subject: The Dilemma of Economic Development of Nepal [print this page] The Dilemma of Economic Development of Nepal
Naturally, Nepal is one of the beautiful countries in the world but economically it is considered to be among the bottommost countries of the world economy.
Only the capital city of Kathmandu cannot represent the true picture of Nepal. Nepal stands at the top in Asia as far asinequalities are concerned. The innumerable patches on the clothes of the majority of the population of Karnali Zone of western Nepal and the traffi c jams in Kathmandu valley are just examples of the inequality.
According to the population census, poverty in the rural areas of Nepal is increasing much more than in the urban areas. Besides, the scale of poverty is increasing in far-western and mid-western regions of Nepal. There is reproduction of poverty, rather than poverty alleviation, in Nepal. The economic gap between the developed districts like Kathmandu, Biratnagar and Birgunj measured against the undeveloped districts like Jumla, Baitadi and Bardiya is as stark as the inequality between Europe and Africa. Poverty has multidimensional effects to worsen development. Vicious cycle of poverty has affected every sphere of the nation and the social structures are not much accommodating for development due to their traditional feudal structures. Too much politics and high attachment of economic agenda with politics have been afflictions to the nation. The majority of the poor are from remote areas. For them, development has little meaning.
Millions of young people are working abroad as cheap, unskilled labourers. There is very low opportunity for jobs for the people inside the country. The small children and the general people walking for hours to reach schools, health posts and to fetch water is a normal phenomenon in the mountains of Nepal.
The productivity of most of the plain land of the south is diminishing and the agriculture sector is incapable to feed the fast-growing population. The centuries-old western development replica can be revisited in Nepal. The real development procedures in Nepal have not been yet started due to continued instability.
After the introduction and restoration of democracy in 1951, 1990 and during the 30 years party-less system, Nepal has never been profi cient to exhibit incredible enhancement in its economy as well as national development, the whole system is not functioning properly and it appears that the system is digging its own grave.
South East Asian countries that were in similar position as Nepal during the 1960, have brought great revolutions in their economy. Even the South Asian nations other than Nepal are in good positions in relation to growth and development due to their concrete policies and correct strategy.
There were some hopeful moments some decades ago in Nepal. Unfortunately, it could not be sustained. For example, I felt pleased and surprised after witnessing queues at shops of Nepalese woollen carpets across the streets of Frankfurt during my visit there around the nineties. In the same period, in a western newspaper, a photograph of Queen Elizabeth wearing Nepalese pashmina shawl was published. Export of Nepalese pashmina and garment in the USA and the western countries was at satisfactory levels by that time. And export of many Nepalese products to India including edible oil, ghee, black pipe, yarn, etc. had given good impetus to Nepalese export industries. After the beginning of this decade, export of these entire products was shrunken in a dramatic manner. The condition has not improved. There were many domestic factors responsible for the export breakdown of Nepal. The external factors were much more dominant compared to domestic factors. Export of low quality woollen carpet produced in the name of Nepalese carpet both in Nepal and India, export of sub-standard pashmina shawl branding as product of Nepal, but imported from China and locally made, quota restriction on garment import by the USA and quota and non-tariff barriers imposed by India on major Nepalese production were key elements for the crumple of exports of Nepal. The tiny and primary industrial and export base of Nepal could not bear these heavy shocks and the whole economy became ailing after that intolerable fright.
Owing to unsteadiness in trade and industrial sector, unhealthy competition is an increasing trend in Nepal. The risk taking capacity of industrialists has decreased and they have started to choose only safe places for their investment. The Nepalese industries are considered to be assembling or high profitable primary consumer-based industries. It produces goods in large quantity, goods that are not essential and produces in small numbers goods that are needed in the real sense. Almost all the goods from needles to big machinery to turbines are being imported in Nepal.
To enter into the international trade regime, at least a country should be self suffi cient in production of foodstuff and mass consumable items. It is considered primary base for forward activities. To enter into Indian and other markets, costs and prices of Nepalese products must be lower compared to India. And protection for the industries on some specifi ed areas is needed. In this juncture Nepal is very weak. Even though labour is cheap in Nepal, the costs and prices of production are relatively higher compared to its neighbourhood.
