Government encouraging pseudo-industrialisation

Manufacturing sector – victimised by politics and energy crisis – has been further damaged by the government's equal treatment to raw materials and finished products.
The government has been encouraging deindustrialisation by levying equal customs duty on raw materials and finished products, according to business fraternity. The government levies equal tax on most of the raw materials and finished products, which is discouraging the industrial sector, according to president of the Confederation of Nepalese Industries (CNI) Haribahkta Sharma.
There is a need to eliminate negative protection, he said, adding that industries have to pay equal customs for import of raw materials and finished products.
Most of the business groups have entered into trading business in recent years, pulling down shutters on their industry due to equal treatment to finished products and raw materials apart from deteriorating investment climate.
On one hand politics in labour unions has reduced productivity of employees and on the other lack of energy has squeezed production capacity of the plants, he said, adding that prolonged political transition will only increase the pace of deindustrialisation despite the government promise to encourage industrialisation in the country.
Likewise, the increasing cost of energy due to lack of regular power supply has made the domestic products expensive, eroding comparative and competitive capacity of domestic industries, added Sharma.
Managing director of Nimbus Ananda Bagaria seconded Sharma. According to him, the government has to immediately revisit its tax policy on raw materials.
The government is preparing the budget for the next fiscal year aiming to increase agriculture productivity and kick-start industrialization. However, without changing the existing tax policy that has failed to encourage industries, it seems Nepal will not see any industrialisation, said Bagaria.
The business fraternity has also asked the government to set separate customs duty for raw materials and finished products. "In many cases, import duty for finished products and concerned raw material are same," Bagaria said, adding that such policy does not protect domestic industries. "To promote industrialisation, there must be level playing field while converting raw material into finished products."
The industrialists have requested the government, which is preparing budget for the next fiscal year aiming at encouraging industrialisation, to adopt a clear policy of 2 tier difference in import duty on raw materials versus finished product.
The government policy in the past has encouraged industries based on duty difference with India, like the vegetables ghee industry. The government has to promote industries that have local raw material strength, according to Bagaria.
He opined that the country has been trapped into pseudo-industrialisation, fueling imports and increasing trade deficit, despite have huge local resources with competitive advantage over imported finished products.
According to the Central Bureau of Statistics (CBS), the manufacturing sector will contract by 9.86 per cent in the current fiscal year 2015-16. "The negative growth is likely to reduce manufacturing sector's contribution to the economy to 5.53 per cent in the current fiscal year from as high as 9.03 per cent in 2000-01," the CBS data revealed.

Economic growth plunges to 13-year low at 0.77 per cent

The economic growth for the current fiscal year has squeezed to almost zero, according to the Central Bureau of Statistics (CBS).
Releasing the gross domestic product (GDP) estimate for the current fiscal year today, the CBS said that the economy will grow by a mere 0.77 per cent – which is a 13-year low – in the current fiscal year. In the fiscal year 2001-02, the country – under the King Gyanendra's rule – had recorded economic growth of 0.16 per cent. Likewise, the CBS has also revised last fiscal year's economic growth downward to 2.32 per cent from earlier estimation of 3.04 per cent.
The subpar monsoon that resulted in weak agricultural output, almost five months of economic blockade, and stalled reconstruction work in the aftermath of the last year's devastating earthquakes have pulled the economic growth down to a 13-year low, according to CBS director general Suman Raj Aryal.
The economy did not plunge into negative zone also due to better performance by the service sector including health and education sectors, he added.
The largest contributor to the economy, agriculture, is estimated to grow by only 1.14 percent, though its contribution to the economy is 31.19 per cent, whereas the lowest contributor – fisheries' sector – has just 0.5 per cent share in the economy.
The report also revealed that the total size of the economy is going to grow to Rs 2.25 trillion in the current fiscal year, from Rs 2.12 trillion in the last fiscal year.
Likewise, the largest contributors to the economy are agriculture (31.19 per cent); followed by wholesale and retail trade (14.23 per cent); real estate (9.16 per cent); transportation, communication and storage (8.42 per cent); construction (6.88 per cent); education (6.76 percent); and production (5.53 per cent) sectors, according to the CBS.
However, of the 15 sectors that are used to calculate the GDP growth, some six sectors are going to record negative growth in the current fiscal year.
Various national and international institutions have projected the Nepali economy to grow between -0.9 per cent and 2.2 per cent, whereas the government has in its white paper projected the growth at around 2 per cent, during the current fiscal year. The central bank had projected a negative growth for the economy whereas UNESCAP yesterday projected that the economy will grow by 2.2 per cent.
According to Aryal, various institutions are involved in making projetctions about GDP growth, but the CBS' projection is the authentic and most dependable one. "The CBS has projected the economic growth on the basis of nine months' data of the current fiscal year," he said, adding that the remaining 3 months could see some increment in economic activities, which could lead to improved economic growth.

