nepal economy essay

COVID-19 impact on Nepal’s economy hits hardest informal sector

Smart policies for informal workers key for recovery

KATHMANDU, October 8, 2020— Nepal’s economy is projected to grow by only 0.6 percent in 2021, inching up from an estimated 0.2 percent in 2020 as lockdowns caused by COVID-19 disrupt economic activity, especially tourism, says the World Bank’s latest South Asia Economic Focus Beaten or Broken? .

Released today, the twice-a-year-regional update notes that South Asia is set to plunge this year into its worst-ever recession as the devastating impacts of the pandemic on the region’s economies linger on, taking a disproportionate toll on informal workers and pushing millions of South Asians into extreme poverty.

The report forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping 6 percent annually in the past five years. Regional growth is projected to rebound to 4.5 percent in 2021. Factoring in population growth, however, income-per-capita in the region will remain 6 percent below 2019 estimates, indicating that the expected rebound will not offset the lasting economic damage caused by the pandemic.

In previous recessions, falling investment and exports led the downturn. This time is different as private consumption, traditionally the backbone of demand in South Asia and a core indicator of economic welfare, will decline by more than 10 percent, further spiking poverty rates. A decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries.

“The economic consequences of the pandemic and impact on livelihoods across Nepal is expected to be the most acute for informal workers or those without social security or assistance, who are more at risk of falling into extreme poverty,” stated Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka . “Swift action is needed to provide incomes, social protection, and employment to support them. This includes key investment climate reforms to promote physical infrastructure and access to finance for the informal sector to shorten the transition to recovery.”

Informal businesses make up around 50 percent of enterprises in Nepal and are the main source of income for most of the labor force. Within this group, urban informal sector workers and self-employed households in urban areas are more vulnerable than rural households who can fall back on subsistence farming. Most informal firms operate with limited savings, and owners may face the difficult choice of staying home and facing starvation during the lockdown or running their business and risking infection. These scenarios accentuate financial difficulties as well as the spread of COVID-19.

The report urges governments to design universal social protection as well as policies that support greater productivity, skills development, and human capital. In that effort, securing international and domestic financing will help governments fund crucial programs to speed up recovery. In the long-term, digital technologies can play an essential role in creating new opportunities for informal workers, making South Asia more competitive and better integrated into markets—if countries improve digital access and support workers to take advantage of online platforms.

“COVID-19 will profoundly transform Nepal and the rest of South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,” said Hans Timmer, World Bank Chief Economist for the South Asia Region.

The  World Bank Group , one of the largest sources of funding and knowledge for developing countries, is taking  broad, fast action  to help developing countries strengthen their pandemic response. We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, develop human capital, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.

In Kathmandu

In washington.

• Download the Report
• Office of the Chief Economist, South Asia
• World Bank in Nepal
• World Bank Nepal on Facebook
• World Bank Nepal on Twitter

• Nagdhunga tunnel will help Nepalese economy to help in economic development
• “Pakistan ready to help Nepal in the fields of tourism, trade, etc.; Pak envoy Hashmi
• Nepal: Pakistan PM Shehbaz resolves to overcome multifold challenges
• Nepal-Pakistan Friendship T20 Cricket Tournament-2024 concludes
• Nepal: Vipassana and Stress Management and Inner Peace for Better World workshop held in Pakistan

Nepal: GLOBALIZATION AND THE FUTURE OF NEPALESE ECONOMY-part 2

Economic Nationalism Revisited-Part 2

Professor Madan Kumar Dahal (Late)

Senior economist and former Chairman Mega Bank, Nepal

The fundamental problem facing Nepal in the context of industrialization is the acute shortage of electricity that has not only discouraged foreign direct investments and portfolio inflows but also distorted the investment climate. The commitments shown in the investment forum by a large number of bilateral and multilateral joint investors have remained shelved due to poor infrastructure available for industries. A majority of the joint ventures have recently come to the assembling sector that has some attraction but with insignificant value added.

Nepal’s industrial sector also suffers from the absence of right policies in prioritization as to which specific industry should come first and on what scale. The issues of large vs. small and cottage vs. other industries, inward looking vs outward-oriented, export-oriented vs. import substituting, and labor-intensive vs. capital-intensive technology have remained undecided in the context of pursuing a market-oriented, investment-friendly, and transparent policies to attract foreign capital and technology.

Further, it is also speculated that a substantial amount of foreign exchange is misused, especially in importing raw materials from third countries which is attributable to inappropriate industrial policies in the past. Another important problem facing the industrial sector is that state-owned enterprises have been economically a big burden to the economy and, for that matter, also to the future generations. Although these enterprises have suffered from political encroachment, corruption, and over manning, the process of privatization of such enterprises has been highly objectionable, subject to litigation.

The privatization of three Chinese-aided industries generated a hot national debate over the issue whether the government had the authority to privatize the said enterprises in a manner contrary to the spirit of the constitution. Finally, industrial policy lacks a clear vision on industrial location. As a result, the excessive concentration of carpet industries in Kathmandu has created a serious problem that might lead to environmental degradation and perilous future of tourism. In the absence of a clear policy on industrial location, the hills and the mountain region have failed to develop industrially, smacking of an implicit discrimination against the development of the hill economy.

Nepal’s industrial future is conditioned by four major factors: (a) development of infrastructure, especially in the power sector; (b) a permanent transit treaty with India independent of trade treaty but compatible with the spirit of liberalization; (c) a suitable trade agreement with India, mutually accepted by both sides to boost up Nepal’s export potential to India; and (d) a review of the 1950 treaty to deal with the problems of open border.

