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Budget and the Transportation Sector – Promising yet Incomplete

The budget allocated for the development of transportation sector for the upcoming fiscal year is Rs 24 billion (approx.). This year’s ambitious budget plans for building fast tracks, highways, and even foresees Nepal using trains and ships. Although the budget might look like the government has acknowledged that travelling in Nepal (both public and private) is arduous and inconvenient, it does not solve the major problem in transportation sector of Nepal – syndicate.

It is an open secret that the transport association practically controls the entire transport system in Nepal. It decides who gets into the industry and who doesn’t; it lobbies on price setting, among others. The budget envisages a country full of excellent roads with the aim of facilitating cheap and easy transportation of goods and people, but if the budget cannot (followed by pro-competitive policies) limit this anti-competitive practice by the syndicate these policies might not be efficacious.

In addition to this, one of the provisions (i.e. No. 85) of the budget mandates all taxis plying in Kathmandu valley to be equipped with a digital meter system. Although this looks propitious, the government’s inefficient monitoring system would make existing day light robbing perennial. Even with the existing meters in taxis, taxi drivers, on their discretion, decide the price before taking in passengers. But, due to the limited number of taxis plying in the valley, passengers have no choice but to agree on the rate drivers set. Although, one might argue that even passengers could bargain on the price but, how convenient is it if you commute on taxis everyday? When the number of passengers is far more than number of plying taxis, the drivers would always have better bargaining power.

So how can the government achieve its intended result of smooth and cost effective transportation system? One way of achieving its goals is by encouraging competition in this sector. To make it competitive, there are several provisions the government could make. The most important is by facilitating entry of new public vehicles by limiting syndicate’s influence in the registration process. From 2001 to 2011, the number of registered vehicles in Kathmandu valley increased 3.75 times. But public transportation comprises of only 1% of those vehicles. This shows there is a barrier that stems entry into the transportation industry. Similarly, with regards to taxis, since the year 2000, the number of taxis has dropped from 8000 to 5500, while the population of Kathmandu valley has risen from 1.6 Million to 3.5 million from 2001 to 2011. Opening up new taxi registration (it was closed in 2000; once opened in 2015) would reduce the ratio of taxis to population, which would instead increase passengers bargaining power, as now taxis’ would compete for passengers not the other way around.

Although the government has prepared and allocated budget for transportation sector development in good faith, it still doesn’t address Nepal’s major problem of anti-competitive behavior in transportation sector. Policies such as limiting syndicate’s influence in public vehicle registration, and opening up taxi registration are two of the several ways that government’s policies could engender competition.

 

Abyaya Neopane

About Abyaya Neopane

Abyaya Neopane is an independent researcher. He comes from an Economics background.

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Why transport syndicate is an ill system

Existence of public transport syndicate in Nepal is a common knowledge. Those who commute by bus, micros, and taxis, our stories might be somewhat similar. Clinging to the bus door, constantly struggling to grab a seat and getting stuck in the back end of the bus and not being able to get off on our stop because of the endless crowd inside it is an everyday bus trip.

While an ideal market would’ve had many public transport entrepreneurs, giving choices to the consumers, better quality service and competitive prices, it is not the case with this industry. The public transport syndicate is an ‘ill system’, as pointed out by the Supreme Court, which has in store a number of problems for commuters and prospective entrepreneurs alike.

1. Overcrowding

First of all, overcrowding makes our travel hectic. Passengers are asked to squeeze in so that the bus can carry as many passengers as possible. The incentive behind this – more passengers, more revenue. Altogether this makes the journey unpleasant.

There is another more serious problem at hand – insurance coverage. The Act governing the public transportation – Motor Vehicle and Transport Management Act, 1949 mandates insurance of the passengers of a public transport vehicle according to the number of seats. That means the ones who get a seat on the bus are insured, while the ones clinging to the door aren’t… Like hanging on to the bus door wasn’t risky enough.
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2. Barrier To Entry

For an entrepreneurial individual, getting into this industry is very costly – from making sure that one is in the good graces of the syndicate, to spending tons of money for acquiring a license for the vehicle. The syndicate has put a huge price tag on getting a route permit, without which one can’t ply the roads. This cost has kept competition at bay. An existing association’s recommendation is practically mandatory for one to acquire a permit and make sure that he gets to run his business without any threat after he does. How the syndicate has been able to erect this barrier would make for a story for another day, but this has effectively put prospective entrepreneurs at check.
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3. Limited Choices

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So why don’t buses with vacant seats ever show up? Well, the answer is the aforementioned barrier to entry created by the syndicate. Limiting competition and taking away all the profit from the industry is what the syndicate stands for. And while it does that, the ones who suffer are the consumers. Consumers are compelled to board those overcrowded busses with worn out seats and poor services because the syndicate restrains supply.

