Indian budget to widen trade deficit, fuel inflation

The Indian budget is going to impact Nepali economy as it has continued huge subsidy to the agriculture sector and slashed taxes on export items.

Finance secretary Shanta Raj Subedi – a discussion today at the ministry on possible impact of interim Indian budget and its impact on the Nepali economy – during asked senior ministry officials to study the possible impact and find a solutions to address them in the budget for the next fiscal year.

The interim Indian budget ahead of the general election in India has allocated huge subsidy to the agriculture sector, slashed taxes on export items and reduced excise duty on small cars and motorcycles.

But Nepali exports will be hit and trade deficit will continue to widen due to the Indian budget, the officials concluded, particularly concerning about the possible surge in imports of agricultural products – due to subsidy – from the southern neighbour and put extra pressure on domestic agriculture sector.

The huge subsidy to agriculture sector will make Indian agricultural products competitive compared to local products, Subedi said, adding that it would also increase exports of Indian agricultural products to Nepal.

Nepal's trade deficit with India has reached Rs 190.95 billion, out of the overall trade deficit of Rs 288.76 billion, according to the central bank.

Likewise, the ministry officials also discussed on possibility of capital flight due to expansion drive of Indian insurance companies in the bordering towns.

However, the reduction of excise duty on sports utility vehicles (SUVs) from 30 per cent to 24 per cent, and large and mid-segment cars will have no impact on Nepali economy.

Ministers get fiat to shift gears, asked to get off posh SUVs

Ministers habituated to being chauffeured around in posh SUVs — mostly the Pajeros and Prados, the luxurious brands in the world — now will have to shift gears, with government austerity plan in force, as per which they have to ride a vehicle that can be bought under Rs 3 million.
After Prime Minister Baburam Bhattarai, who chose Nepal-assembled Mustang Max, Finance Minister Barsha Man Pun too asked chief secretary Madhav Prasad Ghimire today to sell the Toyota Prado — that he is currently using — and get him a vehicle that costs not more than Rs 3 million. Pun’s decision today comes in line with the Austerity Regulation-2068 that the government introduced today.
The Austerity Regulation has explicitly mentioned the categories of vehicles the government officials can have at their disposal. According to the Regulation, a first class officer can ride a 1200cc vehicle that costs up to Rs 2 million, government officials of special class and above can have a 1400cc vehicle of up to Rs 3 million and district-level projects can buy a 2000cc vehicle, the cost of which could go up to Rs 4 million.
With the Prime Minister and Finance Minister, both from the same party UCPN-Maoist, strict on cost-cutting measures, other ministers, who have always drawn flak for their ostentatious choice of vehicles, are under moral pressure to follow suit.
Though, it might seem a publicity stunt and could be difficult to monitor and implement the new regulation, riding Mustang Max is a symbol of national economic thought, according to Dr Bhattarai. "It’s a vision of national economic development by boosting the national industries," he added.
The Regulation also demands slashing of some facilities, including fuel benefits, that have been hugely used or abused by ministers and government officials. The government officials now cannot ride official vehicles on public holidays, according to the Regulation, which authorises traffic police to take any vehicle flouting the rule under their control. A prior written permission will be required to drive a government vehicle on a public holiday.
“The vehicles ministers’ ride should justify average Nepalis’ per capita income,” said Finance Minister Pun.
The respective departments heads have been asked to implement the Regulation, evaluate it every two months and report to the Office of the Prime Minister. The government is also planning to auction the unused vehicles that are on Singha Durbar premises within six months.
The Regulation has spelt out many cuts in spendings like on foreign trips, allowances, medical claims, field trips, office maintenance, appointments of new staff, subsidy, shares and investment on public enterprises, and stationary and newspapers.
Though, the regulation has tried to encourage domestic products by making it mandatory to buy Nepali products even if it is 15 per cent expensive compared to imported, the measure was brought by earlier finance ministers too but failed to implement.