Trade liberalization in Nepal has in essence been merely import liberalization. Nepal’s trade sector exhibits huge trade deficits. Of the total Rs.21.1 billion trade deficit incurred during 1992/93, deficit with India alone was estimated to be 53 percent. Data on the direction of foreign trade reflect that CIF import from India and other countries accounts for Rs.38.6 billion against a relatively small size of FOB exports equal to Rs. 17:5 billion. The share of Nepal’s trade with India is approximately 26 percent while with other countries it is around 74 percent.

It is apparent that India’s total trade has declined over the years, but it is also true that Nepal’s trade deficit with India has been widening due to Nepal’s dependence on India’s supply of essential commodities and its persisting inability to expand exports to India. While Nepal’s prospects for exports to India are limited, India has tremendous prospects to increase its exports to Nepal. India has the potential to export goods which Nepal is presently importing from other countries. Engineering goods, drugs, and pharmaceuticals from India have a high demand in the Nepalese market. Since India has liberalized its economy, the commodities and services provided by India could be more competitive in the Nepalese market compared with other countries’ goods in terms of price, quality, and accessibility.

Unfortunately, Nepal’s traditional exportable items have come down to a zero level. The future of carpet and garment types of industries is likely to remain uncertain and, for that matter, fragile. Recent trade statistics offer an insight into Nepal’s overseas trade with China which accounted for Rs. 692.8 million against zero export in 1991/92. The imports from China comprised 76 items of daily consumption goods, construction materials, and industrial raw materials. Nepal’s overland trade with Tibet, an autonomous region of China, is a mere 1.5 percent of its total trade.

OUTWARD-ORIENTED ECONOMIC NATIONALISM FOR NEPAL:

My earlier paper on the “Future of Nepalese Economy: Economic Nationalism Reconsidered” identified five pillars of economic nationalism as the preconditions for sustainable economic development in a vulnerable economy like Nepal. These five pillars of economic nationalism are: 1) evolution of national consensus on the major economic issues at both the local and national levels, 2) application of independent domestic economy, 3) economic integration within and across the national boundaries, 4) self-reliance, and 5) innovative resource planning. Economic nationalism is essentially a doctrine that assumes and advocates the safeguarding of the nation’s own economic interests as the anchor line of its economic policy.

It supports the notion of minimum essential requirements for a nation’s survival and security, although economic nationalism pursued and policies advocated have differed in different times and places. Expressed in simple terms, economic nationalism is the conduct and management of the welfare of a nation. It is untrue to say that its day ended with the rise of the market economy. Economic nationalism is not just a reaction to the market and price mechanism, nor is it a revolt against non-interventionism. It is, in fact, an appropriate foundation for economic statecraft in a market economy that has to be tested in a vulnerable economic situation on the ground that economic liberalism does contain unrealistic assumptions about the existence of national economic actors and competitive market.

The concept of the outward-oriented economic nationalism would take care of the issue of global compatibility on the basis of comparative cost advantage and vulnerabilities facing Nepalese economy. This includes joint ventures, especially for export promotion, corporatization and privatization of state trading agencies, tax reform with reduced tariff rates including the introduction of value added tax, abolition of import licensing, infrastructural reforms, etc. However, these reforms must not threaten the very foundation of economic activities that are essentially required for sustainable ‘development. If the public sector offers a good deal of profit, efficiency, and competition, privatization can become obsolete.

However, state-owned commercial and trading enterprises such as Rashtriya Banijya Bank, National Trading Ltd., and Nepal Oil Corporation are three parasites that have exerted a great pressure on the exchequer resulting in huge fiscal and budget deficits each year. Surprisingly, successive governments that came into existence in Nepal after 1990 were more interested in providing subsidies to these white elephants, and less concerned to privatize. These enterprises have been a perennial source of kickbacks that government authorities are enjoying for a long time.

On the other hand, if the cost of domestic production is comparatively high inducing imports of inferior quality, then it must be favored by lowering down tax rates. Outward-Globalization and the Future of Nepalese Economy: Madan K. Dahal 77 oriented economic nationalism stands for increasing joint ventures especially meant for export promotion to be initiated by the private sector.

OUTLINING A NEW POLICY FRAMEWORK:

# it would be imperative to develop a consensus on the critical national issues, especially in the field of water resources, joint ventures, trade and transit agreements, abolition of dual ownership on land, etc.

# there is a need to initiate joint ventures with the guarantee of market in India.

# Investment priorities in the context of development activities supported by external assistance need to be reordered. For example, Chinese aid to Nepal needs reordering of priority from infrastructure to harnessing water resources and developing hydroelectricity, especially for farm irrigation and rural electrification both in Nepal and Tibet which suffer from power shortages. A large part of Tibet is underdeveloped and so are Nepal’s northern hills and mountains. There is a standing need to develop a joint proposal exploring the possibility for joint ventures in areas of common interest where benefits could be shared mutually from either side to fight against under-development.

# harnessing of water resources should not be viewed only as an issue on the sales agenda, rather it should be linked with the theory of development. An appropriate human resource development policy can help develop quality manpower to match both national and international demand for manpower.

# it is also necessary to increase the magnitude of expenditure on human resource development. Since the demand for skilled manpower is considerably higher in the developed countries, increasing expenditure on human resource development could offset the loss that occurs due to high absorption of migrant labor into the national economy. There is also a great need to preserve biodiversity in conjunction with its commercial viability that will also help promote sustainable tourism. Since water resources, human resources, tourism, and biodiversity are the very foundation of Nepalese economy, potential GDP could be increased substantially if there is a strong nexus between national economy and globalization. There is a clear need to identify areas where competition is possible in the context of industrial development in Nepal. The other areas that need protection to go for competition in the future must have a specified time-frame. One such area could be the promotion of small and cottage industries that might be instrumental in developing tourism in Nepal. Efforts should be made to empower the poor to have access to resources.

