Friday, August 31, 2007

Hong Kong-bound NAC flight returns

Nepal Airlines flight 757 — from Kathmandu to Hong Kong re-scheduled for 8 pm on Thursday — was cancelled at the proverbial eleventh hour. It was also scheduled to fly to Dubai after returning from Hong Kong.
The 757 Boeing, which took off from TIA at 1:15 pm today, made an ‘emergency’ landing back just after half-an-hour of take-off as it was just crossing Biratnagar. The Boeing was bound to Hong Kong (which is four-and-a-half-hour flight) with 144 passengers, 11 crew members, including four pilots.
The Nepal Airlines Corporation authorities, however, denied that it was an emergency landing. According to RB Shrestha, Operation Director of NAC, who was flying the aircraft, the decision to return was taken as a “precautionary step” as “no compromise could be made on passengers’ safety.”
“After the failure of anti-ice system of the right engine, we thought it is safe to return,” Shrestha said adding that failure of anti-ice system is actually not a dangerous situation but the present weather (monsoon) could lead to more ice formation. “Though the problem was not a major one, I did not want to take any chance,” Shrestha added.
The only aircraft that has been doing the international flights non-stop has been in trouble since Saturday.
Raju KC, Corporate Director of NAC, had, however, earlier confirmed that the flight was re-scheduled and would fly at 8 pm.
The cancellation caused inconvenience to the stranded passengers. Basanta K Gurung, who was to report to his company in Hong Kong, said, “What if the company does not accept me due to delay?”

Resignations sought
KATHMANDU: The NAC Employees Coordination Committee demanded resignation of the entire management and the board members of the corporation on Thursday. Issuing a press statement, the committee stated NAC management should resign immediately since “it has failed to resolve the issues confronting the Corporation for a long time.”
They accused the management of inefficiency for not taking timely decision on engine overhaul and module-4 repair of the Boeing stranded in Hong Kong for last 17 months for which the company is paying a high rent.

Tuesday, August 28, 2007

NAC forcing pilots to fly ‘unsafe’ plane?

The troubled national flag carrier, Nepal Airlines Corporation (NAC), has hit yet another snag. After a technical glitch on Saturday, it cancelled all its flights till Tuesday. The reason: Short-circuit due to water leakage in the cargo compartment.But the aircraft is scheduled to fly to Hong Kong tomorrow at 8.30 pm. However, captain SR Shrestha, who was to fly the Boeing 757 aircraft, Karnali, to Hong Kong on Saturday, claims that the aircraft is still technically unsafe to fly.
“The reason given is not satisfactory. All the wiring should be checked thoroughly,” he argues adding that it’s wise to inform the Boeing company, get clearance from it and be sure of the real reason. “The aircraft should be safe for us and for the passengers. Patch up work will not help,” he adds.
Captain RB Shrestha, operation director at the NAC, however, confirms that the aircraft will not fly until it’s safe. “We are conscious of safety as it’s the only asset we have,” he adds. Most of the pilots are against flying ‘the unsafe’ aircraft.
However, Gautam Das Shrestha, managing director of NAC, says NAC never compromises on safety. “The aircraft will fly only after a complete safety check,” he confirms adding that pilots would not be forced to fly an aircraft unless it’s properly fixed.
But the pilots do not buy that argument as they had faced such situation earlier and had flown under pressure. “Without proper rectification, we had to fly under pressure in May to Dubai, where the aircraft was grounded for five days,” captain YK Bhattarai of that flight remembers.
“We have only one aircraft in operation at the moment. We are faced with increased passenger pressure. So everybody is under pressure but the safety should not be compromised,” he adds.NAC has only two ageing Boeing 757 aircraft and one aircraft has gone for checks in Brunei currently.
“The aircraft is checked every year and the grounded aircraft was checked only eight or nine months ago. If there was problem it should have been fixed then,” captain Shrestha says.
NAC had bought Karnali on lease in 1987 and Gandaki in 1988.