Has gross national income increased?
Despite low economic growth, the CBS has projected an increment in per capita gross national income (GNI) to Rs 80,921 in the current fiscal year from last year's Rs 77,079. The increment of Rs 3,842 is 4.98 per cent compared to the last fiscal year, the CBS said. However, the increment in GNI per capita covers only half the inflation rate for the year, which is around 10 per cent, according to the central bank.

Savings lowest in last 22 years
Likewise, gross domestic savings as percentage of gross domestic product (GDP) is the lowest in the last 22 years, according to the CBS. The gross domestic savings as percentage of gross domestic product (GDP) is likely to stand at 5.26 per cent in the current fiscal year, as the country has failed to enhance its productive capacity. The figure is the lowest since fiscal year 1994-95.

Sectoral growth (compared to last fiscal year)
1. Agriculture and Forestry – 1.14 per cent
2. Fisheries – 11.76 per cent
3. Mining and quarrying – 6.54 per cent (negative growth)
4. Manufacturing – 9.86 per cent (negative growth)
5. Electricity, gas and water – 1.66 per cent (negative growth)
6. Construction – 3.98 per cent (negative growth)
7. Wholesale and retail trade – 1.13 per cent (negative growth)
8. Hotels and restaurants – 4.85 per cent (negative growth)
9. Transport, storage and communications – 2.55 per cent
10. Financial intermedeation – 3.30 per cent
11. Real estate, renting and business activities – 3.72 per cent
12. Public administration and defence – 5.78 per cent
13. Education – 6.69 per cent
14. Health and social work – 8.85 per cent
15. Other community, social and personal service activities – 5.60 per cent

2012: Year of failed promises and disappointment

The year 2012 was a disappointing one for the business and economic sector, as the country could neither get a full-fledged budget nor any remarkable policy measure to encourage domestic investment, let alone foreign direct investment (FDI).
Dr Baburam Bhattarai, who is leading the caretaker government, after May 27 proved that his government is neither responsible nor honest in its attempts to propel economic growth, despite his tall talk of double digit growth.
“Rampant corruption, perennial power shortage, and political instability have been key in eroding investors’ confidence in the year 2012,” according to senior economist Prof Dr Bishwambher Pyakuryal.
Though the number of foreign direct investment has gone up, total capital investment has come down in the year, he said, adding that in a new trend India seconds China in foreign direct investment (FDI).
Lack of investment has forced people — mostly the youth — to seek foreign employment. Though foreign employment has earned remittance for the country, it is pushing the country into the remittance trap in the long run, as remittance has only increased imports and only 2.4 per cent of the remittance has been used in productive sector for capital formation, according to Central Bureau of Statistics (CBS).
More than 554,441 Nepali youths migrated in 2012 in search of greener pastures due to the government’s failure in creating employment back home.
The World Bank has estimated that Nepal — as one of the largest remittance receivers among Least Developed Countries (LDCs) — could receive $5,115 million — compared to $4,217 million in 2011 — remittance in 2012. But the rising remittance has pushed imports up which has though helped the government meet its revenue mobilisation target but not propel the economy as the slowdown in remittance — as projected by the International Monetary Fund (IMF) — will put the economy in distress.
Likewise, the ‘death’ of the Constituent Assembly (CA) on May 27 has also hit the economy hard as the caretaker government of Dr Bhattarai failed to bring a full-fledged budget in the absence of a parliament. Instead of a full-fledged budget, the government brought an interim public expenditure arrangement twice — on July 15 (Rs 1161.24 billion through ordinance) and on November 20 (Rs 351.93 billion) — this year, which will not only hit development activities but also hamper private sector investment due to the lack of new policy measures.
“The government’s failure in bringing the budget is the biggest disappointment of the year for the business fraternity that has been discouraged to pump in more investment due to the lack of investment-friendly policies,” according to president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Suraj Vaidya.
“The government also failed to forge consensus on economic agendas,” he said, adding that it would have helped boost the morale of investors, despite political uncertainty.
The government’s inability to forge consensus on economic agendas with the opposition, failure to ‘walk the talk’, and over concentration in politics coupled with the delusion on economic policy helped the informal economy grow and capital flight apart from hitting the monetary policy that has failed to crack a whip on rising inflation.
The price hike has been continuously looking up at over a double digit figure, also due to the continuous hike in prices of petroleum products.
The country witnessed the price of diesel go as high as Rs 99 per litre by the year end that will contribute to inflation floating over 10 per cent.
The state oil monopoly Nepal Oil Corporation (NOC) and Nepal Electricity Authority (NEA) incurred losses of Rs 13 billion (0.8 per cent of GDP) and Rs 6 billion (0.4 per cent of GDP) in fiscal year 2011-12, respectively, putting pressure on the economy.
The common people, for whom the UCPN-Maoist claims to have waged a decade-long war, have been cheated by Dr Bhattarai’s inability to tame inflation, and also the increasing load-shedding hours that has bled industries white.
By the year end, the country is reeling under 12-hour scheduled load-shedding, thus increasing the cost of production.
“Cost of production is increasing due to the rising cost of capital, labour and regular power outage,” according to president emeritus of Confederation of Nepalese Industries (CNI) Binod Chaudhary.
“Policy dilemma, increasing uncomfortable labour-management relations, and prolonged uncertainty due to the caretaker government’s ‘ego’ has forced industries to operate at half their capacities,” he said, adding that the Nepal Investment Board which was formed after a decade of struggle has also been unable to prove its existence.
The industries have been operating at only 58 per cent of their total production capacity, according to the central bank’s latest report.
The result, the economy is projected to grow at 3.8 per cent — lowest in last four years — at th most optimistic note, according to IMF that has also blamed the government for the low economic growth due to its failure in providing fertilisers on time for good agriculture harvest — apart from erratic rain fall — that contributes one-third to the gross domestic product (GDP).
“Besides low agriculture production that will bring economic growth down, the total ratio of trade to GDP has also come down,” said Pyakuryal, adding that economic deterioration and political instability have a direct relation in Nepal’s case.