CONCLUSION:

Nepal is largely facing the crisis of development of underdevelopment which calls for immediate reappraisal of the past development strategies to move from economic subordination to interdependence. Nepal’s economic growth is still characterized by subsistence agriculture that could be lessened by diversifying the economy toward developing the services and light industries. Liberalization of the economy so far has not been able to neutralize the economic vulnerabilities facing Nepal, especially with respect to attracting FDI and private portfolio inflows by improving the investment climate generated by reforms.

The 21st Century is going to be more challenging for Nepal from the economic development point of view. A concrete model of national growth and economic development will certainly necessitate economic nationalism and preservation of the national interest and development in such a context requires globalization of the national economy effectively and cautiously. In this sense, an appropriate admixture of economic nationalism and globalization, the essence of outward-oriented economic nationalism, is what we need today.

This is the time to provide conducive environment to our industries to make a take-off from protection to competition by increasing efficiency and derive the benefits of globalization but without compromising our paramount national interest in perennial survival and growth.

Text courtesy: The Political Economy of Small States published by Nepal Foundation of Advanced Studies (NEFAS) Edited by Professor Ananda Aditya. # this article is being published in the memory of distinguished author Late Professor Madan Kumar Dahal who was a very intimate friend of this news online portal. Rest in peace Professor Dahal: Ed. Upadhyaya.

# Photo source: from Nepal’s online portals: Ed.

©  2024 Telegraph Nepal | All Rights Reserved.  Powered by: Webbank Nepal

This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser. To learn more about cookies, click here .

Insight Into The Political Economy Of Nepal’s Development

Nepal’s economy in disarray: the policies and politics of development (new delhi: adroit publishers, 2019), co-authored by pushkar bajracharya, mohan das manandhar and rojan bajracharya, provides a timely and accurate context of nepal’s economic challenges., dr. bipin adhikari.

Nepal promulgated a new Constitution in September 2015 following a long period of conflict, instability andlack of direction. The Constitution is a progressive document that declares the State’s commitment to ending all forms of discrimination and oppression created by the feudalistic, autocratic, centralized, unitary system of governance that Nepal characterized in the past.

In its progressive vain, the Constitution also aims at achieving sustainable economic development, stimulated by rapid economic growth, by way of the maximum mobilization of the available means and resources in the country. This is to be done through the participation and development of the public and private sectors and cooperatives and by developing a socialism-oriented, independent and prosperous economy. Such an economy is perceived as a necessity in order to build a society free of exploitation and one in which economic inequality is abolished through an equitable distribution of gains. This economic objective of the State is accompanied by a remarkable commitment towards social transformation and change. This objective challenges the governments under the new Constitution to reorient the national economy and, in place of a stalled and tattered economy, build one that will help achieve the State’s progressive commitments.

Professor Adhikari

Nepal’s Economy in Disarray: The Policies and Politics of Development (New Delhi: Adroit Publishers, 2019), co-authored by Pushkar Bajracharya, Mohan Das Manandhar and Rojan Bajracharya, provides a timely and accurate context of Nepal’s economic challenges. The objective of the book is to pursue a comprehensive, in-depth and evidence-based inquiry into Nepal’s economy and development initiatives. The reason is very clear. In the words of the authors, “Nepal’s efforts to democracy, citizens’ sovereignty and inclusiveness leading to the federal republican nation within a short period of democracy have been topsy-turvy [a state of utter confusion] with varied effects on development. Even Nepalis populace seem to be confused about how really to attain development and what is the development from our/their own perspective. Have the political leaders/parties in governance and otherwise, exhibited proper vision and adopted appropriate strategies or not? And, have we really failed as a nation-state as is being argued in some quarters?” Obviously, these are critical questions for any student of the political economy of Nepal.

The book is divided into nine chapters: Chapter 1 is an introductory chapter. Chapters II and III provide the background to the pre-1990 and post-1990 scenarios when the system of parliamentary democracy was restored in Nepal. The country’s major economic sectors, i.e. agriculture, industry and market and services, have been separately analyzed in Chapters IV, V and VI. The authors have characterized education and human resource development as the foundation and have discussed this sector in Chapter VII. Then comes the review of Nepal’s infrastructure sector as another foundation of its economy. The book clearly shows that the development Nepal has accomplished in all sectors over the decades is vast, varied and certainly incremental. Despite the progress noted, the book argues, Nepal’s economic development has been slow and unsteady. Corruption and rent-seeking attitudes are deeply rooted in politics and bureaucracy, jeopardizing the development process. The authors claim:“So, even if the words are harsh, it may be deduced that we have not simply initiated development, whatever, little is done due to vested interests or because of unintended outcomes generally bogged down by perspective of retaining to power and signaling the Nepali populace with claims of ‘bigger development’ not supported by investment, activities and initiatives. Finally, the country’s recent political transformation to a federal republic has yet to be properly institutionalized. Further, political instability is a possibility, especially given the increasing inequality in wealth and income.”

The authors have given an extensive focus on the agriculture sector’s role in national economic development on the basis of a data-packed analysis. In fact, this is the sector that can still bring multifarious changes in Nepal, including regarding sustainable development and mass empowerment. Poverty eradication is virtually impossible without developing the agriculture sector and accommodating rural people in their own habitats and lifestyles. With an abundance of water, forests and a sustainable lifestyle, Nepal could have taken significant strides in the agriculture sector. Tourism can always be innovatively integrated into the agriculture sector. In Nepal’s case, they enforce each other. All additional efforts, including good governance, development of human resources, a private sector-led economy, infrastructure development and regional economic integration, could have focused the most on the agriculture sector during the last seven decades.

