• 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.

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  • Nepal remains as the most expensive place in Asia to Incorporate business as per Doing Business Report 2016

    Provided above is the composite picture of the pieces of info-graphs retrieved from Starting a Business section of Doing Business Report 2016 published by the World Bank Group. The picture attempts to convey that Nepal remains as the only country all over Asia that urges entrepreneurs to employ third party legal agent (i.e., the most expensive procedure to start a business) to get their business incorporated.

    Technically as per the Companies Act 2006, incorporating a business doesn’t require an entrepreneur to gain authorization by attorney or notarization. The procedure simply expects one to submit the Article of Incorporation and Memorandum of Association along with personal identification documents while paying minimal registration fees.  However, the opacity of the law and inefficiencies in the judicial system has made the registration process far too complex for entrepreneurs to navigate through it without securing professional assistance. Hence, World Bank finds it better for entrepreneurs to use professional services by hiring expensive laws as it happened to be the only way for entrepreneurs to save time and be ensured that the process goes smoothly.

    Nevertheless, the need to involve third-party professionals only imposes a cost that can be prohibitive to entrepreneurship. Even though such cost of employing third party legal service is not enlisted as a legal charge for incorporating a company, the bureaucratic hurdle present in the system that requires entrepreneurs to take legal assistance implies such cost to be relevant.

    Business registration process should be designed in such a way that deems the use of legal services to be unnecessary. Entrepreneurs, especially those starting a small business, should be able to complete the registration process without having to pay exorbitant lawyers’ fees.  After all, having to deal with cumber regulation procedure always creates room for bureaucratic corruption and larger informal economy with more unregistered businesses.

     

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  • 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।

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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.

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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.

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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.

     

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