political economy of nepal's development(revised)

8/12/2019 Political Economy of Nepal's Development(Revised)

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Economic Side of Nepal's Political EconomyRam S. Mahat

Economic development cannot happen in isolation, as is not a function of

economic variables alone. History of economic development anywhere shows

that critical noneconomic variables influence the economy as much as or evenmore than the technical factors. !hile reviewin" Nepal's economic development,

it is important to ta#e note of the feudal past, its politics, and prevailin" values

and institutions, laws, $udicial system, law and order and overall environment.

%et us start with a brief review of the past.

Historical Perspective

Early &ays

eudal production order lar"ely predominated the economic relations for

more than two centuries since the creation of modern Nepal in ()*+.

Preoccupation with territorial epansion throu"h military con-uests withoutmuch thou"ht for the country's economic well bein" mar#ed the early days of

the Nepal state till (+(*, which defined the present boundaries of the country.

he ultimate economic burden of war and conse-uent con-uests, which

culminated in the creation of the nation state, fell on the poor peasantry who not

only supplied manpower to the war but also fed and paid for war machine.

he aftershoc# of defeat in the war of (+(/(* when the country lost one third of

the territory to the 0ritish 1ndia and the conse-uent humiliation of the rulin"

elite led the country's then rulers to be concerned more with their political

survival in the face of continuin" internecine power battles and palace intri"ues

which ultimately culminated in the emer"ence of stron" man 2an" 0ahadur andconse-uently, a century old family oli"archy. here was neither respite on the

economic burden, nor any concern for people's welfare.

3onvinced of the invincibility of the 0ritish power, the Rana rulers thou"ht that

the survival of their family autocracy depended on cordial and intimate relations

with the 0ritish power who could offer them a protective umbrella. 1n order to

please the 0ritish, they4

a5 a"reed unrestricted recruitment of Nepali youth in the 0ritish army6

b5 offered cash, material and enormous manpower to the 0ritish side in the two

world wars6

c5 si"ned a trade treaty in (789 which allowed the free entry of machine made"oods to Nepal, somethin" which Nepal had consistently refused in the past

despite stron" 0ritish interest and 6

d5 d5 invited the 0ritish rulers on state visits and lavishly entertained them by

or"anisin" such adventure sports li#e ti"er huntin" in the arai.

he remittances brou"ht about by about 8::,::: Nepalis who served the 0ritish

in the wars brou"ht hu"e cash flow to the economy , disrupted the country's

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simple self sufficient economy. he influ of machine made 0ritish "oods

destroyed the local handicrafts and indi"enous industries. ;fter the first ation. ;nd , there was no shorta"e of resources

because of "enerous eternal assistance.

he principal $ustification for the royal ta#eover was faster economic development

and nationalism. he period did not lac# development a"enda such as faster "rowth,

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land reform, decentrali>ation, eploitationfree society, basic needs fulfillment,

return to the villa"e campai"n, and balanced re"ional development.

; review of the principal economic achievements durin" this period shows an

annual avera"e in" power to

local bodies. State role shran# in production and economic activities but epanded

in social, infrastructural and other fields. ;lthou"h the period was not free from

political instability caused by fre-uent chan"es in "overnment and eventually the

royal ta#eover, especially in the later part of this period , the period witnessed

si"nificant accomplishments. Some of them included4


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%iteracy improved from /: to =/ percent, and life epectancy from =9 years

to *( years. ;ccess to socio economic services includin" drin#in" water,

education, health services, electricity, road access, and electricity increased

dramatically.

;ccess to safe drin#in" increased from /* percent to +: percent, primary

heath centres form (:7* to //:(, total len"th of road from about )::: #m to()::: #m, and access to electricity from 7 percent of the households to /*

percent durin" the period (77( to 8::8.

%iberal passport policy led to lar"e scale outflow of labour to middle east,

Malaysia and other destinations.

1nstitutionali>ation of remittance inflow throu"h ban#in" system.

Remittance income started emer"in" as a ma$or forei"n echan"e earnin".

Post 3onflict Aears

he end of violent insur"ency created a new hope and optimism

amon" the populace for renewed economic activities hope of returnin"

homes for the displaced, restartin" business, restorin" bro#en families andhomes, new investments, hi"her "rowth alon" with a peaceful polity which

could "uarantee peaceful competition of a plural society, inclusion of diverse

and ecluded communities and re"ions ethnicities in the political structure

and e-uitable distribution of political power.

Bn the political front the interim constitution "uaranteed many of the

elements relatin" to inclusion and distribution of political power, alon" with

a promise to restructure the state, which included amon" others movin" to a

federal structure. he constitution draftin" is in pro"ress. 1mportant

le"islation were enacted for affirmative action by introducin" reservation of

-uotas for underrepresented ethnic communities and women in civil service,

"overnment scholarships and police.