Saturday, August 25, 2007

Stock trading a mouse click away

The day is not far then an investor here or abroad and brokers could place an order to sell or buy stocks through Internet.
“We are trying hard to make it possible that brokers can work from their respective offices,” Bimal Prasad Wagle, chairman of the Nepal Stock Exchange (Nepse) said. He added that the system, which is now operating in Local Area Network (LAN) only will be soon upgraded to Wide Area Network (WAN). “And the days of online trading is also not far,” Wagle said.
However, experts showed serious concern, over rise in the shares prices in recent days that is not supported by the economic growth, at a formal inaugural function of automated trading — after the successful test — of the Nepse, in the valley today.After the automation, stock analysts have predicted price correction but contrary to that the heated stock market is not showing any signs of cool down.
“Too much money is chasing too few shares creating an artificial rise in the prices,” finance minister Dr Ram Sharan Mahat said adding that there has been no new issuance to meet investors’ appetite at present.
“Present irrational exuberance is also due to short supply of shares,” Dr Posh Raj Pandey, member of the National Planning Commission (NPC), the government think-tank, said adding that the new tools like mutual fund could help stabilise the market.
“The present growth of Nepse index — and that only of the banking index (Bankex) — do not reflect real economic growth,” said Rewat Bahadur Karki, CEO and MD of the Nepse adding that the development of a barometer — of present banking sector dominated market — is a real challenge.
“One of the reasons of Bankex being bullish is due to the transparent and international standard accounting system of the financial institutes, which indicates that the transparent and international standard accounting system will help boost the real sector also,” Karki said adding that the market capitalisation has reached to around Rs 200 billion and the number investors has also increased to 800,000 at present.
“But the number of brokers is not sufficient and we are committed to increase the number of brokers in near future,” Deepak Raj Kafle, chairman of the Securities Exchange Board (SEBO) said.
Nepse is planning to adopt some other practical measures like Central Depository System (CDS) and Real Time Information, which will ultimately help it to grow as a vibrant sector.
Krishna Bahadur Manandhar, acting governor of Nepal Rastra Bank on the occasion, praised Nepse’s initiative and stressed on competitiveness.
Steve Ujarosy, the technical consultant for the automation, said that automated trading system would expand horizon and secure the future of capital market in Nepal.
On the occasion, Umesh Regmi, a broker stressed on making share market competitive and autonomous and Jeevan Basnet, an investor gave some suggestions for the improvement of Nepse.
Comdaq Ltd — that has supplied the system to replace the open-out-cry system — issuing a press release has congratulated the Nepse for entering into the new age of technology.The stock market automation was supported by Asian Development Bank (ADB) under the CFG project.