The main constraints to accelerating growth, investments and exports are a lack of economic infrastructure, a limited skills base, increasing vulnerability to climate risks and a low emphasis on establishing a sound investment climate and foreign direct investment in the agriculture sector. The focus needs to be on sustainably increasing agricultural productivity through the management of natural resources and investment in physical and social capital, including scaled-up agricultural intensification. Developing climate-resilient export value chains, post-harvesting processes and agribusiness to increase market outlets are also as necessary. Adding value to agricultural produce and generating employment in rural areas are essential components of long-term development. Of course, improving the nutritional status of poor rural people and vulnerable groups should always be a matter of concern.

The link between the development of the agriculture sector and economic growth has also been studied widely. Johnston and Mellor’s heavily-cited paper, “The Role of Agriculture in Economic Development” (1961), highlights the important role that agriculture development plays in overall economic growth through five propositions: Agriculture development meets the increased demand for agricultural products as an economy grows, it leads to an expansion of the export of agricultural products, leading to increased income and foreign exchange earnings, and it provides the labor force necessary for manufacturing and other expanding sectors. It also has the potential to contribute to the necessary capital for overhead investment and expansion of other sectors. Finally, the agriculture sector can also lead to increase cash income for the farming population, which may also be an important stimulant of industrial expansion.

Evidence of this link between the development of the agriculture sector and economic growth can be found in various countries leading in the agriculture sector. For example, although the agriculture sector’s share in India’s GDP has decreased to around 15 percent in the last decade, it employs around half of India’s population and accounts for much of the volatility in the India GDP. Moreover, some argue that agriculture in India plays a vital role in contributing to higher GDP growth and other economic indicators, including employment, poverty reduction, and equal distribution of income.

India’s agricultural sector has a long and rich history. A2012 study found that agriculture had a significant positive impact on economic development (defined as a measure of standards of living and quality of life) from the time period between 1950-51 to 2009-10. During this period, in the 1970s, India also launched the Green Revolution under Prime Minister Indira Gandhi, which focused on introducing high-yielding varieties of rice and wheat for the purpose of increasing food production in various provinces of India, and especially, Haryana, Punjab, and Uttar Pradesh, and leading India to become self-sufficient. This strategy was accompanied by subsidies for fertilizers, pesticides, as well as electricity in order to pump groundwater for irrigation.

The Green Revolution led to yields improving by more than 30 percent in the state of Punjab, while the capital acquired large quantities of grains at minimum support prices in order to distribute them to the poor at subsidized rates. It also had negative effects, however, including a decline in the production of indigenous grains, wide regional and interstate disparities in development as well as a developing water crisis. However, even worldwide, research has shown that the adoption of Green Revolution tactics, like modern varieties of seeds, is associated with productivity growth as well as increased food production, decreased food prices globally, increased average caloric intake, and, correspondingly, improvements in health and life expectancy.

Moreover, since economic reforms were introduced in the 1990s, India has been a net exporter of agri-products, reaching INR. 2.52 lakh crores in agri-exports in the 2019-20 fiscal year. Key agri products exported include marine products, basmati rice, buffalo meat, spices, non-basmati rice, cotton raw, oil meals, and sugar, among others. The major destinations for export were the USA, Saudi Arabia, Iran, Nepal and Bangladesh. Even in the 2020 year, while the export of merchandise took a hit by falling by 15.5 percent year-on-year, farm exports reported a 9.8 percent growth, given the lack of impact on the agricultural sector during the coronavirus lockdowns. India’s experiences with agriculture demonstrate the key role it has played in changing the face of national development and improving the economic conditions of the people.

Another country where agriculture has played a major role in economic development is China, where between 7 to 9.3 percent of the GDP is accounted for by agriculture in the past decade. Farming, forestry, animal husbandry, and fisheries contribute to a significant portion of China's GDP, making it the world's largest agricultural economy. This is substantially greater than in affluent countries like the United States, the United Kingdom, and Japan, where agriculture accounts for roughly 1 percent of GDP.

Agriculture in China has evolved dramatically since the 1978 economic reforms. Four out of every five Chinese people worked in agriculture prior to the reforms. However, when property rights in the countryside became more established, this altered, resulting in the emergence of small non-agricultural companies in rural areas. Rice, cotton, pig, fish, wheat, tea, potatoes, corn, peanuts, millet, barley, apples, cotton, oilseed, pork, fish, and more are all produced in China. Government backing and low labor costs help the country's agricultural exports remain profitable, albeit a disjointed transportation network and a lack of cold-storage infrastructure are a hindrance.

As mentioned earlier, the 1978 reforms were vital in stimulating economic growth in the agriculture sector of China. China’s agricultural sector’s output increased by over 61 percent between 1978 and 1984 and followed after the country adopted a system that stressed individual responsibility in place of communal decision-making and rewards. More specifically, this new system, the Household Responsibility System, allowed households to retain the remaining output after satisfying contractual obligations, which then stimulated the farmers’ incentive to produce and led to an increase in agricultural production. A research study found that over 75 percent of the productivity increase may be accounted for by the payment system changes, while the remainder can be attributed to price increases.