External investors in Nepal do not feel very secure to invest. Influence of political parties and their organizations,insecurity, power shortage, weak infrastructure, labour problems, strikes have hampered industrial and commercialbase in Nepal; Nepal has to re-think seriously. The lack of farsightedness has been a great impediment for the industry, trade and whole economy. Nepal had a policy of supporting illegitimate export of third country goods to India, when the Indian economy was not liberal and much open before the 1990s. Re-export of goods to India, which are imported to Nepal from other countries, are against the law. Once, Nepal was the paradise of foreign goods for the Indians. The Indians rushed to buy goods in Nepal. Nepal was a shopping destination during that time.
But the situation turned dramatically in Nepal when India announced its economy to be liberal and more open. After the announcement of liberalization, India begun to import foreign goods and the Indian industries also increased their production tantamount to international standard of imported goods. After that, unlawful export of third country goods from Nepal to India started to decline. Its effect was clearly observed in employment, revenue, industry, business and other economic activities in Nepal.
There is no contradiction that Nepal is considered to be among capital poor or low saving and low investment economies. It requires external assistance or foreign aid to implement its projects and programs. Nepal started to receive foreign aid since the first five year plan (1956-61). Foreign aid covers substantial share of capital expenditure as well as total government budget in Nepal. Along with external debt and grants, technical assistance (TA) is also increasing in Nepal, which is around 40%. Per annum TA increasing rate is average
17% as estimated for the previous decade. Total outstanding debt is also high. It remains around 55% of the GDP.
Truly speaking there are four important objectives of aid flows as:
a. to gain political support of the donors,
b. to accelerate growth in the recipient country,
c. to increase donors export, and
d. to improve income distribution in recipient
country.
The donors and the government have some differences and reservations concerning foreign aid management in Nepal. The donors are not very happy with the foreign aid management in Nepal. They have their perspectives such as lack of ownership, lack of leadership and direction by the recipient, leakage and misuse of resources, a poor top down planning, lack of accountability and transparency and proliferation of projects are major concerns of donor's side. The government has also reservations with management of aid and with donor's perspectives. Such as mismatch of development priorities, lack of project planning, use of inappropriate technology and conditionality, gap between commitment and disbursement, channelling of aid through INGOs, rising debts, low absorption capacity, internal security problem, shortcomings in institutional capacity are major concerns from the government side.
Nepal has potential to generate 83,000 megawatts of hydroelectricity. However, so far, less than 1% of the potential of hydropower has been harnessed in a period of around a century. Two-thirds-of-a-day, daily load-shedding has arkened the life of the people. The tourism sector has not been able to head out farther than the city of Kathmandu and Pokhara; it has frequent ups and downs and it is difficult to rely on it as a rapid source of development. The average around four to fi ve hundred thousand tourist arrival in a year is not a very encouraging sign for the tourism industry. The average position of the agriculture sector is undependable. The billions rupees of import of foodstuff is strong proof of unreliability in the agriculture sector. The manufacturing sector is also stagnant. The three important sources of economic development i.e., hydropower, tourism and agriculture need Herculean efforts. And without rapid growth in these sector and better response, the development of Nepal would be very thorny. Import substitution industries are concentrated in non-risk and high profit consumer goods. Development of other important infrastructure is also in similar track. Inflation is mounting day by day. Foreign aid has proved less effective in supporting normal national growth. The bureaucratic system is being used improperly according to the wish of a few elites and it is not systematic, free and strong. The scale of the economy is one of the lowest in the world. The entire economy is in doldrums. In other words, we may say that the economy is, more or less, stagnant or following a downward trend as compared to other least developed countries.
In Nepal, it has been observed since long that the international development partners are always helping all form of political systems and the governments through increased assistance. Their motto appears to be development and economic growth in Nepal. They are not bemused with any type of political system. Nepal should feel herself fortunate in this regard. If Nepal could correct her weaknesses and satisfy the donor community by strong planning and effective implementation of projects, the donors' community would certainly assist Nepal until it needs foreign assistance.
Economic growth is one process of development. In developing countries, economics can unite than politics. National development should not be bemused under any thoughts. Without diagnosing sickness of Nepalese economy from the root, it can't be cured only by temporary treatment at a surface level. Nepal is in a very critical stage of economic transition and if the economy cannot perform better and be balanced, in a short span of time tribulations will possibly re-occur in many fields of national affairs. The achievement of the people's movement of 2006 might be frail. There have been many movements for change in Nepal but unfortunately stability and development have been always under interrogation. How long Nepal would be remaining among the bottommost countries of the world economy is also under a big question mark. Without economic growth and stability,total stability in Nepal is very difficult to imagine.
