Economic development in Nepal has been challenging, since time immemorial, due to the frequent changes in the political leadership. The political isolation of the early Nepali kingdom fostered an economic system of rent seeking elites and resulted in increased income inequality. The subsequent economic liberalization, with the end of absolute monarchy, led to economic growth and improvement in living standards of the people. As a Federal Democratic Republic, Nepal embarks on a new journey where it can hopefully, progress towards sustainable economic growth.
Vladamir Putin secured his fourth term as Russian President swiftly with more than seventy percent vote in his favour. Russian history is a testament to leaders with diverse and varied characteristics with Lenin, Stalin, Kruschev, Brejnev, Gorbachev, Yeltsin and now Putin. But political generals aren’t the only leaders Russia can boast of, it also boasts of his fascination with the game of chess. The game of chess was a national pastime after the revolution of 1917. The game was subsidised and heavily encouraged. This naturally meant that its influence flew with national leaders as each of them have their own personal story with the game. Lenin was a serious player, but Russian author Maxim Gorky claimed Lenin got angry when he lost. Leon Trotsky reportedly played in Vienna and Paris. Stalin cared so much about his reputation as a chess master that he publicised a fake game in which he claimed to defeat party loyalist and future chief of the secret police Nikolai Yezhov. Anatoly Karpov and Garry Kasparov are known Russian grandmasters. Naturally is can be concurred that the strategy of politics and chess have been intertwined in Russian history. Continue reading
In today’s dynamic era of nation building, the European project has been hailed as a new step towards creating a free world. The same is echoed by the ‘four freedoms’ that serve as the foundations of amalgamating societies across lines of culture, traditions, history and geography. With Brexit in 2016 and the following negotiations thereafter, one of the four freedoms has come under heated debate, the free movement of persons. While the British Prime Minister has been vehemently opposing this freedom, the EU Leaders have been stressing their strong support to this freedom. While the negotiations continue, its interesting to see how the world fares on the free movement of persons.
From the start of 1900s till date, an approximate of ten such agreements exist all over the world with the first being Britain and Ireland in 1923 with the enactment of the Common Travel Agreement. Apart from the EU (Schengen Agreement), Russia and Belarus have a similar arrangement under the name of Union State (1996), the Nordic countries signed a passport union (1954) while the Andrean Community, CARICOM, Gulf Cooperation and the East African Community are a product of the 21st century. While every single arrangement is varied in text and composition, two other such relationships exist, ones not only based on economic rights but also on the ideals of friendship. The Friendship Treaty that exists between India-Nepal (1950) and India-Bhutan (1949) are one of their kinds and certainly one of the first amongst developing nations. That is a feat in itself that even the EU cannot claim as the pioneer having begun the process via the Treaty of Rome signed in 1957 and enacted in 1958.
The friendship treaty between India and Nepal does not limit to free movement of persons but also in matters of property, trade and commerce and residence. The result of which is that Indians and Nepalis have made their homes on either side of the border, people transcend the abstract notion of borders whereby the great Nepali Sherpa hero, Tenzing Norgay took his last breath on Indian land while the ex-crown prince found his princess in India. However, in recent times the relations between the two nations have come under heavy criticism. Flared up by nationalistic notions on both sides of the border, petitions have also called for a wall and stricter border controls. I do not wish to comment on the political face of the issue, rather, I would take a look on the economic advantages and disadvantages that the open border brings.
Countries are prone to experience labour shortages, especially when the case of specific skilled positions are required in the rapidly advancing age of technological progress. The National Health Service of the UK is a fine example to be quoted here, about 10% of the staff at NHS are not British. Similarly, in an economy, there may appear shortages in certain professions such as teaching and nursing. These vacancies can take a long time to fill because of the time taken to undertake training. If there is free movement of labour, qualified workers will be attracted to fill these vacancies making the economy more flexible and overcome shortages quicker. Countries which suffer from lack of workers due to a rapidly increasing ageing population also see benefits from countries rich in demographic dividends.
Moreover, if an economy experiences labour shortages, it will put strong upward pressure on wages; higher wages can easily lead to inflationary pressures. Free movement of labour means rising wages will attract more labour into a country and this will prevent excess wage inflation. Remittances according to Pew Research Centre’s latest report indicates the survival of many countries depend on this very income coming from migrant workers abroad and help the home country. Nepal is known to be a very big beneficiary of about 31% of the GDP. Apart from these, migration is also know to create additional demand in the host country boosting consumption and hence the GDP. Additionally, it saves huge costs of maintaining force for verifications at borders and from creating them in the first place.