When comparing the pre-and post-1979 periods, it becomes clear the vital role that agriculture development played in kickstarting China’s economic growth. Prior to these reforms, China had focused on growing industry by taxing the agriculture sector and without investing anything back. After the introduction of the Household Responsibility System and in combination with market-oriented reforms, China rose to become one of the fastest-growing economies of the world, and its growth was driven by market and export orientation as well as increased levels of foreign direct investment. This evidence shows that agriculture growth can substantially contribute to the growth and transformation of the economy, even if it does not act as the primary engine of this growth. This goes back to support the thesis that the agriculture sector, whose importance is engrained in Nepalese society as well as the economy, cannot be disregarded and, rather, should be approached as a vital tool for transforming Nepal’s economic development.

Conclusively, the book Nepal’s Economy in Disarray: The Policies and Politics of Development presents Nepal’s economic history and the nature of its development challenges very well. It is one of the prescribed books for the postgraduate students of public policy in Kathmandu University as well. It does not, however, explore the future of the Nepalese economy with clear guidelines.

The authors have noted their determination to“ explore policy prescriptions and reform measures to transform the nation regaining paradise and steer it on a clearer course of sustained growth with equity with proper distribution to ensure a sound quality of life to all Nepali populace.” Accomplishing this objective will certainly add further meaning to the book that is already making headway in the local market.

Dr Adhikari is a senior constitutional expert and the founding dean of the Kathmandu University School of Law). He can be reached at [[email protected]]

More on Opinion

Latest Magazine

VOL. 17, No. 19, May.10,2024 (Baishak,28. 2081) Publisher and Editor: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

VOL. 17, No. 18, April.26,2024 (Baishak,14. 2081) Publisher and Editor: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

VOL. 17, No. 17, April.12,2024 (Chaitra,30. 2080) Publisher and Editor: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

VOL. 17, No. 16, March.29,2024 (Chaitra,16. 2080) Publisher and Editor: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

• Culture & Lifestyle

• Madhesh Province
• Lumbini Province
• Bagmati Province
• National Security
• Koshi Province
• Gandaki Province
• Karnali Province
• Sudurpaschim Province
• International Sports
• Brunch with the Post
• Life & Style
• Entertainment
• Investigations
• Climate & Environment
• Science & Technology
• Visual Stories
• Crosswords & Sudoku
• Corrections
• Letters to the Editor
• Today's ePaper

Without Fear or Favour UNWIND IN STYLE

What's News :

• PM wins trust vote
• 'American Dream' pursuit in Rukum
• Experts on Lamichhane
• Spring paddy area shrinks
• Mental health

Nepal's economy and federalism

Kiran Paudel

Nepal has faced immense economic challenges since transitioning to a federal democratic republic over 16 years ago. Key economic indicators such as gross domestic product, trade deficit, tax revenue, national debt and manufacturing have declined rapidly, indicating a tipping point in the economy.

According to the latest World Bank data , Nepal's irregular GDP growth averaged about 4.2 percent after transitioning into the federal system. The same report indicates that this growth rate falls short of the 7 percent required for the much-hoped development transformation to qualify for an emerging economy. Moreover, this modest growth rate relies heavily on remittances instead of competitively advantaged sectors such as tourism or other export-oriented industrialisation. The lacklustre growth rate (excluding remittances) has caused the average income level to remain barely above $1400, severely limiting job creation, even with marginal pay. This and the never-ending political mesh have resulted in a staggering 600,000 working-age citizens leaving Nepal annually for overseas opportunities.

According to the Ministry of Finance economic survey data , the trade deficit has increased from 14 percent to over 50 percent of GDP since 2008. In the same period, the size of national debts almost quadrupled from $3 billion to $14 billion. This has pushed total repayment obligations to nearly 50 percent of GDP, breaking global risk thresholds. The government's debt service now consumes over one-third of tax revenues, reflecting a perilous trap that new borrowings are needed to finance past interest payments. Furthermore, the survey data also shows that the ratio of tax revenue to GDP has rapidly declined in recent years due to the increasing bureaucracy in the federal system plagued by corruption. Additionally, the manufacturing sector's GDP share has decreased by almost 50 percent (from 10.5 percent in 2008 to just 5.5 percent in 2022 ), indicating a shocking deindustrialisation trend.

There have been systemic failures across all major economic parameters in the past decade: Fiscal discipline, trade balances, revenue collection, industrial policies and exploiting synergies in federal oversight. The litany of problems mentioned reflects a severe governance decay and highlights the structural weakness within the new federal structure.

Root causes

Given the aforementioned facts, it is imperative to ask what has caused all these economic troubles within the federal republic. Political cronyism, nepotism, rampant corruption, inept political leaders and the deep politicisation of public institutions, including the supposedly independent judiciary, are collectively responsible. If the messy over-politicisation currently rampant in the federal system were the solution, institutions like Tribhuvan University, where political chaos is considered a virtue, would be among the best in the world. However, too much politics harms public organisations.

Appointing unqualified political allies instead of competent technocrats to constitutional positions is damaging the ability of these bodies to achieve their national goals. This has resulted in widespread corruption, rent-seeking and the formation of cartels in governance processes, where political loyalty is prioritised over merit. As a result, corruption has been practically institutionalised and decentralised in the federal system.

Unfortunately, the economy is showing little sign of breaking free from the grip of entrenched special interests. In totality, Nepal’s political transformation stumbled at delivering on most economic parameters, whether it be income and job growth, external balance, debt sustainability, industrialisation, or governance integrity. Development outcomes lag almost all optimistic projections made in 2008 across fundamentals.

The proposed reforms

There is an urgent need for meaningful reforms to reduce the excessive control of politics. Nepal’s bleak economic potential can only improve through decisive course correction with constitutional and policy changes. Two significant changes are vital to minimising the political landscape that has an immediate positive impact on the economy. First, eliminating the provinces that are too expensive to maintain is crucial. An alternative approach could be to reduce the number of provinces to three or four and cut the number of local bodies in half. This could address prevalent political grievances while controlling the federal system’s maintenance costs.

