make decisions even within 30 days. Their ex-officio status will often hold them with primary responsibilities leaving less time to meet regularly, or timely carry out the functions that they are required to, as members of the board.  This can slow down permission, and consequently, the registration process.

Secondly, the necessity to obtain permission from the IIPB in altering any policy that influences the operation of the industrial enterprise adds an additional layer of bureaucracy (which is further worsened by the former problem of composition).

Thirdly, the composition of the board creates room for conflicts of interest. Having representatives of business associations in a body that grants permission to new entrants gives undue power to the existing business operators to influence who can and who cannot enter the market. The Bill does try to exclude members from partaking in the decision-making process whose interests might come in conflict in cases like these. However, once a party has been conferred such influential powers, there can be alternative means to exercise that power.

The unintended consequence of privileges

The Bill offers a number of benefits and exemptions based on gender and special areas without specifying any time frame until which the benefits will prevail. For instance, certain businesses established in technology-park recognized in Nepal Gazette and Special Economic Zones (SEZs) are bound to receive different forms of tax exemption indefinitely. Women entrepreneurs are given greater priority in terms of granting permission to establish their business in the SEZs while retrieving exemption in different registration fees indefinitely. While such pro-enterprise and pro-gender equality initiatives of the government are praiseworthy, the unavailability of time limit can yield unintended consequences.

Once these kinds of benefits are offered indefinitely for special groups or operators stationed at specific locations, it already creates a situation where different rules apply within the same country. Also, removing these special benefits (say 10 years down the line when the initial goals have been achieved) in the future will have political ramifications. There will be a massive political price to pay for overturning the benefit system, which will perpetuate the benefits, which will further put one group at an advantage over the other. Therefore, it is very important that these benefits be tied up with some specified time frames.

Besides, indefinite tax exemption for business inside the SEZs can create environment of discrimination for businesses operating outside of SEZs. Such discrimination can hinder the idea of enabling equal platform for free competition. In not criticizing the intention of the Bill to offer such privilege for the sake of industrial development, would it not be much better if such provisions applied all over Nepal?

Prience Shrestha

About Prience Shrestha

Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics

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Economic prosperity through free market

This article was originally published by Prience Shrestha on The Himalayan Times in December 11, 2016.

Price system in a free market enables producers to gauge supply and demands of specific products or services in the market and consequently produce those demanded items. In the process, the price system helps the market guarantee an optimal utilization of resources. Following this notion, the idea of encouraging free market while limiting the role of the government in commerce and infrastructural services has remained valid, and has also delivered prosperity in different societies.

The drive towards liberalizing the economy in the 1990s where the private sector took charge of the economy while the government played the role of a facilitator and a monitor sparked impressive economic growth in Nepal in its consecutive years.

However, it should not be taken to mean that Government is a hindrance to prosperity, and therefore deserves to be completely extricated. Instead, Government has a strategic role of framing and enforcing laws and regulations that allow effective functioning of the market in the society. After all, free market relies on rules of just conduct that assures security of certain rights (private property, engaging in free enterprises) and enforcement of contracts for it to prevail and yield prosperity.

‘Strong and limited’ versus ‘weak and unlimited’

Economic prosperity through free market occurs in presence of a strong government that keeps itself to playing the role of a facilitator and only administers justice and provides protection to people lives and properties while allowing the private sector to thrive. On the contrary, unlimited government that participates in all such activities that the private sector could do more efficiently, but is weak in performing its role of enforcing foundational rules of the market is disastrous to economic prosperity.

Renowned economist Tom G. Palmer makes similar assertion as he attempts to range government effectiveness from the lowest scale of “weak and unlimited” to the highest scale of “strong and limited” in his essay called ‘20 Myths of Market’. Interestingly, this continuum offers an opportunity to scale the effectiveness of our own Nepal Government on the very measure of “strength” in enforcing market propelling rules and “limitedness” in keeping itself away from practicing commerce and providing public services and infrastructures – things that can be better taken care of through private sector under clearly laid down regulatory framework.

Weak government

In judging the strength of our Nepal government on this regard, its success in being able to enforce the legislated rules and regulation impartially among all participants of the market is definitely one of the important deciding variables. Given how it has remained exclusively lenient in imposing commercial regulations among large business houses, it only reckons double-standard and weakness from the side of the government in effectively enforcing rules and regulations. The latest running probe against Patanjali Ayurved Group of India regarding its unauthorized investment of more than NRs 150 crore in Nepal without retrieving permission as per our Foreign Investment and Technology Transfer Act (FITTA) is definitely a relevant illustration for it. Though this case scenario has especially charged the Indian Herbal FMCG company as guilty for skipping Foreign Investment regulations, the influence of the company and its founders’ strong stature on our government’s enforceability cannot be undermined either.

Besides, similar concern of lack of government enforceability has also been observed in regards to outbound foreign Investment from Nepal. Speaking of it, people that can exercise influence on the government havemanaged to make foreign investment outside of Nepal despite such practice being barred by the law. In no way could a layman have succeeded in practicing Foreign Investment as such.

The idea here is not to favour the capital control intention of our Investment regulation. It is in fact to highlight the partiality in enforcing the laws and regulation on different individuals and institutions based on stature and political connections. Ultimately, this lack of objectivity only pictures the inability of our government to enforce the legislated regulation.

Except for the inability of the government to enforce laws and regulation objectively, dearth in institutional capacity of the government is also known to have hindered strong enforcement of law and justice. While this issue has infected all areas beyond commercial affairs, unfocused diversion of limited institutional capacity of the Government can be mostly found culprit for it.

The unlimited government

In turning towards evaluating the limitedness of our Nepal government, the boundless extension of ever-ballooning budget of the Nepal government is self-explanatory. After all, it is quite clear that the Government has chosen to remain limitless regarding its scope of influence in the economy. Economic Survey Report FY2015/16 published by the Ministry of Finance (MoF), shows clearly that the growth rate of fiscal budget, and the ratio of Government Budget to National GDP are observing rise in approximate average of 19.77% and 28.26% respectively; in other words, Government of Nepal has adopted the principle of unlimited government in terms of its role in the economy.

If we now revisit the aforementioned scales in terms of measuring the government effectiveness, Government of Nepal unfortunately appears to lie close to the ‘weak and unlimited’ category (as against the more favoured ‘strong and limited’). Therefore, it is advisable for the Nepal government to gradually strengthen its role in areas of law enforcement and justice by curtailing its presence in commercial activities. Gradual divestment of State-owned enterprises mostly involved in commerce is one of the many widely favoured measures prescribed on this regard.Such measure allows the Government to concentrate its unnecessarily dispersed institutional resources in fundamental areas (i.e., administration of justice, contract enforcement, protection of lives and properties, and market monitoring) that support Free market and liberalization.

Prience Shrestha

About Prience Shrestha

Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics

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