Monday, August 20, 2007

Reforms at snail’s pace

Nepal Rastra bank and the World Bank are planning open bidding for the selection of management team for the Nepal Bank Ltd (NBL). It has earlier appointed a three-member temporary management team led by Nepal Rastra Bank (NRB) director Dr Binod Atreya for day-to-day operation of NBL until the new team takesover. The other two members are Laxmi Prapanna Niraula and Numnath Poudel. The most unexpected decision by the ICCMT, an Irish/Scottish consulting firm that was handling the management of the troubled NBL for the last five years, to unilaterally terminate the management contract on July 22 sparked a heated debate not only on the future course of NBL, but also on the whole financial sector reform programme.
The World Bank's (WB) warning to pull out of the financial sector reform programme — if there is no 'satisfactory' improvement in NBL within one month — added more fuel to fire. Some experts claimed that the WB, the global lending institution, might suspend all its assistance to Nepal’s financial sector reform if its pre-conditions are not fulfilled. But WB has made it clear that following a six-month extension for ICCMT, the government is free to hire a professional management team, foreign or local, but with at least one expatriate as either CEO or chief credit manager. “A professional team should be selected on performance basis," says Tulsi Uprety, director of board at the Rastriya Banijya Bank (RBB).
Nepal started financial sector reform programme in 2002. The main objective of the programme is to develop a healthier financial sector, which intermediates funds more efficiently and effectively for the benefit of all the segments of the society and in a manner that supports private sector development, increased investment, and faster growth. The programme is not only related to NBL and RBB, but the broader aspect of it is also to reengineer NRB and make it more efficient in monitoring aspect.
Only a well-regulated financial sector can facilitate sustained economic growth, fostering a robust and vibrant financial market. Revamping research and financial monitoring strength and enhancing the capacity of NRB, the regulatory authority, to oversee an operated banking system are prime objectives of the series of reforms. And boosting a supervision capacity of NRB is one of the key agendas of the reform.
With the promulgation of the NRB Act 2002, one of the steps of the reforms programme, the central bank has now clearly defined responsibility, authority and accountability. As a result of the enactment of the new Act, supervisory, oversight, and regulatory functions have been strengthened substantially. NRB is now stricter than in the past in penalising the banks and financial institutions for non-compliance of regulations. The WB also supports NRB's strategic plan to enhance quality and frequency of inspections, both on-site and off-site, with timely reporting followed by the ability to take quick and corrective actions in case of non-compliance.
The central bank aims at boosting up the contribution of the financial system towards achieving the national goals of macroeconomic stability and financial discipline to a greater extent through increasing efficiency in mobilising and allocating financial resources, enhancing savings and investment levels, channelling the resources towards productive investments and allocating the available resources to the deficient segments of the economy for enhancing overall competitiveness.
The first phase of the reform programme has encouraged Voluntary Retirement Scheme (VRS) mainly to reduce the huge operating costs and make these troubled financial institutes saleable. NRB, NBL and RBB, they all have, to some extent, successfully completed the scheme.
In four phases, a total of 1690 RBB staff opted for VRS. In NBL a total of 2367 staff have opted for VRS. Similarly, out of RBB’s 114 branches, 71 branches are computerised. Also, out of 96 branches of NBL, 44 are already computerised and 38 are under the process.
If we go by the balance sheets of NBL and RBB, the performance of the new management has some good scores. But there are certain areas where they could have done better. However, NBL claims to have cut down the Non-Performing Assets (NPAs) to 15.20 per cent from 57 per cent when it took over the charge. Similarly, RBB claims to have reduced its NPAs to 32 per cent from 72 per cent in July 2003. “And within the last five-year’s period, it has registered less than one per cent NPA only,” says Janardan Acharya, acting CEO of RBB.
“Now RBB will be easily saleable as it has improved its service quality and brand image as a competitive modern bank,” adds Acharya. Reform, recapitalisation and professionalisation are the long-term goals of the programme. The immediate step will, now, be to hire sales advisors. These advisors will undertake due diligence, prepare a prospectus for the banks and then undertake a road show to bring them to the point of sale to the buyers.
There is yet another facet of the reform. “Capital injection is a must to run these institutions professionally and autonomously. Around Rs 10 billion for RBB and Rs 3 billion for NBL, after re-evaluating their assets, will give any private bank a hard competition,” says Uprety adding the government's commitment is more important.
Along with the numerical growth and other institutional developments in the financial sector like stock markets and insurance companies, the deposits and credits are also expanding though the qualitative aspects of the financial system still require much improvement as reflected in the inadequacy of the banks and financial institutions in providing increased benefits to the general public and in contributing adequately to the economic development through raising income level, creating employment opportunities and building internal strength for the growth of the institutions themselves.
Despite controversies and adversities, a healthy financial sector is a pre-requisite to sustainable economic growth. By getting rid of the various institutional and structural deficiencies that still prevail in the system, further reform measures need to be continued, initiated and implemented to create a strong economic sector and for the economic health of the country. Apart from effective implementation of various legislations like Insolvency, Secured Transaction laws, enhanced credit information and debt recovery tribunal with adequate capacity and resources, professional economic journalism and better training for staff in financial institutions will certainly help reform the financial sector reform.
Finally, the government also needs to focus on how best to deal with the large retained losses accumulated over the years by NBL and RBB which still results in a negative net worth of Rs 6.1 billion (NBL) and Rs 18 billion (RBB), a combined negative net worth of about seven per cent of GDP.