Second, a constitutional law requiring a minimum 10 percent vote threshold for qualification for a national party should be introduced. These significant reforms can save billions of rupees, which can be redirected towards development. Moreover, there will be reduced political noise, which helps public institutions function effectively. The third necessary reform is introducing strong laws to improve the dysfunctional electoral system. This can be achieved by promoting inclusivity in elected positions and eliminating proportional representation.

Fourth, all executive posts, including the prime minister (and chief ministers), should be directly elected to promote a true mass-based democracy. The law should mandate free and fair competitions to fill vacancies across all public posts, including judges, ambassadors, university appointees and other constitutional appointments. Additionally, party-based politics should be prohibited in all public institutions with zero tolerance. Nepal can follow the model adopted by the United States, where political parties' involvement is limited only to governance and parliamentary affairs. All other public institutions, such as universities, the judiciary, constitutional bodies and the bureaucracy, must remain free from political influence.

Finally, it is imperative to have enforceable laws to keep politics out of public projects. The unhealthy relationship between politicians and project contractors is responsible for delaying, devastating and destroying development projects once launched. This must be addressed at the legal and policy levels.

The proposed reforms will radically minimise the rampant politics engulfing the Nepali economy, help reduce corruption and divert public attention to economically productive areas. It will also create a pleasant business and commerce environment in Nepal that can positively change its macroeconomics. “Limited politics with unlimited business” should be the driving mantra of all reforms. Thus, confronting the policy blunders of the past is a must for the renewal of the faltering federal republic. Political players and the public must realise that amid the bleak economic realities, the federal structure cannot advance in its present form.

Kiran Paudel Paudel is a financial economist.

Related News

Recessionary fallout on banking

Localising climate action

Droughts top the climate hazard list

Bench, bar and barkeepers

Media literacy in Nepal

More scare than healthcare

Most read from columns.

Understanding Nepali bureaucracy

Bracing for Modi’s third term

Oli’s brinkmanship

People, mountains and climate change

Dissecting PhD sagas—II

Editor's picks.

Off the rails

7 years on, Nepal and China still at odds over BRI execution

Is judicial supremacy trumping constitutional supremacy in Nepal?

Nepal’s agriculture, water resources under climate threat

Kagbeni residents fear monsoon havoc amid government inaction after last year’s flooding

E-paper | may 21, 2024.

• Read ePaper Online

• Publications

Nepal: A political economy analysis

Download this publication

This report is an integrated political economy analysis of Nepal. The main finding is that economic growth and poverty reduction have been steady in Nepal since the mid-1980s independently of a number of political upheavals, including ten years of civil war. The growth has been driven by remittances and an upward pressure on wages in local labor markets. As a result, poverty has declined and social indicators have improved. Despite the availability of private capital and increases in wages for the poor, there is still a massive need for public investments in infrastructure, agriculture, health, and education. In the political domain the recent local elections will reintroduce local democracy after 20 years. Elected local politicians are expected to boost local development efforts. The leading political forces in Nepal are the political parties. There are close links between politicians and business leaders, the political parties control the trade-unions, have links to civil society organizations, and the parties select high-level government officials. The civil war and the post-war ethnic uprising led to demands for an ethnic based federal republic. A compromise federal map was decided in 2015, with provincial elections scheduled for the fall of 2017. There are concerns that the ethnic agenda may escalate ethnic conflicts, and it will be essential for all parties to work for participation of all social groups within the recently established local units, as well as in the economy at large.

Magnus Hatlebakk

• [email protected]
• +47 47938121

Vern av eller mot flyktningar?

Arne Strand

Helhetlig innsats i krise og konflikt. Hva mer kan Norge gjøre?

Ottar Mæstad, Nikolai Hegertun, Hans Inge Corneliussen

Helhetlig innsats i krise og konflikt. Hva er utfordringene?

Nikolai Hegertun, Ottar Mæstad

Examining poverty and food insecurity in the context of long-term social-ecological changes in Kabul, Afghanistan

Yograj Gautam, Anwesha Dutta, Patrick Jantz, Alark Saxena, Antonio De Lauri

• [email protected]
• Login / Register

Economy of Nepal: Challenges and Opportunities

Article 12 Feb 2023 7014 0

Nepal is a landlocked country located in South Asia, bordered by India and China. With a population of approximately 29 million people, the country is known for its diverse geography, including the Himalayas, forests, and fertile plains. Despite its rich cultural heritage and natural beauty, Nepal faces several economic challenges, which have prevented it from realizing its full potential. In this article, we will examine the Nepalese economy, including its history and current status, and explore the major challenges facing the country.

Overview of the Nepalese Economy

The Nepalese economy has a long history, dating back to ancient times when it was based on agriculture and trade. In the 1950s, the country experienced significant economic growth as a result of the expansion of industry and the growth of the tourism sector. However, political instability and conflict in the following decades had a negative impact on the economy, leading to a decline in growth and investment.

In recent years, the Nepalese economy has experienced a modest recovery, with a reported real Gross Domestic Product (GDP) growth rate of 7.5% in 2019. The agriculture sector remains the largest contributor to the economy, accounting for more than 30% of GDP. The tourism industry has also rebounded in recent years, with over 1.3 million international tourists visiting the country in 2019.