However, freedom of movement of persons does create certain lags in economic terms. Large net flows of people cause infrastructure problems especially for housing. Further more, due to increase in immigrants, a high population density may create problems of congestion leading to a decrease in quality of life. Furthermore, the labour market theoretically might see a dip in wages due to over supply of labour. However, the same has seen contrary results by academicians such as Manacorda, Dustmann and, Nickell and Saleheen as they note, “Empirical research on the labour market effects of immigration to the UK finds little overall adverse effects of immigration on wages and employment for the UK-born…The less skilled are closer substitutes for immigrants than the more highly skilled. So any pressures from increased competition for jobs is more likely to be found among less skilled workers. But these effects are small.” There is also the case for shortage of workers and brain drain cases in under developed economies. A fine example of the same could be seen in Dhadhing in Nepal which did not have workers for the reconstruction work post the 2015 earthquake.
While no extensive study is available on the case of economic implications of the India-Nepal free movement of people, nationalistic rhetoric has caused injury to a feat that India-Nepal achieved at the very beginning of their respective contemporary histories.
“Earlier, we had tongues but could not speak. We had feet but could not walk. Now that we have the land we have the strength to speak and walk!” This quote from women who received land titles in India’s Bodhgaya Land Rights Movement perfectly portrays how land rights empower women.
The struggle for women rights in Nepal has been an on-going battle with property rights being an important component. Although the situation as detailed below is pretty dismal, we have come a long way. From a civil code that limited inheritance rights for women and biases that determined property rights according to marital status and age, to passing of the Gender Equality Act and the Constitution forbidding gender based discrimination, thus granting daughters and sons equal rights to inherit property, progress is evident.
Furthermore, numerous progressive policies are currently in place to help increase land ownership of women. These include:
- Tax exemptions of 25%-50% (depending on geographical area) available to women during land registration, provided she does not sell the land within three years.
- 35% tax exemption for widows during land registration.
- 50% tax exemption when land is transferred within three generations of daughter or granddaughter.
- Joint Land Ownership which can be obtained for just Rs.100.
Why then is women land ownership in the country still dishearteningly low?
- Many women are unaware of the rights and benefits they possess.
- Women do not receive help in the implementation of their rights.
- Deep seated patriarchal norms make women feel that they do not need to own land, especially because of the fear that they risk divorce if they ask for land.
- Families are concerned that women owning land will deprive the family of an asset in the event of marriage or re-marriage and so they are discouraged from getting citizenship certificates.
The general notion accepted on the subject of education financing understands that private education is much more expensive than public education. While parents have to spend a large part of their income on educating their children in institutional schools, they do not have to pay even a penny to educate their child at the basic level of community schools. Based on this notion institutional schools are often inculpated for the excessive fees they charge to operate their schools. However, one must understand that public education is not free and it runs heavily on the taxpayer’s money. Moreover, the government is not the sole financier of public education. It is only one of the many sources of financing community schools, which means that the fund received is often insufficient to carry out all the activities that a school needs to perform. Thus, a majority of schools opt to search for funding from other sources like local government, donations, charity from international organizations, leasing land, school run business and many other potential sources. If we add up all of these additional costs, the cost of education in community schools becomes comparable to (if not greater than) that in institutional schools.
This claim has been clearly justified with the cost per child calculation. The per student cost was NRS. 16097.11 in the year 2015/16 in community schools when calculated by dividing the total funds received by the schools with the total number of children enrolled. But, while accounting for other performance variables such as the retention rate and pass rate, the story changed entirely. While considering only those students who were retained until the end of the year 2015/16, the cost per child in community schools increased to NRs. 25799.39 from NRs. 16097.11. Furthermore, while considering only the students who were able to graduate, it further rose to NRs 27,883.68 in the same year. The per student cost in institutional school during the same year was NRs. 28, 392, which is comparable to the per child cost in community schools.