World Bank’s assistance to continue…
Rajib Upadhya
Sr. External Affairs Specialist, the World Bank

What is the involvement of the World Bank in Nepal’s financial sector reforms?
In response to the government's request for technical and financial support to its financial sector reforms programme, the World Bank has been providing support to Nepal in this area since 2002. So far, between the World Bank and DFID, we have allocated about Rs 7 billion under two projects to implement the programme.

Are the reforms going as smoothly as planned?
When we got into this area, neither the government nor the World Bank had any illusions about the challenges of reforming the financial sector. Nevertheless, we agreed that this was too important an area not to give our best effort.

How is World Bank responding to the dispute between the ICCMT and NRB?
The recent controversy was indeed unfortunate. But there are lessons that we hope will help prevent such controversies in the future. I think we are now past this episode, and we look forward to refocus our attention on important tasks ahead.

How does World Bank assess the reform progress?
I think we have good reasons to believe that overall performance has been satisfactory. Of course, we would have hoped that some things would have moved sooner and with more determination. But there is a context in which our work is anchored. Had this context been more favourable, I think progress would have been more rapid and more substantial.
To cite a few examples of progress, in the four years before 1999-2000 and 2000-2003, NBL and RBB had accumulated combined operating losses of Rs 28.9 billion. In the three years between 2003-2004 and 2005-2006, when external management teams were in place, NBL and RBB registered combined profits of Rs 7.7 billion. This turnaround is truly remarkable.
Before the management takeover of NBL in July 2002 and RBB in February 2003, the extent of bad loans in the portfolios was unknown. The audit teams subsequently confirmed that more than 60 per cent of the total loans in each of the banks were NPA as of July 2003. With vigorous debt recovery efforts, the NPA levels have been reduced to 34 per cent (Rs 7.8 billion) in RBB and 16 per cent (Rs 2 billion) in NBL as of January 2007. In terms of cash, debt recovery since 2003 in these two banks has amounted to Rs 17.9 billion.
Financial disclosure standards have improved. Before the management takeover, the statutory financial audit at one point was actually delayed by more than three years. Now both banks publish provisional financial statements within a month (ahead of most private and joint venture banks) and audits are compliant with International Accounting Standards (IAS), while at least one bank completes it within the Central Bank's stipulated timeframe. Disclosure standards have definitely improved.
Investments in re-engineering NRB have produced a better trained / skilled staff and a better legal / regulatory framework, enhancing NRB's regulatory and monitoring capacity.
Nevertheless, with the increase in the number of players in the financial market and an increasing share of financial assets in the economy, NRB still requires further strengthening of its bank supervision capacity to enhance its role as a more effective and professional regulator.
In July 2003, staffing levels at NBL and RBB stood at 5,269 and 5,402 respectively. As of January 2007, the number of staff had been reduced (through various VRSs to 2,960 and 3,301 respectively, despite hiring new commerce graduates (123 in NBL and 65 in RBB) to inject new blood into the system. Staff at NRB was reduced by about 20 per cent (from about 2,000 to 1,554) with the ratio of support to professional staff reducing from 5.5 to 2.2. In addition, about 300 staff members have received special training (mostly abroad) in the areas of regulations, audit, legal framework, IT, supervision, human resources and financial management.

What will be the future course of financial sector reform in Nepal?
There has been tremendous growth in the number of financial institutions in Nepal over the past decade. Similarly, assets of the financial system have witnessed consistent growth over the last half-decade signifying the increasing role of banking and financial institutions in the economy. Total assets of the financial system to GDP (in current prices) increased from 59.4 per cent (July 2000) to 89.6 per cent (July 2005) to 93.4 per cent (January 2006). Indicating an increased financial deepening, M2/GDP has grown favourably over the last decade.
Starting from only 8.7 per cent in 1965, it rose to 30 per cent in the early 1990s and reached about 40 per cent by the mid 1990s. Since 2001 the ratio has exceed 50 per cent, reaching 62 per cent in April 2006, a level comparable to middle income countries. The growth in this ratio implies an expansion of the financial intermediation sector relative to the rest of the economy.
This needs to be complemented by a better environment such as enhanced credit information and debt recovery tribunal with adequate capacity and resources; improved financial journalism; and better training for staff in financial institutions.