Challenges Facing the Nepalese Economy

Despite these efforts, the Nepalese economy still faces a number of significant challenges. The following are some of the major obstacles that need to be addressed in order to achieve sustained growth and development:

• Political Instability: Political instability and frequent changes in government have hindered economic progress in Nepal. Political unrest and social unrest, such as the recent protests, can disrupt businesses and foreign investment, and cause damage to infrastructure. In order to achieve stability and promote investment, it is essential that the government and other political leaders work together to maintain stability and create an environment that is conducive to economic growth.
• Lack of Infrastructure: Nepal is still struggling to develop its basic infrastructure, such as roads, bridges, power plants and airports, which are crucial for economic growth. The lack of infrastructure has made it difficult for businesses to operate and for goods and services to be transported efficiently, reducing the competitiveness of the Nepalese economy. The government needs to invest in infrastructure development and work with the private sector to ensure that the necessary infrastructure is in place.
• Limited Access to Capital and Technology: Despite the fact that Nepal has a large pool of human capital, many businesses lack access to capital and technology. This makes it difficult for them to compete with larger and better-established firms, both domestically and internationally. The government should work to increase access to capital for small and medium-sized enterprises, and encourage private investment in technology.
• Natural Disasters: Nepal is particularly vulnerable to natural disasters, such as earthquakes, landslides and floods, which can have a significant impact on the economy. The government needs to invest in disaster preparedness and risk management strategies to mitigate the impact of these events and ensure that the economy is able to recover quickly.
• External Factors: External factors, such as global economic conditions, trade relations with other countries and the geopolitical situation in the region, also play a role in the Nepalese economy. For example, the country's dependence on India for trade has created economic and political vulnerabilities, as economic decisions made in India can have significant impacts on the Nepalese economy. In order to reduce dependence on a single trading partner, the Nepalese government needs to develop and strengthen trade relationships with other countries.

Case Studies and Success Stories

Despite the challenges faced by the Nepalese economy, there are also many success stories and positive developments that provide hope for the future. For example:

• Tourism Industry: Tourism is one of the fastest-growing sectors in Nepal, and has the potential to generate significant economic growth. The country is home to some of the world's most spectacular natural and cultural attractions, including Mount Everest and the Kathmandu Valley. The government has been working to promote tourism, and the sector has already created hundreds of thousands of jobs and generated significant economic activity.
• Women's Entrepreneurship: Women's entrepreneurship is also growing in Nepal, with many organizations and initiatives working to support women-led businesses. For example, the "Women's Economic Empowerment through Micro-Enterprise Development" project has provided training and support to over 10,000 women entrepreneurs in the country. These efforts have helped to increase the economic opportunities available to women, and have contributed to the growth of the Nepalese economy.
• Renewable Energy: Nepal has significant potential for renewable energy, and is making efforts to tap into this potential. For example, the country is home to many rivers and waterfalls that could be used to generate hydroelectric power. The government is working to develop these resources and increase access to clean, sustainable energy. This will not only help to improve the economic situation in the country, but will also contribute to the global effort to combat climate change.

Government Policies and Initiatives

In recent years, the Nepalese government has implemented several policies and initiatives aimed at addressing these challenges and promoting economic growth. These include investments in infrastructure, support for small and medium-sized enterprises (SMEs), and efforts to attract foreign investment.

In 2016, the government launched the National Economic Recovery Plan (NERP), which seeks to improve the investment climate, increase competitiveness, and enhance the role of the private sector in driving growth. The plan includes measures to upgrade infrastructure, increase access to finance, and promote entrepreneurship, among other initiatives.

"The National Economic Recovery Plan (NERP) has also been launched in order to provide support to small and medium-sized enterprises, especially in the tourism, agriculture and manufacturing sectors. This plan aims to create jobs and improve the overall business environment by providing access to capital, technology and markets. Additionally, the government has established special economic zones (SEZs) with the goal of attracting foreign investment and promoting export-oriented industries."

However, the implementation of these policies has been hindered by various challenges such as political instability, lack of infrastructure, and corruption. The instability in the political system has resulted in frequent changes in government policies and a lack of consistency in economic policies, which has made it difficult for businesses to make long-term investments.

Another major challenge facing the Nepalese economy is the lack of infrastructure. According to a report by the World Bank, only 27% of the country's roads are paved, which makes it difficult for goods and services to be transported within the country. This lack of infrastructure also makes it difficult for businesses to access markets and to import and export goods, which limits their potential for growth.

In addition to these challenges, the Nepalese economy also faces limited access to capital and technology. Many businesses are unable to access the financing they need to grow and expand, which makes it difficult for them to compete in the global market. Additionally, the limited access to technology means that many businesses are not able to take advantage of new opportunities or to improve their operations.

Despite these challenges, there have been a number of successful businesses and industries in Nepal. For example, the tourism industry has been a major contributor to the Nepalese economy, providing employment and income for many people. Additionally, the agriculture sector, particularly the production of coffee, has also been a source of growth and development.

In order to address these challenges and promote economic growth, the Nepalese government has also launched various initiatives aimed at supporting women's entrepreneurship. These initiatives aim to provide women with access to capital, technology and markets, and to promote the creation of women-led businesses. For instance, the "Women Entrepreneurship Development Program" is aimed at providing women with business training, mentorship and access to financial services.