Politics of consensus holds budget hostage

Amidst the economics of uncertainty and politics of consensus, the economy has been structurally damaged.

While the caretaker government, led by UCPN-Maoist chief ideologue Dr Baburam Bhattarai, on one hand, is hell bent on bringing a full-fledged budget, the opposition parties, on the other hand, have been putting pressure on the government to first forge consensus on political issues before bringing the budget for the current fiscal year.

President Dr Ram Baran Yadav has also been repeatedly asking the government and opposition to forge consensus to bring the budget because without a budget, the general people and low-income people with fixed salaries will be hit the most.

"Lack of budget will hit low-income people the most," said former governor of the central bank Dr Tilak Rawal. "It will have no significant impact on the affluent section of society," he said, adding that the government has not been able to spend the budget on development activities as a majority of the budget is enough for only recurrent expenditures, which is mostly salaries to government employees.

Over 90 per cent of the budget is enough only for administrative expenses, that is recurrent expenditures, according to economist Dr Chiranjivi Nepal.

"The state has to sensibly spend resources, and for Nepal, it is even more important as we have limited resources," he said, adding that the government has to be accountable while spending the tax payer's money. "It is only dictators and communist countries who bring budgets without consultations with the opposition. A democratic government cares for governance and accountability," Nepal added. "The prime minister holds the key to consensus."

Former member of National Planning Commission (NPC) Dr Posh Raj Pandey echoed him. "The government must be responsible and flexible in forging consensus," he added.

Likewise, former governor of the central bank Himalaya SJB Rana suggested a middle path. "If there is no consensus, the government must bring a full-fledged budget without any new programmes," he said.

What if there is no consensus in two weeks, asked senior economist Prof Dr Bishwhambher Pyakuryal. "The budget has become a victim of 'politics of consensus'," he said, adding that the President has to set 'preconditions' and ask for transparency of expenditures of the four months of the current fiscal year and allow the government to bring a full-fledged budget without any populist programmes.

However, vice chair of National Planning Commission (NPC) Deependra Bahadur Kshetry opined that the government has to add some programmes to provide relief to people as they have huge expectations. "Though the size of the budget has already been fixed at Rs 429 billion by the three-year interim plan, it might be a little bigger at around Rs 450 billion," he added. 

Private sector irresponsible: Acharya

KATHMANDU: Former senior advisor to the Finance Ministry Keshav Acharya has termed the private sector as irresponsible. "A responsible private sector cannot say that it will not pay taxes," he said, adding that every citizen of the country has to follow the law of the land. "Such comments will encourage anarchy," he added. The private sector, to exert pressure on political parties, said that it will not pay taxes as the government has been unable to spend on development activities and has only been mobilising revenue. Likewise, the special budget had alloted Rs 20.96 billion under capital expenditure — that is development expenses — but has been able to spend only Rs 2.77 billion in the first three months of the current fiscal year. "The Finance Ministry has projected to spend Rs 4.88 billion by the end of the fourth month (mid-November), on the basis of last fiscal year's expense pattern," according to finance secretary Shanta Raj Subedi.