Arduous, frustrating and hectic are probably the three words that best describe travelling in a public transport in Nepal. Breaking this syndicate would not only bring competitiveness into the industry, but also bring more choices and better services for the consumers. And yet (even after the Supreme Court’s order to deal with the syndicate) the law enforcement mechanism lays mere witness to the nuances of the syndicate.

Abyaya Neopane

About Abyaya Neopane

Abyaya Neopane is an independent researcher. He comes from an Economics background.

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प्रजातन्त्र मास्छ राष्ट्रिय सरकारले

आर्थिक् अभियानमा मिति २०७२ जेठ १४ , बिहिबारमा छापिएको लेख ¦ सो लेख मा निर्देसित् हुन यहा क्लिक गर्नुस्

एमाओवादीका वरिष्ठ नेता डा. बाबुराम भट्टराई र सत्तासीन दलको प्रमुख घटक नेकपा एमालेका वरिष्ठ नेता झलनाथ खनालले भूकम्पबाट भएको महाविपत्तिको सामना गर्न राष्ट्रिय सरकार गठन गर्नुपर्ने आवाज उठाएका छन् । यसबाट दलहरूबीच सहमति कायम हुन सक्ने जस्तो देखिए पनि वस्तुतः यो प्रस्ताव ‘सत्ताप्राप्तिको खेल’ हो भन्ने स्पष्ट हुन्छ । प्रजातन्त्रमा बहुमतको सरकार र बलियो प्रतिपक्षी चाहिन्छ । सरकारले गलत काम गर्दा  प्रतिपक्षीले औंलो ठड्याउनसमेत सक्छ । राष्ट्रिय सरकार प्रतिपक्षविहीन हुँदा झनै मनपरी हुन सक्छ । यहाँनेर अर्थशास्त्री एडम स्मिथको भनाइ सान्दर्भिक हुन्छ । उनले भनेका छन्, ‘उस्तै व्यवसाय गर्ने व्यापारीहरू जब एकै ठाउँमा बस्छन्, उनीहरू भोजभतेर र रमाइलो मात्र गर्दैनन्, उनीहरूको कुराको अन्त्य उपभोक्ता ठग्ने र मूल्यवृद्धि गर्ने निर्णयबाट हुन्छ ।’ उनको यस भनाइमा व्यापारीका ठाउँमा प्रतिस्पर्धी राजनीतिक नेताहरूलाई राखिदिने हो भने अहिले उठेको राष्ट्रिय सहमतिको सरकारको सही अर्थ लाग्छ । हुन पनि संविधान निर्माण र आर्थिक विकासका सवालमा कहिल्यै एक नभएका दलहरू अहिले सहमतिको राष्ट्रिय सरकारको आलाप अलापिरहेका छन् ।

यस्तो सरकार कर्मकाण्डी पाराको हुन्छ किनभने यस्तो सरकार सफल हुँदा जस कसले लिने र असफल भए त्यसको जिम्मेवारी कसले लिने भन्ने हुँदैन । त्यसैले सत्तामा पुगेका दलहरूले मिलेर काम गर्नुभन्दा एकअर्कालाई आरोपप्रत्यारोप लगाउने भएकाले किचलो मात्रै हुन्छ । उनीहरूलाई मिलेर काम गर्न अहिले पनि केहीले छेकेको छैन । त्यसैले यो सत्तालिप्सा र जनतालाई मूर्ख बनाउने कामबाहेक केही होइन ।

