Budget Watch: Series 6

Nepal suffered from armed conflict and political turmoil for over a decade. The economy stagnated. On April 10, Nepal held the election to the Constituent Assembly and the country became a republic on May 28. A new statute will be drafted soon to make the country a federal democratic republic. This is a historic achievement politically but on the economic front the country is facing huge problems. It couldn't achieve minimum acceptable economic growth for decades. Businessmen are suffering from labor unrest, energy crisis, uncertain economic policy and physical insecurity. In this context, a situation of national consensus on economic issues is a must.
There should be consensus among the major political parties about basic fundamental human rights, restoration of peace and public-private partnership within the changed federal structure so as to address the existing challenges. There should also be a common economic programme of the major stakeholders prior to the announcement of the government's forthcoming policies, programmes and budget. The major challenge is fulfilling peoples' aspirations with peaceful and fast track development vision and there is the need for a broad-based, sustainable, inclusive and at least double digit economic growth.In order to reconstruct, rehabilitate and reintegrate as well as enlarge infrastructure, the volume of investment should increase tremendously. To encourage private sector investment, which is approximately about 70 per cent in the current plan, a private sector-friendly environment should be created. Also, load shedding, crisis of petroleum products, labour unrest, unauthorized trade, capital flight due to political instability and interest rate differential, confidence building for foreign direct investment (FDI) are major policy problems to be addressed immediately for increasing productivity and achieving a double digit economic growth.

The productivity of the agriculture sector is still monsoon based and becoming more unpredictable and unseasonable due to global warming resulting in a severe food supply and price problem. Thus, quality control on fertilizers and massive investment in irrigation, among others, are necessary for the development of commercial farming and food security.
Industrial policy should be reoriented and guided with more competitive and comparative benefit notion with the focus on indigenous potential like water resources, scenic beauty, forests and forest products, which are more related to hydropower and tourism and so on. Revenue will be adversely affected by full compliance to WTO commitments. This should be compensated through trade creation and diversification, export promotion and increase in remittance income. For this, government should play an active role through economic diplomacy. The inefficient government-owned companies/corporations should be effectively and transparently privatized. This will save significant government resources and the private sector can efficiently operate these. Nepal can benefit a lot by integrating trade, investment, tourism, hydro-power, transport, etc., through an agreement on broader economic participation with India as has been done by Singapore and Sri Lanka.

*There should be consistency in the projection and policies regarding macroeconomic data such as GDP, investment and inflation among the various government agencies.

*An alternative road link between Kathmandu and the Tarai;

*opening up of other trade routes to Tibet;

*establishment of export processing zone, special economic zone, export house;

*redefining wilful and unwitting defaulters; revision of commercial policy, 1992;

*social security for tax payers;

*door-to-door service for tax collection and scientific study on taxable capacity are issues to be immediately addressed. Similarly, restructuring with rehabilitation facility for sick industries;

*materializing the concept of international financial centre;

*establishment of Asset Management Company;

*developing IT as knowledge-based industry are some outstanding issues to be settled. In order to increase the tax base, control on unauthorized import and making transactions more transparent and a multiple rate of VAT (one per cent, four per cent and 13 per cent) should be introduced. Commodities Derivative Board should be constituted for the purpose of comparing domestic commodities/product prices.

Kush Kumar joshi,

President

Federation of Nepalese Chambers of Commerce and Industry (FNCCI)