 

Govt writes to opposition

KATHMANDU: The Finance Ministry, on Friday, asked opposition parties to send a representative each to a committee that will suggest on the budget preparation process. "The government has written a formal letter to the opposition parties — especially Nepal Congress and CPN-UML — asking them to send their representatives to the committee that will suggest in the process of drafting the budget," according to the Finance Ministry that has started to prepare a full-fledged budget to be presented before mid-November.

 

Growth rate after CA Election

2007-08 — 5.80 per cent

2008-09 — 3.77 per cent

2009-10 — 3.97 per cent

2010-11 — 3.47 per cent

2011-12 — 4.63* per cent

(*GDP growth rate for the fiscal year 2011-12 projection only. Source: Central Bureau of Statistics)

 

Budget after CA Election

Fiscal year — Total outlay — Recurrent Expenditure — Capital Expenditure 

2007-08 — Rs 168.99 billion — Rs 98.17 billion — Rs 55.26 billion

2008-09 — Rs 236.01 billion — Rs 128.51 billion — Rs 91.31 billion

2009-10 — Rs 285.93 billion — Rs 160.63 billion — Rs 106.28 billion

2010-11 — Rs 337.90 billion — Rs 190.31 billion — Rs 129.53 billion

2011-12 — Rs 384.90 billion — Rs 226.61 billion — Rs 72.61 billion

(Source: Finance Ministry)

 

* Finance Minister Barsha Man Pun announced budget for fiscal year 2012-13 amounting to Rs 161.02 billion, which is one-third of the total estimated budget on July 15, 2012. 

* Finance Minister Surendra Pandey presented special budget for the fiscal year 2010-11 on July 12, 2010 due to Maoist obstruction. Pandey brought regular budget of Rs 337.90 billion on November 20, 2010. 

* In 2008, July 14, Dr Ram Sharan Mahat presented special budget for the fiscal year 2008-09 of Rs 46.94 billion. Finance Minister Dr Baburam Bhattarai presented regular budget of Rs 236.01 billion on September 19, 2008.

Cereal crops lose out to high value cash crops

The country is going to witness production around Rs 248 billion worth vegetables, fruits and flowers in the current fiscal year pushing the cereal crops to the second position in the total contribution to the Agriculture Gross Domestic Production.
"Unlike the cereal crops' contribution in the total agriculture output earlier, horticulture — the high value cash crops including vegetables, fruits and floriculture — is projected to contribute more in the current fiscal year," according to spokesperson of Ministry of Agriculture Development Dr Hari Dahal. "The country is going to witness only Rs 185 billion worth cereal crops production against around Rs 248 billion worth horticulture production in the current fiscal year."
The country will also witness livestock production of around Rs 124 billion, he said, adding that the total contribution of the agriculture to the Gross Domestic Production is estimated to cross Rs 655 billion in the current fiscal year compared to Rs 449 billion in the last fiscal year.
The Central Bureau of Statistics (CBS) has projected gross domestic production (GDP) to be at Rs 1558.17 billion for the current fiscal year. "The agriculture sector — the largest contributor to the GDP — contributes Rs 670.38 billion to the GDP, the national data centre said, adding that agriculture contributes 35.68 per cent to the total GDP.
"Due to change in the production trend, the cereal crops is fast losing to horticulture meaning the farmers are attracted towards high value cash crops instead of cereal crops," he added. "It has also contributed to the poverty reduction."
The cereal crops that has a contribution of 36.36 per cent to the Agriculture Gross Domestic Production (AGDP) is estimated to come down to 28.25 per cent, whereas horticulture that has a contribution of 16.7 per cent is going to contribute double to 37.84 per cent to the Agriculture Gross Domestic Production, according to the preliminary estimation of the ministry.
"Similarly, the contribution of livestock is going to come down to 19.04 per cent from current 25.68 per cent to the Agriculture Gross Domestic Production," Dahal added.
The vegetable production has increased by 6.2 per cent to 3.40 million metric tonne in the current fiscal year compared to last fiscal year's 3.20 million metric tonne. Similarly, the fruits production has also increased by 6.5 per cent to 885,521 metric tonne from last fiscal year's 725,000 metric tonne, whereas potato production has gone up by seven per cent to 2.68 million metric tonne from last fiscal year's 2.59 million metric tonne.
Despite lower contribution to the AGDP, the cereal crops is going to witness a record 9.4 million metric tonne production in the current fiscal year.
But the cereal crops production area has decreased, despite the increase in the total production. "Despite increase in production of cereal crops, the production area — of key cereal crops like wheat, maize and barley — has come down," Dahal said, adding that with increase in production of horticulture produces, the area of production has also increased compared to the last fiscal year.
However, the increase in production could not bring the vegetable prices down. "Lack of reliable market chain, information and monitoring the consumers are compelled to pay higher prices for vegetables and the farmers are also not getting the standard price for the agriculture produce," he said, adding that the middlemen are making huge buck in absence of effective market monitoring mechanism and market places. "It calls for Horticulture Development Board to better regulate and monitor the market."