· Debt Recovery Act 2002. This legislative framework is a new attempt to make loan recovery effective and reduce the burning problem of NPA of the banking system.
· Bank and Financial Institutions Ordinance. By this Act, the fragmented legal bases such as Commercial Bank Act, Finance Companies Act, Development Bank Act and other laws governing deposit-taking financial institutions have come under the single legislation. This has also tighten the regulatory rules governing those financial institutions.
· Public Debt Act and Foreign Exchange Regulation Act has been amended to make them up-to-date.
· Secured Transactions Ordinance, Insolvency Ordinance and Securities Ordinance, Company Ordinance, Fiscal Transparency Ordinance and Anti-Money laundering Ordinance are yet another achievement.
· Similarly, NRB has formulated and issued various prudential regulations for implementation to ensure a safe, sound and efficient financial system, like capital adequacy, loan classification and provisioning, credit concentration and single obligor limits, accounting policies and formats of financial statements, management and minimisation of risk, good corporate governance, Provisions relating to investment in shares and securities etc.

Saturday, August 18, 2007

People pay peanuts to Caesar!

Just 2,40,686 of the 26m people are in tax net?

The biblical injunction, Pay unto Caesar what’s Caesar’s, is unheard of in Nepal.
Only one per cent of the population of 26 million, drawn from organised and formal sectors, pay tax. This after the number of taxpayers grew by 12.88 per cent after July 2006 and the put-out-to-pasture Caesar has, reportedly, refused to pay utility bills for long.
Last year the number of registered taxpayers stood at 2,13,209.
“It is too little,” says Deep Basnyat, director general at the Inland Revenue Department (IRD), clarifying that the exact number may go up by a little more, “If we provide PAN to each individual.”
According to the rule, tax is deducted at source in the case of salaried individuals.“A company might have a hundred employees, whose tax is paid under one company Permanent Account Number (PAN). A salaried individual has no separate PAN,” he adds.
PAN is a nine digit numeric code number issued by the IRD.
In its bid to widen and tighten the tax net and ensure that a larger number of people pay taxes, the government has made it mandatory for organised and formal sectors to register with the PAN system .“If an individual approaches us, we will provide PAN number,” says Keshav Adhikari, deputy director general at the IRD. “But individuals can also pay tax without registering with PAN.”
Experts suggest that PAN should be provided to every individual which will allowtaxpayers to know how much tax they pay to the government. To encourage the habitof paying tax, the highest tax-payer should be recognised and awarded by the government at the end of each fiscal year, they suggest.
The government must provide taxpayers with a certificate every year for the records, which could create a healthy social competition between individuals who have paid tax to the government from earnings or business.
“Once we awarded the highest taxpayer corporate house but the award drew a lot of criticism due to various reasons,” Adhikari says, adding that the system since then has been cancelled. “Due to security reasons, the name of the highest tax paying individual cannot be made public,” adds Basnyat.
“PAN must be made compulsory because lots of earning professionals are not paying tax,” says one official at the IRD. But Adhikari says, “Some of them have registered with the PAN system.”