We can infer from this data that public education is relatively cheaper, but it has not been able to generate desirable results which have led to massive increase in costs. If the current state of public education continues, and community schools do not improve in terms of their pass rate and retention rate, the cost of public education will further rise and be costlier than institutional schooling. Hence, it is high time that we make reforms in the public education system in order to improve the outcomes in community schools. Improvement in the outcome is not only an extremely important goal to advance public education; but also a means to reduce the cost of education. Pouring more money into public education without proper reform is a huge waste of scarce financial resources.
The existing financing model of public education, size of public investment on education, and quality of output of public investment on education point to the fact that there is an urgent need to introduce a structural reform in the sector. Education is one of the biggest areas of government investment. In that sense, it runs heavily on taxpayers’ money. It, therefore, becomes imperative to ensure that allocation of resources is optimal to the extent possible; their use – efficient, and quality of outcome – high.
Micro, Small and Medium Enterprises (MSMEs), despite their limited investment, knowledge and resources, have been the backbone of economies around the world. According to World Bank, 90% of all firms are MSMEs, and they contribute up to 60% of total employment and up to 40% of national income (GDP) in emerging economies. Nepal, where the industrial sector has not been able to grow as expected, consists mainly of small scale enterprises. The reason is that because people have very little capital at their disposal, and they do not have the skill sets or prior experience to run large scale businesses, people start off small. This is why least developed countries with poor economy (like Nepal) see more people starting with MSMEs.
|MSME’s contribution in Nepal||Percentage|
|1. Share of industrial GDP||90|
|2. Share of industrial sector value addition||70-80|
|3. Share of industrial Employment||80|
|4. Share of industrial Export||80|
* Source: Federation of Nepal Cottage and Small Industries (FNCSI)
In Nepal, the trend of registration and setting up of new small-scale industries has also been interestingly going up in the past few years. More and more small-scale enterprises have opted to operate formally. If global figures are anything to go by, then they invariably mean that this is a good thing for Nepal as well, from an economic growth perspective.
|No. of cottage and small industries registered||18,022||15,556||22,129||17,654||24,317|
Source: Audhyogic Tathyanka 2072/73, Department of Cottage and Small Industry (DCSI)
A question to delve into, then, would be, what is causing this surge in the number of micro and small entrepreneurs entering the formal economy. Clear and convenient government policies and processes are the need of the day if the government seriously wants to see more of the MSMEs in Nepal.
Government agencies claim that the Industrial Enterprise Act, 2073 (2016)’s free registration and complete income tax waiver for first five years of operation provisions have motivated firms to register. This is a positive start. However, we must also be wary that income tax exemption for five years simply defers the problem for next five years, and does not necessarily solve complexities embedded in it. Likewise, wiping out the registration fee does not wipe out the problems of registration as it is still entangled with multiple paperwork. For instance, as long as MSMEs have to submit business schemes (which need business’s forecasts of break-even point, annual turnover, annual profits, etc.) to oversight bodies, procedural complexities will continue to exist.
Coordination is another challenging issue which lags in government agencies. Entrepreneurs are required to visit multiple offices during registration. Currently an entrepreneur needs to visit Inland Revenue Department (IRD) as well as municipality office only to pay taxes. As an entrepreneur, it would be much easier to pay all taxes at one agency. State institutions could devise a mechanism whereby they share such revenues. This is absolutely possible and even staffers of government offices acknowledge the possibility and benefits of such measures. Yet, it never happens.
Likewise, the unclear registration procedure, piles of documentation, inaccessible government offices have discouraged firms from registering in one way or another. In order to avoid such complexities ‘online registration system’ available at fingertips can certainly be a solution to combat those problems. Countries like Azerbaijan, Thailand, Malaysia and many other countries have started this system the subsequent ease of doing business in these countries as a result of these reforms is clearly depicted in various global indices (like the World Bank’s Doing Business Report). Even our neighbouring country India has already started online procedure for registration and tax filing (even for micro enterprise).
This will obviously not be a quick hit across the country alike for not all Nepalese can access this service right away, but even then, that is no reason to hold back. We can run these systems (manual and digital) parallelly and independently, until other people are ready to switch to digital platforms. Such a system would end the reliance on government agencies even for minor works and make government services more convenient and accessible.
In Nepal where more people are vying to open private enterprise, government should capitalize on this by making it easier for them to enter the formal market. Actionable and quick reforms like ones discussed above, if implemented, could motivate more and more enterprises to operate formally, and more importantly, inspire birth of new MSMEs.