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SAARC, for the everyday person

This time, let’s get to business right away – no setting the context. Here are four reasons why I cannot be at one with government’s enforcing the odd-even system in the vehicle mobility for 5 days, along with shutting down the entire productive sector for two days.

Halt economic activity:
One day of ‘bandh’ costs the economy NRs. 1.75 billion. And here we stand, facing two days of state sanctioned ‘bandh.’ SAARC Summit, a gathering where the member states’ representatives get together to discuss ways of attaining economic growth at regional level, and here we are, effectively halting entire economy. With enforcement of the odd-even system in vehicle mobility, the burden of transporting whole labor force is now on the shoulder of half the transportation system (on days other than the ones when the state has called for a closure.) And what’s more, this does not apply to the government vehicles. So you mean, the productive sector has to either stay home or battle the state machineries to be able to produce anything, while the government – the unproductive and re-distributive sector gets special privilege?

On mobility:
As long as the vehicles are mobile, it would seem that traffic would be fine; as traffic problem is not about the volume of vehicles on the road, but their management. If the traffic police department concentrated on enforcing the existing traffic rules better, much of the trouble that the public is being put through, could have been done away with. Well maybe, our traffic police department lacks the capacity to manage the vehicles within the capital. But if that is so, then shouldn’t we not be doing SAARC summits in Kathmandu? The traffic police department should not be so powerful that it curtails the rights of Nepalese people to earn a living. You cannot sacrifice the natural rights of entire population in the name of welcoming 7 dignitaries. You have the choice to not take up this responsibility if you are not capable of handling it. Until yesterday, it was illegal to over-cram a public vehicle and today the authorities leave you no option but to do exactly that, and twice as much. Well, Kudos to the Traffic Police Department anyway!

Oh ya, education! It’s being shut down for four days:
As per the Ministry of Education data, there are currently 8, 112,058 students enrolled in different formal educational institutions in Nepal (Grade 1 to university level.) For the sake of calculation, let’s assume one education day is a 6-hr day. That is 194,689,392 learning hours shut down by the government. This is on top of all the strikes and existing holidays we have in one calendar year.

And I can definitely not miss out on the new beautiful roads:
Well, we pay the road tax, the vehicle tax; the government name it, and we pay it all. So we are already entitled to better roads to ply our vehicles over. We don’t need SAARC to deliver to us what we have already paid for. It is a misguided notion if you believe that thanks to SAARC, we’ve been getting better roads, street lights and new parks. Imagine all Nepalese people (from all parts of the country) paying taxes and all of that being spent on the beautification of the capital. In fact it could create an imbalance in the economy, or be unfair to the people from the rest of the country, if it were so. I urge the readers to think about what other sectors the money could have been channeled to; the number of new start-ups that could have been established, the infrastructures that could have been built to facilitate transportation of goods and services from currently inaccessible areas, the number of poor kids who could have been educated through direct transfer of funds, and the list could just go on. Can the welfare of Nepalese throughout the nation be compromised in the pretext of beautifying Kathmandu? This is not to mean that government should rather focus on redistribution, but to hint that resources could have been put into better use if not for beautification of Kathmandu. The mechanism by which that can be attained, I would personally have different opinion than that of central planning.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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WHEN INTERESTS RING LOUD

interest groupsIn the year 2000, the government of Nepal said there were too many taxis plying on the streets of Kathmandu and so it banned the registration of new taxis. This has meant that for almost the last 15 years, no new entrepreneur has been able to register new taxis—and the result has been that the market has run as per the whims of whatever limited entrepreneurs exist. All this has led to regular complains from the consumers who agree to have paid more for mediocre taxi quality in the lack of better alternatives and an absolute dearth of choices.

Similarly, there was a time when the phrase ‘mushrooming of schools’ was probably a favorite in Kathmanduites’ lexicon. Needless to say, mushrooming of schools was brought to a halt—the government did what it does best—it banned the registration of new schools as well. No private schools can be registered in Kathmandu valley and such has meant that whatever schools exist are as much choices that people have.
And very recently, the government decided to move beyond Kathmandu valley and stopped the registration of Paragliding companies in Pokhara. Civil Aviation Authority Nepal (CAAN), citing air safety as a reason has stopped providing licenses to additional paragliding companies for operating their businesses in Pokhara and is infact preparing to issue directives for no more paragliding companies to be based in Pokhara.