Friday, August 17, 2007

Too few stock brokers

When Nepal Stock Exchange (Nepse) Ltd opened its trading floor on 13th January 1994, there were 60 listed companies and 25 share brokers.
Today, the number of listed companies has reached 135, even after the delisting of more than three dozen companies, but the number of stock brokers has decreased to 23.
“The number of stock brokers should have increased,” says Rewat Bahadur Karki, general manager and CEO at the Nepse, adding that additions will increase healthy competition in the sole secondary market. “Healthy competition in the stock market will help grow the secondary market in a sustainable way,” he adds.
“Otherwise unhealthy competition will hit small investors and it will be difficult for them to enter the market,” says Rabindra Bhattarai, a stock analyst.
“An increase in the number of brokers will not hurt existing brokers,” says Rabindra Pradhan, a stock broker, adding that the present number of brokers is low in comparison tothe rising share trading and transaction.
As the number and the volume of transactions grow, the Stock Exchange has divided the listed companies into the eight groups and has introduced the Sensex to make it more transparent.
“It has also started the circuit breaker to protect the investors’ interest,” says Karki.Constant vigilance over the stock market is needed to protect the interest of investors.
“The Nepse is also thinking of introducing a ‘brokers code of conduct’ apart from increasing the number of brokers to inject greater self-disciplined. It will also help check manipulations,” he adds.
Most industry players agree that the stock market is ripe for modernisation.“To modernise and regularise the market, Nepse has introduced automation from yesterday that is a key tool for regulating the unjustified rises in share prices and track investors and their transactions, so that the market can not be manipulated,” Bhattarai says.
Nepse should also apply a Central Depository System (CDS) to grow as a vibrant sector. CDS can minimise the troubles for the buyers. The brokers’ commission should also be lowered from what they are charging right now.
“The market, now, has to be monitored and regulated without damaging the large number of investors’ confidence for sustainable growth,” feels Bhattarai.
The Nepse has virtually been on fire in recent months. “The stock market has been heating up primarily due to lack of investment alternatives. Petty investors have no opportunity,” adds Pradhan.“Growth should be sustained on the long run otherwise it would be another ‘bubble burst’, leaving a lots of petty investors on the road overnight,” feel investors.

Wednesday, August 15, 2007

Nepali capital market moving ahead

Finance company upgraded to development bank
For the first time in the history of Nepal's financial sector, a finance company - Ace Finance Company - has been upgraded to a national level development bank.
The recipient of 'Best Presented Accounts' awards from Chartered Accountants Association twice, Ace Development Bank Ltd has a paid up capital of Rs 320 million. It has collected a total of Rs 988,129,000 deposits and posted Rs 22,322,000 million net profits.

Automation in Stock market to begin, Test starts
Nepal stock exchange started automated stock trading from today in its 14-year long history. Though the complete automation of the stock exchange will start from August 19, today and tomorrow will be the test sessions. With this new and modern technology, the Nepali stock trading enters into the age of technology and development. The present open-out cry system is now phased out and the stock trading is almost a mouse-click away.
The real stock market begins from August 19, after its successful test on Wednesday and Thursday this week.

Tuesday, August 14, 2007

Nepal's tryst with FDI

(This book has become the first Nepali book to be nominated for an International award. It was nominated in ‘Colleagues Choice Award 2007’ of International Convention of Asia Scholars (ICAS). It was the only Nepali Book out of more than 25 book nominees.)

Nepal formally welcomed Foreign Direct Investment (FDI) in the later half of '80s. However, history has it that the first foreign investment began with the establishment of Biratnagar Jute Mill in 1936.
Post-1990, market liberalisation has played a vital role in attracting foreign investment. But the trend, unfortunately could not continue, as the post-1990 governments did not realise that the free market economy could not survive only on political foundation. Without social foundation, it became meaningless.
'Foreign Direct Investment in Nepal' is a book by Raghu Bir Bista, who has been researching on foreign direct investment, globalisation, and poverty in Nepal for a long time now.
The book is an outcome of several years research work on FDI, according to the author. And the book is related to socio-economic impacts of FDI in macro-and micro-level. It also analyses trends, size, growth and structure of FDI and investment climate in Nepal.
Foreign Direct Investment refers to a cross-country investment as a component of globalisation and a supplementary potential alternative resource substituting foreign debt. It helps in transferring capital, management and new technologies form a developed country to a lesser developed one.
This book deals with the impacts of FDI at macro and micro levels with analysis of its trend, structure and policy environment. This book is comprised of three parts such as preliminary, main body and annexes.
The book begins with an introduction on FDI, the concept of FDI with its historical background, rationale, features, form and reality. It also tries to give an overview on the progress and scope of foreign direct investment in Nepal so far, investment climate, priority, opportunity and condition, and the policy environment.
According to a survey by the global consulting firm AT Kearney, India has emerged as the second best destination for foreign direct investment (FDI) after China. FDI contributes a lot to the economic and overall development of these countries.
Nepal could take lessons from its neighbours and try to attract more FDI. But to lure more FDI, Nepal must address issues related to its infrastructure, logistics and regulatory barriers.
The author needs more research on international and South Asian trends of FDI and its structure. He has not mentioned how FDI in small and land-locked economies like ours have fared so far and how it opens possibilities of hurting local business severely.