पूर्वप्रधानमन्त्रीहरूले पहिलो त आफूलाई देशको नेतृत्व दिनुपर्छ भन्ने पूर्वाग्रहका साथ यस्ता भनाइ सार्वजनिक गरेको देखिन्छ । दोस्रो ‘लोकप्रियता’का लागि यी भनाइ आएको देख्न सकिन्छ । तर, पुनर्निर्माणका लागि राष्ट्रिय सरकार गठन गर्नुपर्छ भन्ने तर्क कुनै तर्क नै भएन । त्यो त कुतर्क भयो । पुनर्निर्माणको काम यस्तो प्रजातान्त्रिक वातावरणमा हुनुपर्छ, जहाँ सरकारले गरेका काम वा निर्णयहरूलाई सही बनाउन बलियो प्रतिपक्षीसहितको प्रजातान्त्रिक अङ्गहरूले काम गरून् । तर, पुनर्निर्माणका निहुँ गर्दै ‘राष्ट्रिय सरकार’को निहुँमा केही दलहरूको सिण्डिकेट लागू गर्ने कुरा कुनै हालतमा पनि मान्य हुन सक्दैन । जसरी स्थानीय निकायहरूमा भएको सर्वदलीय संयन्त्र भ्रष्टाचारको अखडा भएको छ, राष्ट्रिय सरकारको नाममा केही दलको संयन्त्र केन्द्रमा पनि बन्यो भने त्यो स्थानीय संयन्त्रको फोटोकपी हुनेछ । पुनर्निर्माणका लागि आउन लागेको ठूलो रकममा ¥याल चुहाएर ठूला नेताहरूले राष्ट्रिय सरकारको वकालत गरेको हुनसक्ने प्रबल सम्भावना छ ।

राष्ट्रनिर्माण विधिसम्मत ढङ्गले अघि बढ्दा नै हुन्छ । नेपालमा हामीले तय गरेको शासनप्रणालीको विधि भनेको प्रजातान्त्रिक विधि हो । प्रजातन्त्रमा बहुमतको सरकारले शासन गर्छ, उसले गरेको कामको जस अपजस पनि उसैले लिन्छ । उसले नराम्रो काम गर्न लाग्यो भने विपक्षी दल, नागरिक समाज, मिडियाले खबरदारी गर्छन् । तर, राष्ट्रिय सरकार  बनाएर दलहरूको सिण्डिकेट लाद्दै विपक्षी, नागरिक समाजलगायतका प्रजातान्त्रिक शक्तिहरूलाई निमिट्यान्न पार्न खोज्नु हु“दैन । त्यसले पुनर्निर्माण होइन, विनिर्माण निम्त्याउ“छ, विकास होइन, विनाश निम्त्याउँछ ।

Deekshya Nakarmi

About Deekshya Nakarmi

Deekshya Nakarmi is Communications and Outreach Assistant at Samriddhi, The Prosperity Foundation. She is a student of Development Studies.

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Analysis of Budget 2071/72 Presented by GoN

The Ministry of Finance has presented a budget of Rs. 618 billion for the fiscal year 2071/72. While the Finance Minister has promised to kick-start second generation of economic reforms by reforming economic policies, bringing down anti-competitive practices like syndicate and cartels, encouraging the private sector and offering various fiscal incentives like tax exemptions and rebates, the budget has, in the mean time, also been a subject of debate in terms of issues like Constituency Development Fund, being pro-rich and many more.

Samriddhi, The Prosperity Foundation hosted its latest round of Econ-ity on “Analysis of Budget 2071/72 Presented by GoN” on the 17th of July, 2014 at Hotel Everest, New Baneshwor, Kathmandu.

The speakers at Econ-ity interacting with the audience

The speakers at Econ-ity interacting with the audience

This edition of econ-ity featured Dr. Chiranjibi Nepal (Chief Economic Advisor to the Prime Minister) and Prof. Dr. Bishwanbher Pyakuryal (Senior Economist) as speakers. The event was moderated by Mr. Rameshore Khanal (Former Secretary, Ministry of Finance) who started by acknowledging that this budget has been presented in the right time for Nepal. He shared that the current government is capable of staying in power throughout its tenure and has potential to deliver results in terms of constitution drafting, delivering economic growth, enhancing production, generating employment, etc. In the meantime, he also acknowledged the fact that this budget has been critically analysed in the parliament itself and opposition parties have raised concerns over its not being regionally balanced.

Here is a snippet of what the speakers said during the forum and what their analysis was regarding the new fiscal budget.

Prof. Dr. Bishwanbher Pyakuryal

Prof. Dr. Pyakurayal commenced his deliberation by acknowledging the good aspects of this budget. He mentioned that the allocations justify the government mission of employment generation, economic growth, social physical infrastructure, long term growth and poverty reduction.

He then went on to warn that this budget will not it yield any result unless the plans and policies and reform measures are implemented. The underlying assumptions that are made during the preparation of the budget do not seem to hold up in reality in Nepalese context. He talked about how theoretical economic policies and ground realities of Nepal do not match.