Economic ront4

he most conspicuous aspect of the post insur"ency period in Nepal is the

ne"lect of core economic issues. Early hope of peace and attention to economy

and developmental issues contributed in the re"eneration of the economy, which

suffered heavily durin" the conflict. 0ut continued preoccupation with power

politics, and debate over future political system, and unresolved issues of the

peace process are the predominant a"enda of public debate. %et us review some

aspects of the Nepali economy in the post conflict years.

Positive 1nitial Response

he initial days after the end of conflict saw encoura"in" results.


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etc5. Entry of some ma$or &1s C eliasonara, ;sian Power,


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; total net remittance inflow of Rs. 8(: billion in 8::+@7 was able to wipe out

the trade deficit of 8:7 billion.

Phenomenal "rowth of ban#in" and financial institutions. Number of

commercial and development ban#s, finance companies, micro finance

institutions, cooperative ban#s, NR0licensed N


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he above factors includin" declinin" eport, wea# manufacturin" sector, hi"h

inflation, risin" wa"e level in relation to productivity, widenin" trade deficit hi"h

consumption ependiture and low capital formation, and poor law and order

situation includin" the culture of stri#es and shutdowns indicate increasin"

production costs and ris#s in the economy leadin" to erosion of competitive

stren"th of the economy.

he !orld 0an#'s &oin" 0usiness 8::7 Report ran#s Nepal in (9)th position

amon" (+9 countries in &oin" 0usiness 1nde, worse than any other South ;sian

country other than 0hutan. he 1nde ran#s individual economies from the

point of view of re"ulatory environment based on ten indicators includin" entry

and eit, credit, ta payment, and labour related matters. Similarly, Nepal has

been placed under F mostly unfreeF cate"ory with =9.8 points in the Economic

reedom 1nde prepared by the Herita"e foundation and the !all Street

2ournal

%oo#in" ;head4 Need for 'Economy irst' ;"enda

1mprovement in investment climate4

ne-uivocal commitment to the institution of private property by all

political parties, particularly the 3PN CMaoists5.

;void any confusion with re"ard to the need for attractin" private

investment domestic and forei"n. No reversal of disinvestment policy.

; moratorium on all types of stri#es and shutdowns for three years.

Ma#e deliberate economic loss by any side a punishable offence.

Remove infrastructural deficiencies throu"h investment in

hydropower and hi"hways. ;ttract forei"n investment.

&elin# hydropower development from internal political interest.Ma#e any local obstruction on lawful investment activities

punishable.

1nstallation of hi"hpowered transmission lines with 1ndian "rid

immediately to ensure power echan"e.

;ddress constraints pointed out by &oin" 0usiness Report

85 1nvestment in areas with comparative advanta"es4

Hydro power4


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Nepal's bio diversity offers immense potential to promote a"riculture,

forestry, herbs, flora and fauna. Particularly the mountain and mid

hill a"riculture has the potential to compete in the 1ndian mar#et with

advanta"e because of climatic advanta"e. ; hu"e 1ndian mar#et eit

eists net door for their products.

Nepal's weather condition, natural beauty and Shan"rila ima"eoffers ecellent location for world class educational and health

institutes and outdoor sport facilities.

Public Ependiture Mana"ement4

Need for improvin" public ependiture mana"ement with more focus

on capital ependiture. 1ncreasin" trend towards recurrent consumption

ependiture and welfare scheme will be difficult to sustain.

Enhance public ependiture efficiency. Evaluate and improve returns on

capital ependiture.

ree>e on New 0an#s Moratorium on new ban#s until throu"h study about the sustainability of

eistin" institutions "iven the state of the real sector.

Stren"then NR0's supervision and re"ulation over the ban#in" system.

Recent NR0 directives to restrict ecessive eposure to certain sectors in

the ri"ht direction.

3ontrol monetary epansion.

%aw and Brder

Ensure rule of law. Put an end to the culture of impunity by enforcin"

laws. 3rimes of etortion, #idnappin" and intimidation to be dealtstron"ly.

Power Supply

3rash pro"ramme to address present power shorta"e. &raconian

measures to reduce the present 8= percent lea#a"e.

Ma#e thermal plants operational. Encoura"e captive plants.

Review power tariff and do not delay PP; a"reement with 1PPs. 3anceal

old licenses of those who have defaulted in pro$ect implementation.

%abour

3reate national consensus for fleible labour policy.

Emphasis productivity increase.

More trade schools and poly techni-ues.

1n sum, the need of the hour to revive and reinvi"orate the economy is to brin" the

economic a"enda at the centre sta"e of national priorities. he disturbin" economic

trends in Nepal recently when the attention of all countries around the "lobe is

focussed on econmic matters is a matter of concern and a wa#e up call for all of us.

;ny continuation of the present trend of risin" production cost, declinin"

productivity, eports, and widenin" trade deficit on the one hand and the culture of

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impunity alon" with stri#es, shutdowns and blo#ade could put the the very

sustainability of our economy into -uestion. Need of the our is4 Economy irst

a"enda.

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political economy of nepal's development(revised)

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