Book: Foreign Direct Investment in Nepal
Author: Raghu Bir Bista
Published by: Center for Integrated Development Studies Nepal (CIDS)
Price: Rs 350

Monday, August 6, 2007

Industrialisation fails to take-off in Nepal

Even after seven decades since Biratnagar Jute Mills, the first industry to be established in Nepal in 1993 BS, industrialisation has gone nowhere in Nepal. This is the primary posit in Nepalma Audyogikaranka Samasya (Challenges of industrialisation in Nepal) written by Bharat Mohan Adhikari, former finance minister and central committee member of the Nepal Communist party, United Marxist-Leninist (CPN-UML).
One of the main causes behind the lack of industrialisation in Nepal is the private sector’s indifference towards industrialisation. Private sector’s involvement in manufacturing has been negligible, he writes. “Those, who were interested in industry, could also not sustain in the long run. They were infected by the ‘Open by day and fly by night’ syndrome,” claims Adhikari. He, however, fails to give adequate reasons behind this accusation.
The book begins with a run on of the Five-year Plans, from the first Five-year Plan (2013-2018 BS) to the current tenth Five-year Plan and their focus on industrialisation.
He writes, “In the fifth Five-year Plan (2032- 2037 BS), industrial production has recorded an increment by 6.5 per cent and in the sixth Five-year Plan (2037- 2042 BS) it recorded a 10 to 30 per cent increment.” However, the growth trend did not continue.
The reason behind the growth in industrial production during those years might have been state protectionism. “From the second to seventh Five-year Plan, the industrial policy was more protectionist. After the movement in 2046 BS, Nepal embraced the open market economic policy,” Adhikari writes.
“However, the open market policy could not drive the growth of manufacturing industries upwards,” Adhikari adds, “Though it helped industries like education and health, and the financial sector including banking, financial institutes and transport to grow.”
In the ninth Five-year Plan (2054-2059 BS), the production of export-oriented industries declined. “From the industrialisation point of view, the ninth five-year plan was a complete failure,” writes the author.
The book describes how once Nepal was almost self-sufficient in sugar. But now, 30 per cent of the total sugar demand is being met by imports. The author tries to explore the reasons behind the many failures of the privatisation process in Nepal.
Almost all privatised companies are either on the verge of collapse or have already collapsed, further fuelling unemployment. "There is an urgent need for individual case-studies of privatised companies, if privatisation has to be continued successfully."
He emphasises on small-scale industries instead of big industries. "The best thing Nepal can do and should do is commercialisation of agriculture and promotion of industries like tea, coffee, jute, sugar, cigarette, dairy, leather-based, herbs. Building competitiveness in these sectors can increase export and displace import, the author suggests.
Adhikari has given due space to industrialists’ complaints also in the book. In some places he sounds more like an industrialist than an economist.
Lack of basic infrastructures like road network and communication has impeded growth. High cost of electricity, red-tape, government policies, lack of market diversification and bandhs are some of the hurdles that have hit industrialisation in Nepal, he claims.
There is no doubt that the book could be a good source material for scholars. "If it could encourage students, I will be more than happy," the author himself claims.
The book further delves into the emerging relations between industrialisation in Nepal and global trade and regional organisations like WTO, SAFTA, BIMSTEC.
Nepal has to follow the current global trend of industrialisation, but not blindly, Adhikari suggest. Economic diplomacy is as important tool in today’s open, global market. Unless a country is economically independent, it cannot survive as a sovereign country. “Sooner or later we have to come to a national consensus on industrialisation and the economic agenda. And there is no better time than today," he says.

