Sunday, November 8, 2015

Shadow economy expands thanks to government fecklessness

The shortage of essential goods in recent weeks and months, caused by the Tarai-Madhesh unrest and the Indian blockade, has spawned a shadow economy. The increasing reach of the shadow economy – also due to structural deficiencies and market anomalies – is going to bring about another catastrophe in the country, warn economists.
The spread of the shadow economy will hurt the country in the long run as the country will slip out of the government's hand, if the current situation continues, they said.
Former finance secretary Rameshwor Khanal said the economy is slipping out of the government's hands. "The economy is being hijacked by black-marketeers, smugglers and criminals," he said, adding that in the long run these elements will run the economy into the ground and that will also be bad for cross-border trade. "The economy in criminals' hands will eventually hit the cross-border trade too."
According to the Central Bureau of Statistics (CBS), Nepal's economy is worth around $21 billion.
"That is also about the size of the shadow economy," claimed economist Prof Dr Madan Kumar Dahal. "In economic parlance it is called the parallel economy," he said, adding that earnings from smuggling, corruption and black-marketteering are all part of this parallel or black economy, which will ruin the economy and country in the run long run.
Government fecklessness has not only left consumers helpless but also boosted the shadow economy.
Thus, suggesting that the government declare an emergency in view of the increasing shadow economy, Dahal said, "Nepal has turned into a banana republic." According to him, the country is suffering because of its complete dependency on one country and failure at trade diversification over the past few decades.
The prolonged Indian blockade has pushed the prices of essential commodities, includes petroleum products, to more than double. People are forced to pay anything between Rs 250 to Rs 500 per liter of petrol that costs only Rs 104 per liter. Consumers have been paying Rs 10,000 for a cylinder of cooking gas, which is priced at Rs 1,400. Likewise, the price of edible oil has increased to Rs 250 per liter from Rs 120 a month ago, whereas rice, lentils and pulses have also doubled in price. "But the government is nowhere to be seen," said president of Nepal Retailers Association (NRA) Pabitra Man Bajracharya, during an interaction with Nepal Republic Media today.
Admitting that the prices of some commodities have jumped, he said, wholesalers have been charging retailers high prices, citing supply constraints and increased transportation charges due to the fuel shortage.
The government has been doing nothing to control these market anamolies, he said, adding that officials at the Department of Commerce and Supply Management (DoCSM), who are responsible for controlling such malpractices in the market and maintaining uniformity in prices, are in no mood to intervene. "They just say that the need of the hour is to get supply of goods," he added.
President of Consumer Rights Investigation Forum Madhav Timalsina seconded Bajracharya's views. "Nepali consumers are probably going through the toughest time ever," he said, accusing traders of creating artificial shortages to push up price. "As the government has been doing nothing, unscrupulous traders are having a field day," he added.
Despite the open black-marketeering, the government has done nothing, Timalsina said suggesting the government to scrap the consumer laws altogether, if it cannot enforce them.
The shortage has created opportunity for corrupt bureaucrats, black-marketeers and smugglers to earn illegal money distorting the market.
"The distortion in the market could be corrected, if government could monitor and regulate market, and also normalise the supply system," Khanal said, however, adding that government should let the market function smoothly, without intervention.
Likewise, Finance Secretary Suman Prasad Sharma also accepted that high demand and low supply had encouraged black-marketeering. "But the government has to act fast to stop the economy from going to the dogs," Sharma said, claiming that the government is trying to build confidence in the market by regularising the supply-side.


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