In all the instances, it would be naïve to assume that the government brought about the restrictions just to ensure greater good for all its citizens by curbing the possibilities for young and aspiring entrepreneurs. Sure there must be other reasons—say you are an entrepreneur with a few taxis plying on the road in a very competitive market and if you could cut your competition, you would do that to ensure that nobody else gets a cut from the profit that you alone could make, would you not, now? And there sure are benefits for the already existing entities in all the cases mentioned above in case they are able to keep the possible new entrants at bay. And there is much more to this than what appears to a normal eye—why does the government legislate as per the interest of certain groups? George Bernard Shaw had the answer when he said that a government that robs Peter to pay Paul can always depend on the support of Paul. So a government in a society like ours can be seen to represent the organized interests of the most dominant groups (or Pauls) that wish to live at the expense of others (the Peters) and so can always depend on the backing from Pauls. Political support from businesses or strong groups afterall holds much for the government in question.

For those who blame capitalism, crony capitalism in Nepal then has been able to find expression through—not despite—government policy. There are many who argue that no particular interest group can monopolize power because there are always one or more groups working against it. To them a countervailing power exists in all societies—there are entrepreneurs who, needless to say, organize themselves and say that ban on registration in either of the cases mentioned above is not the way to go about and in an ideal society that would indeed create a sense of balance—keeping the essence of a free and democratic society alive and kicking.

Perhaps here’s where the assumption is wrong—interest groups like the political parties try and influence public policy but unlike the political parties they are not responsible to the public. Interest groups usually focus on specific programs and issues and are rarely represented in the formal structure of government and such groups in a weak state are often characterized by coercion—the activities depend on the groups’ willingness of operate within the law and so has not always been the case. Are we missing the balancing act between the twins then? Perhaps the answer is a definitive ‘yes’ and not a ‘may be’.

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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Your Right to Information. Or is it?

right to informationWith regards to the ‘Right to Information,’ the Interim Constitution of Nepal 2007 reads, “Every citizen shall have the right to demand or receive information on any matter of his or her interest or of public interest.”

So the law respects the fact that as a citizen of the country, you and I have the right to acquire information on anything that directly or indirectly affects us. But does writing something in the constitution guarantee that the thing actually gets translated into practice? Here is an example of how the reality makes fun of the law.

I am currently doing a research on the banning of new taxi registration in Bagmati Zone (in 2000) and its effects on consumers. This is where it all begins.

After talking to a few people that have major stakes in the transportation industry (people like the taxi entrepreneurs, consumer rights advocate, bureaucrats and taxi drivers), I learned that in the year 2007, the Ministry of Transport and Federation of Transport Entrepreneurs made a deal whereby it was agreed that,

1. No public vehicles would be allowed to ply the roads of Bagmati without prior consent of the federation

2. Transport fares would be revised following every revision in the petroleum product prices

3. At the end of every fiscal year, the transportation fares would be revised

(for the time being, we will not delve into the gravity of this agreement. If it is true, then this is a government backed cartel and it has huge implications in the consumers. But we will leave it at that for now)

Now, until I see the agreement for myself, I cannot rely on something that someone says and use it on my research, right? And so begins my endeavor to get my hands on the agreement. And the joke begins to unfold.

My first instinct then was to call the Ministry of Transport. So I dialed 197, the Nepal-telecom authorized and largest inquiry service provider of Nepal, to get the phone number of the Ministry. I was told, the number was 01 4211920. I go on and dial the number. They tell me it is Ministry of Labour instead. Here is what must have happened. Previously, there used to be a single ministry by the name Ministry of Labour and Transport and now, these are separate ministries. And I asked myself, shouldn’t the inquiry service have updated their database? Or rather, shouldn’t the ministry have notified the telecom itself?

So I went back to my computer and googled it out. I call up the right ministry this time, and talk about the agreement. They tell me, ‘there used to be this labor and transport ministry and now we are a separate ministry and while in the process of resettlement, some papers might have gotten here and there… so we might not have the document you are looking for. I suggest you call the department of transport management. They should have the paper…’ Again, not what I had expected to hear, but I was not very surprised that they said what they said.

Then I ring the Department of Transport Management. They tell me, ‘All gazetted officers are in India to attend some program and will be back in September only. All we are left here are a few non-gazetted officers and we do not have access to the kind of documents you are referring to. You should call back in September (after September 1).’ Now this took me by some surprise and I was beginning to get furious at these bureaucrats. I wanted some information and the constitution guarantees that I be given the information. But none of it was any help to me.

Then I thought of approaching it from the other end. I called one of these people from Federation of Transport Entrepreneurs. Again, I am told that these guys have their plenum and it will keep them busy for some time. Once again, I am told to call back sometime in September.

It is a shame that all these institutions put together cannot guide us to a single agreement that defines how we commute to our work places. Maybe the bureaucrats are not accountable enough to people. Maybe the document holds the key to unraveling a big fraud committed by the government with the federation as an accomplice and thus it is being kept from the public’s reach. Maybe, the bureaucrats are extremely busy to respond to a public’s inquiry. I will leave it at that and let the readers judge it for themselves.