Book: Nepalma Audyogikaranka Samasya (Challenges of industrialisation in Nepal)
Author: Bharat Mohan Adhikari
Publisher: Ratna Pustak Bhandar
Price: Rs 295
Pages: 269

Sunday, August 5, 2007

Reinventing Nepal as a transit point

Nepal being sandwiched between the two Asian economic powerhouses; Indian and China, is seen as a lame duck geographically and economically. However, the history has it that Nepal has been a gateway for Indo-China trans Himalayan trade since the period of Lichhivi kings.
A new debate on positioning Nepal in its ancient track and make a transit state has gain momentum in the recent times. Nepal as a Transit State: Emerging possibilities, a compilation— an outcome of such a one-day long national seminar organised by the Institute of Foreign Affairs (IFA) in collaboration with Confederation of Nepalese Industries (CNI) — explores the positive and negative aspects of being a transit state.
The book, which has included four papers that were presented in the seminar and the comments on those papers, tries to get a deeper understanding on the socio-environmental and socio-economic costs that Nepal has to bear after being a transit state.
In recent years, China and India are trying to expand trade and business between the two countries. As the giant Asian neighbours have moved to improve their relations, strained for decades, two-way trade between them have also grown by more than sevenfold in the past five years. According to the latest data, exports and imports totalled $15 billion in 2005, up from about $2 billion five years earlier between the two traditional rivals. And there is a potential for much greater trade between them. “It is an opportunity for Nepal, if it can prepare itself for a transit trade route. Could existing road network and policies of the government help us to become a transit state?” The answer is almost clear in the book, without up gradation of roads and more physical infrastructure, it could be a disaster.
“Though trade links between China and India via Nepal corridor are as old as our history, they have been using other routes in recent times. It is high time for both the countries find an alternative route for their growing trade and Nepal could provide an alternative road link, claims the book. The paper presenters; Tara Dahal, Dr Dilli Prasad Bhattarai, Keshav Raj Jha, and Prakash A Raj have elaborated the need of good infrastructure like road links, communication facilities, storage facilities, and business opportunities that Nepal can get and procedural, legal and institutional mechanisms that Nepal needs to look into to be a transit state.
According to Dr Dilli Bhattarai, Nepal should give due attention to develop its northern border and link with China, and then build good trade relations between Nepal-India-China, otherwise we could miss the opportunity. And for that Nepal needs a massive infusion of FDI to build roads and other infrastructures.
Similarly Dipak Gyawali, former minister; Dr Shanker Sharma, vice-chairman of the National Planning Commission, and Atma Ram Muraraka of CNI’s comments on the papers are also thought provocative.
As foreign minister Ramesh Nath Pandey writes in foreword in the book, Nepal’s offer to be a transit point linking the two biggest markets in the world is an attempt to make geography a boon rather than a curse.
The book, which is a worth reading, is edited by Nischal Nath Pandey, executive director of the IFA.

Book: Nepal as a Transit State: Emerging possibilities
Publisher: Institute of Foreign Affairs (IFA)
Editor: Nishchal Nath Pandey
Pages: 74

Wednesday, August 1, 2007

Indian stock market crashes

Indian share market felt the global tremor today and crashed pulling a key index down by nearly 500 points on the back of weakness in Asian markets.
The sensitive index (Sensex) of the Bombay Stock Exchange (BSE) was down by 494.14 points or 3.18 per cent, at 15,056.85 points over previous day's close at 15,550.99 points. The barometer index opened at 15,344.02 points and continued to dip to 15,023.37 points.
With the US markets sharply down yesterday, similar movements were expected in Asian markets as well and the Indian bourses have followed that trend. But the market fundamentals remain strong.