--By Dr Dilli Raj Khanal

Many people citing steady reduction in consumption-based poverty amidst trade and finance-induced economic activities together with some progress in education and health services including limited expansion in physical infrastructure facilities, think that businesses as usual discourse grounded on ongoing but failed globally dominant economic regime is best suited for Nepal’s advancement. Such a view apparently has received added impetus in the present governance setting. As such, viewing problems primarily through technical lence, that too without reference to Nepalis initial conditions, some minor change in the policies wherever necessary is advocated. Such thinking, at first, derecognizes the role and contribution of the perpetuated underdevelopment and contemporary state of the economy in the historical political change of 2006. As a corollary, the asymmetrical tendency between realization of limited successes as stated above (that too driven primarily by remittances) and deepening problems of low growth and jobless trap amidst high inflation, exclusive and non-sustainable nature of development and, above all, the burgeoning external dependency multiplying the vulnerability of the Nepalis economy, is almost fully undermined. Such a tendency, if persists for long, may have more pervasive and wide-ranging devastating impact on the Nepalis economy in the coming days. 

As is well known, in Nepal the entire macroeconomic policies are revolving around economic stabilization since mid 1980s. Very liberal and open up policies that are continuously being pushed are grounded on it. Undeniably, economic stabilization is a precondition for creating entrepreneurial and business environment and thereby embarking on the path to sustainable development. But Nepal’s experience indicates that this is not a sufficient condition and hence what matters is how that stabilization objective has been achieved. It is ironical that amidst maintenance of fiscal balance through tight fiscal policy the share of capital expenditure in total government expenditure has gone down below 15 percent and it is further declining. This means that the balance has been maintained simply at the cost of jeopardizing fiscal role of the government which is supposed to play catalyst task of augmenting productive capacity of the economy. The problem in monetary front is perhaps more serious. 

Tight monetary policy which deliberately escapes from growth enhancing role has also dismally failed to contain prices as well as maintain balance of payment. 

Instead, by contributing to unproductive investment-led non-tradable economic activities amidst massive inflow of remittances, it has helped deceleration of production sectors (agriculture and industry), thereby establishing a culture of trade not production. This has led to, among others, destabilization in external trade and payments fronts. 

Today, the trade deficit has reached alarmingly level, surpassing 28 percent of GDP which is hardly observed around the globe. 

Amidst immature frequent decisions grounded simply on instant technical reasoning, poor prudential regulations, weak control and monitoring mechanism, inefficiency-led financial instability and increased fraud are raising high risk in the entire banking system. The institutionally driven exclusionary practices encouraging lending activities in certain urban centers and in (that too catering limited business houses and companies) is another paradox of monetary policy under business as usual principle. 

Another fundamental flaw is that the business as usual discourse presumes trickle downing or spill over effects. Hence identification of linkages or transmission mechanisms through which macro and sectoral policies could play both catalyst and complementary role each simultaneously are either ignored or treated in isolation. In this context increased evidences show (apart from policies linked to tax structure), quality of both public and private investment, policies in the areas of exchange rate, finance, industry, trade and business services together with their institutional and governance dimension become critically important. 

In Nepal’s specific condition, given the tremendous potentiality and competitive advantages of sectors like agriculture, energy, tourism and richness in biodiversity, interlinking of macro and sectoral policies in an economy-wide frame ensuring comprehensiveness becomes critically important. Here again the micro dimension comes to the forefront in which area-specific policy incentive backed by a strategy of providing basic infrastructure and other facilities under the broad macro, sectoral and interlinked micro policy setting, becomes critically important. A policy of value chain through institutional or organizational structure from the grass roots in an integrated manner has emerged the best alternative as successes of many countries in expanding the domestic production base of the economy and enhancing sustainable growth, indicate. This means that simultaneous consideration from both horizontal and vertical dimension becomes utmost important which is lacking in the present economic policy discourse. 

In view of all these, time has come to review whole gamut of policy and institutional set ups and arrangements in a way that our tremendous potentials are harnessed more judiciously for rapid growth and economic prosperity in a sustainable way. There is a need of maximum use of our entrepreneurial capability accompanied by development and unleashing of productive forces. Grounded on the existing characteristics of the economy and identification of underlying reasons, a comprehensive forward looking economic policy agenda backed by institutional setups and arrangements must be framed and introduced with utmost priority by involving various stakeholders and other catalyst forces for a new economic discourse that could contribute to enhance productive base of the economy and augment societal transformation in a dynamic way. As such, time has come to engage in much needed concrete agenda rather than repeating simply rhetoric. 

(Dr khanal, is a former member of the National Planning Commission.)