Nepal has seen wages go up or down, without really affecting labor productivity; despite the much talked about effect of India’s economy, Nepal’s inflation was still double digit when only last year it was contained at zero in India; the monetary policies have failed to deliver desired results in inflation. There does not seem to exist a robust relationship between Nepal’s monetary policy and inflation. He further expressed that we need to understand which among the factors like policies, capital adequacy/inadequacy, governance structure, and institutional set-ups are responsible for these issues.

He highlighted that one of the major problems in Nepal is the inability to make capital expenditures. Despite Local Self Governance Act and guidelines set by the fiscal commission, we have failed to spend on time. This raises concerns over our resource allocations. He said that we have already missed the train if we are to make it to Developing Nation status by 2022. We need to make 13-18 billion dollars worth of capital expenditure to graduate to Developing Nation status, but our current growth rates will not lead us there.

He raised serious concerns over how we never study India’s budget allocations’ impact in Nepalese economy despite its being released few months in prior. With their levels of planning, their currency is going to strengthen against USD. This will lead to lower production costs in India. On the contrary, our production costs are higher than market prices in India. Only 13% of the agricultural produces reach the markets in Nepal. In this case, the priority of the budget should have been making markets available to these entrepreneurs, farmers, businessmen. This has not been addressed by this budget.

While on one hand, the budget talks about reforming policies and Acts, in reality we have been relying on very old policies. We are still guided by Foreign Exchange Regulation Act, 1962, while India has made 3 amendments to the same Act of theirs till date. There are as many as three dozens of proposed policies and Acts lying around in the cabinet; some are stuck in the parliament. These processes need to be expedited.

He also expressed that we need to make structural changes in our tourism sector. 55-65% contribution to tourism sector comes from domestic tourism, but we have failed to recognize the domestic tourists. We need to explore further on possibilities of pilgrimage tourism, adventure tourism, trekking, sights-seeing, and formulate relevant programs for the domestic tourists. He also mentioned that we should look into popular international tourism practices like keeping Tourism Competitive Indices.

He concluded his deliberation by commenting over lack of capital/financial management in Neal and economic viability of possible federal states. There is domestic saving worth Rs. 2 trillion in Nepal itself but we have failed to channel these funds into productive sectors. He further drew attention to the issue of economic viability of federal states. While have been talking about federalism in Nepal, we have been overlooking facts like 60 % of Nepalese districts only somehow manage to collect revenues worth 10% of their total expenditure. Under such a situation, it is obvious that it makes no economic sense to go into federalism.

Dr. Chiranjibi Nepal

Dr. Nepal commenced his deliberation by expressing that we cannot have very high expectations from the budget. His focused majorly on our inability to make time-bound reforms to our existing policies and regulations. He acknowledged that for the first time in history, this budget has addressed Second Generation of Economic Reforms. However, lot needs to be done for the promises sowed by the budget to materialize.

He stressed on the need for industrial policies to adapt and respond to the changing trends and rapidly developing technological innovations coming in the market. Comparing it with India and China, he lamented that Nepal has been very slow in economic reforms and mentioned capital and financial market as an example of how the economy has been hit by lack of timely policies. China has continued to grow since its economic reforms of 1978, achieving as much as double digit annual economic growth and falling to single digit only recently. Industrial policy of China changes every 3 years to allow the industries to adapt to the technological advancements in the world. Similarly, India, that opened up its economy in 1994 has been continually reforming its economic policies and is all set to be one of the biggest economies in the world by 2020. In the meantime, Nepal has failed to internalize the positive changes occurring in the neighboring countries.

Dr. Nepal also shared that the Constituency Development Fund (CDF) will do away with the long bureaucratic procedures delaying the funds from reaching the local level, and expressed his consensus with the policy.
The pre-budget discussion, addressing Public Procurement Act, Financial Accountability, Land Acquisition and quality control are some major highlights of this budget, as expressed by Dr. Nepal.

Interaction with the audience

The participative and interactive audience then further talked about education, ability of the government to spend, youth self employment, foreign employment, sectors of comparative advantage, and other issues pertinent to the topic. Some highlights of the interaction session are as follows:

• Currently in Nepal, inflations has been rising and output is falling. There is therefore a situation of stagflation. Similarly, there does not seem to be a sound link between growth and employment. We have seen unemployment levels remain the same despite economic growth. In order to address situations like these, we need to form coordinated policies.

• Agricultural Development Bank has gone on loss due to its subsidy program. Now, instead of going for technological up-gradation and commercial agriculture, we are giving continuity to the same subsidy program. It appears that necessary homework has not been done in this regard.

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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