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Key to Reforming Indian Education: Rescuing Government Policy-making and Regulatory Functions from Service Delivery

Vikas Jhunjhunwala explores pertinent ways to address the sidelined policy making and regulation in the Indian Education Sector in this article published originally in Center for Civil Society’s, Spontaneous Order.

Currently the governmental roles of policy making, regulation and service delivery are combined within a single entity in the Indian Education Sector. There is a need, however, for these to be separated into 3 different entities with an “arms- length” relationship between them (similar to sectors such as finance, telecom and electricity). Doing so would free up valuable bandwidth for policy making and regulation which is currently being impeded by service delivery. In turn, this would enable an in- depth understanding of the issues faced by private sector entities, leading to the healthy development of the sector as a whole. Continue reading

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Where the private investors are pawns

With the permission given to nine private companies to import and sell petroleum product, and thus break the monopoly of the state-owned Nepal Oil Corporation only on July 10 being scrapped on July 21, the Government of Nepal (GoN) has pulled a massive joke on the Nepalese private sector, and consecutively the Nepalese consumers. On a very serious note, this is an ominous level of policy instability and has sent all kinds of negative signals to the foreign investors that have (or had) been thinking about making investments in Nepal.

If nothing else, the recent trade blockade should have taught us a lesson. Nepal was compromised largely in terms of availability of goods and services that the government has monopolised, for example, petroleum products. Another observation here will be that government to government agreements can sometimes compromise the well-being of the citizens. Because India wanted to make a statement, IOC was forced to do as per the interest of the Indian government. And since IOC is the only supplier and NOC is the only importer, Nepalese people had no way out

Had there been private companies involved in the process, they would be guided by a completely different set of interests – profit, for example. Irrespective of the government’s interests and stance, they’d be looking to make as much profit as possible. This means that the movement of goods and services would continue. And in fact, we saw this happen, too. We saw that some private individuals managed to bring in petroleum products through informal channels. This is how more than three-fourths of Kathmandu’s demand was met. It was illegal, but only because the law barred them from getting involved in the process. But people needed fuel and they were willing to pay. Now imagine if private companies were legally allowed to engage in petroleum trade! The impact of such blockade on Nepal, and most importantly, on the lives of Nepalese people could have been much less.

But now, that’s a thing of the past; and we need to focus more on the future; and we have a lot on our plates already. We need to build infrastructures, we need to invest in education, health, agriculture … you name it. And for this, we need capital to invest. And people invest when there is some prospect of return. In order to see this prospect of return, there needs to be policy stability in place. What policy stability does to prospective investors is that it gives them a sense of predictability. Irrespective of the ideologies of the government, when investors can be secure that the policy environment is going to stay stable for a certain period of time, they can at least plan their investments factoring for other constraints within that time frame and work out possible returns. But when policies change in a matter of days, investors will not bother doing all that maths. What’s worse, if you are a poor nation and need to bring in foreign investors to solve your third-world problems, you’re frankly not even going to make it to the list of possible countries in which to make an investment.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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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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