However, this is not the only case where a public cannot find the right information when it asks for one to the bureaucracy or the government. Go to transport management office and ask for the process of acquiring a green number plate. Go to Nepal Oil Corporation and Ministry of Commerce and Supplies and ask for the documentation done when they decide to hike petroleum prices in Nepal. Go to the municipality, the Department of Commerce, Department of Cottage and Small Industry and the Inland Revenue Department and ask for the process of registering a Kirana Pasal (mom-and-pop store.) Nowhere will you get the complete information from a single resource person. The Citizen Charters (nagarik badapatra) will be a decade old and officers won’t value your time and effort one bit. And there goes your right to information!

Akash Shrestha

About Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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‘Special’ no more?

SEZIndustrial growth, has, for long been seen as a premise for development in Nepal. While many among us have shown concerns over the state of industrial relations in the country and the not-so-strong-hold of law over issues, the idea that once made it to the headlines and now watches from the sidelines has been the formation of Special Economic Zones (SEZs). There was a time when recommendations for the betterment of industries in the country resounded with the proposition of SEZs. Totally commercial areas, especially established for the promotion of foreign trade, SEZs are meant to have more liberal economic laws in comparison to the laws of the land. Specifically delineated enclaves treated as foreign territory for the purpose of industrial, service and trade operations, SEZs come with features like relaxation in customs duties, a more liberal regime in respect to other levies, foreign investments and other transactions. Overall, it provides for special tax subsidies, fully facilitated buildings and physical infrastructures with all necessary services, necessary procedural service systems through a one door system, establishment of an export oriented industry and bringing in of FDI and modern appropriate production technology.

Keeping this and the endless recommendations in mind, the Government of Nepal (GoN) adopted the concept of Special Economic Zone (SEZ) to attract foreign and national investments for the establishment of industrial and business units. It formed Special Economic Zone Project (SEZP) on 2060/10/15 under Ministry of Industry, Commerce and Supply (MOICS) to formulate laws, rules and regulation, implement planning, design and construction of Special Economic Zones throughout Nepal. Special Economic Zone Ordinance-2005 and related rules were also formulated in accordance. The Ministry of Industry has also identified 10 areas to be developed as Special Economic Zone.

Said to be the first one, SEZ in Bhairahawa initially brought much hope to the industrialists. It was supposed to be have been completed by February, 2014. Alas, it hasn’t been. The construction in Bhairahawa is in a limbo after the contractor refused to complete it citing that the project has yet to clear out the payment worth NRs. 20 million for the works already finished. Looks like even ‘special’ zones are forgotten with time in this country.

And then there is the bill on SEZ, long under consideration. The government last year had decided to operate SEZ issuing a formation order after efforts to formulate an act had failed. The bill was opposed by the ruling party when the then government had tabled it in the parliament in 2008. The bill includes provisions like ban on workers inside SEZ to get into politics, and strikes, mass meetings, and working as a cadre of any party, and will implement the system of No Work No Pay.  This adds to the already existent financial burden.

The delay in the implementation of the project, whatever the endless reasons are, has meant much despair to the industrialists. For now, the SEZs seem far from meeting their three-fold objectives of attracting FDI, increasing exports and accelerating the country’s economic growth; those seem secondary—they better be set up first. Or before long, like everything else, they won’t be the priority anymore

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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How you pay as much as the government wishes!

petroleum cross-subsidyWe know that government cannot give something to us unless it takes that something from somebody else. Somebody always pays the price. Reflecting upon some of the decisions made by Nepal Oil Corporation (NOC) regarding prices of petroleum products, whose NOC is the sole importer and supplier in Nepal, shows how government can completely disregard law in order to make this happen. Let us look at the case of one of the latest price hikes in petroleum products in Nepal.

March 14, 2014, Nepal Oil Corporation hiked the price of petroleum products in Nepal (reducing it again by some portion after a couple of days that followed). We will not delve into the numbers thus reached, but rather restrain ourselves to the mechanism by which this decision was made.

There are a few procedures that a Public Enterprise (PE) or the government has to follow before making a decision. The authority of decision-making must be allowed by an Act (a parliamentary legislation, setting out legal principles.) To our dismay, there is no such thing as Nepal Oil Corporation Act till date. Yes, a PE that does over Rs. 100 billion worth of business a year i.e. a fifth of the fiscal budget, is not guided by any Act.
But this is only the tip of the ice-berg. In cases like these, whenever a decision has to be made by the government or a public institution, it is done by publishing a notification in Nepal Gazette. But as it later unfolded upon digging into the archive of Government Gazettes, no such notification was published before the price hike. After some more research, it was found that the Board of Directors, under the chairmanship of the Secretary of Ministry of Commerce and Supplies forwarded a proposal to the cabinet asking for a permission to hike the prices of petroleum products. Cabinet approved! Prices rose!