Economy sees highest growth after CA election

The country will witness the highest growth rate in the current fiscal year after the Constituent Assembly (CA) election in 2006.
Due to good harvest, the agriculture sector will grow by 4.93 per cent and the non-agriculture sector will see 4.27 per cent growth pushing the gross domestic product (GDP) growth rate to 4.56 per cent at basic price in the current fiscal year, according to the preliminary estimation of the Central Bureau of Statistics (CBS). But the government had projected a 5.5 per cent growth in its fiscal policy and revised it in the mid-term evaluation to five per cent.
According to the revised estimation of the last fiscal year, the country had witnessed a 3.81 per cent growth from a preliminary estimation of 3.47 per cent, whereas the country had witnessed a growth of 4.26 per cent in the fiscal year 2009-10.
Except for the construction sector that has seen a slump since the last one year, all the other sectors have witnessed growth without much contribution from the government or any positive policy intervention.
The construction sector which witnessed a growth of 4.79 per cent in the last fiscal year, will see a negative growth of 0.07 per cent this fiscal year, according to the estimation that has also revealed the slower growth rate of manufacturing at 1.28 per cent against the 2.29 per cent growth of last fiscal year.
Though the contribution of agriculture and forestry to the GDP is still the highest at 34.78 per cent, it has decreased from last fiscal year's 36.54 per cent. The second largest contributor to the GDP is wholesale and retail trade with 14.24 per cent followed by transport, storage and communications with 8.33 per cent and real estate, renting and business activities with 8.17 per cent.
Similarly, the size of the economy has also increased to Rs 1.55 trillion in the current fiscal year from last fiscal year's Rs 1.36 trillion, according to director general of CBS Uttam Narayan Malla. "The gross national disposal income will touch Rs 1.97 trillion thanks to remittance inflow," he said, adding that the country will have a gross national savings of Rs 571.08 billion.
Thanks to the current account surplus, the gross national savings will stand at 36.65 per cent of the gross domestic product. Similarly, per capita GDP has also increased to $735 from last fiscal year's $731.

GDP growth

2005-06 — 3.73 per cent

2006-07 — 2.75 per cent

2007-08 — 5.80 per cent

2008-09 — 3.90 per cent

2009-10 — 4.26 per cent

2010-11 — 3.81 per cent

2011-12 — 4.56 per cent

(Source : Central Bureau of Statistics)

GDP per capita

2005-06 — $350

2006-07 — $410

2007-08 — $491

2008-09 — $497

2009-10 — $610

2010-11 — $712

2011-12 — $735

(Source : Central Bureau of Statistics)

Structure of Production (2011-12)

Primary sector — 35.68 per cent

Secondary sector — 14.02 per cent

Tertiary sector — 50.31 per cent

(Source : Central Bureau of Statistics)

Composition of GDP

Classification — 2010-11 — 2011-12

Agriculture — 36.54 — 34.78

Wholesale and Retail trade — 14.16 — 14.24

Transport, storage and communication — 7.97 — 8.33

Real estate, renting and business activities — 8.24 — 8.17

Construction — 6.93 — 6.73

Manufacturing — 6.17 — 6.17

Education — 4.86 — 5.50

Financial Intermediation — 4.30 — 4.66

Other community, social and personal service activities — 3.83 — 3.96

Public administration and defence — 1.93 — 2.12

Hotels and restaurents — 1.70 — 1.78

Health and social work — 1.28 — 1.55

Electricity gas and water — 1.19 — 1.13

Mining and quarrying — 0.54 — 0.56

Fishing — 0.35 — 0.34

(Figures in per cent. Source: Central Bureau of Statistics)