Now here is the problem with that – Can the government then arbitrarily set any price for any service it provides? Of course, there was a rationale behind the move. The prices of petroleum products surged in the international market and NOC had to make some kind of adjustment. NOC bears huge loss on sale of LPGs and makes up for a portion of that loss through profits made on sale of petrol and kerosene (and sometimes, diesel.) But when a government monopoly cross subsidizes its loss to cover up for its inefficiency and lack of financial planning, it is the people that actually pay. It makes no economic sense when a government corporation controls price to run on loss worth hundreds of millions to billions of Rupees per month (see the table below). Besides, who gives the government the authority to put a fine on a person who rides to his office on a motor-cycle and cooks his food on electric cookers to pay for a hotel/restaurant or some other household’s consumption of LPGs? A few more things – when one allows the government to give it something, it also allows government to take something from the itself; who decides what is best for all? And on what basis? Wherein lies the limit of government discretion? These are some questions for ideological debate. But while the debate is on, no one can undermine the need for some reform measures.

NOC needs to adopt sound financial planning. Stealing from one to give to the other has to end. NOC should therefore switch to Automatic Pricing Mechanism in the distribution of petroleum products. Once price control is removed, there will be prospects of profit-making for the private sector as well. This will bring in competition in the industry and market will drive the prices. Then, it will be those who use a service that pay for the service. Drafting an Act that gives room for market forces to act freely would be a positive first move.

NOC’S Estimated Profit/Loss Position based on IOC Price, Effective from 01 July, 2014

NOC's monthly profit and loss position*Source: Nepal Oil Corporation

 

Akash Shrestha

About Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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When being INFORMAL comes with incentives

faulty incentives' systemNepal’s economy is largely informal; informal sector here comprises of a group of production units that form part of the household sector as household enterprises or equivalently, unincorporated enterprises owned by households. Much likely, such units have limited capital investment and are a subsidiary activity of the owner. Their activities are not regulated under any legal provisions and/or they do not maintain any regular accounts. In Nepal, a good chunk of production and consumption is contributed through such informal sector activities. The sector also contributes to much of the income generation through employment thus providing means of livelihood to millions of Nepalese. Kirana Pasals that are small mom and pop shops selling groceries and fast moving consumer goods form a major segment of this informal economy in Nepal.

What makes these shops informal can be attributed to an endless list of reasons—a primary reason being that informality to these shops means a much better deal than choosing to formalize their operations. Given, the informal sector helps during economic crisis. But the fact that the benefits of informal employment may not be sufficient to achieve an acceptable standard of living as informal employment rarely comes with social protection, good working conditions and adequate wages cannot be ignored for long. But in our case, the scenario of choosing informal as opposed the formal begs to not be changed until a few things are set straight.

First in the list being the registration of these Kirana Pasals. Such shops are required to register at four different places; these fall under the jurisdiction of six major government agencies and they are subjected to 15 major laws and policies. Given their size and monetary weaknesses, these shops have less capacity than larger firms to navigate through the complexities of regulatory and bureaucratic networks. When formalized, the government has rights to inspect them and close them down if regulations are violated—here regulations are manifold and are more often than not subjected to interpretation and discretion of the official thus allotted for the job. Generally, Kirana Pasal owners are aware of few of those laws that are applicable to their businesses but there always remain minuscule provisions and clauses which the businesses would not be in compliance with, simply because of the volume and scattered nature of those regulations, which keeps the business always on offence. And as De Soto rightfully said, “informal economy is a by-product of over regulation and bureaucracy in the formal economy” and unless we do away with such hurdles there seems to be not enough hope for such small ventures to grow or even formalize their operations.

Secondly, empirical results have demonstrated that firms rank taxation as among the most severe obstacles to the long-term success of their enterprises. Likely, the shops in Nepal (if formalized) face a disproportionate burden from tax in comparison to larger firms. Those with turn over greater than 2 million rupees or income greater than two hundred thousand rupees are eligible to pay VAT tax of 13% and Corporate tax rate for Private Limited Co., Limited Co., Partnership Firm in the retail sector – a total of 25%. In many cases, not having books or audited accounts may result into the amount of tax to be paid being established by the tax official based his judgment, making use of a variety of indicators, including the observed standard of living of the entrepreneur. This might result in very high tax rates for enterprises.

Thirdly, there are standards that shops have to abide by. As much as the shops would be willing to do so in the light of protection of consumer rights, here too, the inability to bring in efficient intervention leads to losses on the part of the shop owners.

With problems as such to be encountered in terms of wishing to bring the shop into the formal stream, it seems that it is in the light of their own well-being that most decide to cling to their informal operations. Until and unless the aforementioned hurdles are done away with, the shops will remain informal because being so has more incentives than choosing to be otherwise.

Anita Krishnan

About Anita Krishnan

Krishnan holds dual degrees--in law and sociology. Currently, she works as a Research Associate at Samriddhi, The Prosperity Foundation.

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