Recommendation

While the challenges facing the Nepalese economy are significant, there are a number of steps that can be taken to address them and promote sustainable economic growth. Some of these steps include:

• Improving infrastructure: A significant portion of the Nepalese economy is based on agriculture, which is hampered by poor infrastructure and a lack of access to markets. Improving road networks, communications systems, and electricity supplies would not only benefit the agricultural sector, but also help to create new business opportunities in other areas of the economy.
• Encouraging entrepreneurship: The Nepalese government should focus on promoting entrepreneurship, especially among women, by providing access to credit, training, and other support services. This will not only increase the number of businesses in the country, but also help to diversify the economy and create new sources of growth.
• Fostering trade relationships: Nepal's location at the crossroads of South Asia makes it well placed to become an important trading hub. However, the country currently lacks the infrastructure and trade policies necessary to take full advantage of this opportunity. Improving trade relationships with neighboring countries, as well as with other countries in the region, would help to stimulate economic growth and create new business opportunities.
• Strengthening the financial sector: A well-functioning financial sector is essential for promoting economic growth, but Nepal's financial sector is currently weak and underdeveloped. The government should take steps to strengthen the sector, such as by promoting the use of formal financial institutions, providing access to capital and credit, and creating a favorable regulatory environment for financial services providers.
• Addressing corruption: Corruption is a major challenge in Nepal, and it has a negative impact on economic growth and the business climate. The government should take strong measures to address corruption, such as by strengthening institutions responsible for fighting corruption, improving transparency and accountability, and providing an enabling environment for businesses to operate.

Overall, the Nepalese economy has significant potential, but it is facing a number of challenges that must be addressed if the country is to achieve sustainable economic growth. By taking a comprehensive approach that addresses infrastructure, entrepreneurship, trade relationships, the financial sector, and corruption, the Nepalese government and other stakeholders can help to create a more favorable environment for economic growth and create new opportunities for businesses and communities in Nepal.

In conclusion, the Nepalese economy faces a number of significant challenges, including political instability, lack of infrastructure, and limited access to capital and technology. However, the government and various organizations are taking steps to address these challenges and promote economic growth. With the right support, the Nepalese economy has the potential to become a major contributor to the global economy in the future.

• Latest Articles

Why You Shouldn't Use Social Media for Information

The power of focus: transform your life, 20 reading rules that transformed my life, 20 essential life lessons to learn early, 20 life lessons i wish i knew at 20: wisdom from 40, why being smarter doesn’t guarantee a happier life: unveiling the truth, learn anything with ultralearning: master any skill fast, understanding the importance of education for individuals with autism, how does reading affect your brain, how to improve education standards in community schools, apply online.

Find Detailed information on:

• Top Colleges & Universities
• Popular Courses
• Exam Preparation
• Admissions & Eligibility
• College Rankings

Sign Up or Login

Not a Member Yet! Join Us it's Free.

Already have account Please Login

Let's Write an Article for Blog

Agriculture in Nepal: An Essay with Comprehensive Analysis

Agriculture in Nepal: A Comprehensive Analysis

Agriculture is the backbone of Nepal’s economy, contributing to more than one-third of the country’s GDP and employing over 65% of the workforce. Nepal’s geographical and climatic diversity has provided a unique opportunity for agricultural production, with the potential to sustainably increase crop yields, livestock productivity, and export value. Despite these advantages, the sector faces several challenges, including limited access to modern inputs, poor infrastructure, and the impact of climate change. In this article, we will explore the various aspects of agriculture in Nepal and suggest ways to overcome these challenges.

Table of Contents

Agricultural Production in Nepal

Nepal’s agriculture sector is divided into two main sub-sectors: crop production and livestock production. The crop production sub-sector includes cereals, pulses, vegetables, fruits, and spices, while the livestock sub-sector includes cattle, buffalo, goat, sheep, and poultry. The country’s agricultural production is highly dependent on monsoon rainfall, which accounts for more than 80% of total precipitation. This makes Nepal’s agricultural production highly vulnerable to climate change, with the potential for droughts, floods, and other extreme weather events.

Also Read :  Essay on Natural Resources in Nepal: An Overview

Despite these challenges, Nepal has made significant progress in agricultural production in recent years. The country’s cereal production has increased by 33% since 2000, while livestock productivity has also increased significantly. However, the sector still faces several challenges, including limited access to modern inputs, poor infrastructure, and low adoption of modern farming practices.

Challenges Facing Agriculture in Nepal

One of the primary challenges facing agriculture in Nepal is limited access to modern inputs. Farmers in Nepal lack access to quality seeds, fertilizers, pesticides, and other modern inputs, which hinders their productivity and limits their potential for growth. The government has attempted to address this issue by subsidizing inputs and promoting private sector investment in the sector, but progress has been slow.

Another challenge facing agriculture in Nepal is poor infrastructure. The country’s rural areas lack basic infrastructure such as roads, electricity, and irrigation, which hinders farmers’ access to markets and limits their productivity. The government has attempted to address this issue by investing in infrastructure development, but progress has been slow due to the country’s rugged terrain and limited resources.

The impact of climate change is another challenge facing agriculture in Nepal. The country’s agriculture sector is highly vulnerable to extreme weather events such as droughts, floods, and landslides. These events can cause significant damage to crops and livestock, leading to decreased yields and income for farmers. The government has attempted to address this issue by promoting climate-resilient farming practices, but progress has been slow due to limited resources and capacity.

Suggestions for Overcoming Challenges

To overcome the challenges facing agriculture in Nepal, several strategies can be adopted. Firstly, there needs to be an increased investment in agricultural research and development to promote the adoption of modern farming practices. This can include research into new crop varieties, improved irrigation systems, and better soil management practices.

Secondly, there needs to be an increased investment in rural infrastructure development to improve farmers’ access to markets and increase their productivity. This can include the construction of rural roads, electrification, and irrigation systems.

Finally, there needs to be an increased focus on climate-resilient farming practices to mitigate the impact of climate change on the agriculture sector. This can include the promotion of drought-tolerant crops, improved soil management practices, and better water management practices.

Also Read :  Mahatma Gandhi: Inspiring a Movement for Change

Agriculture is a vital sector for Nepal’s economy, providing employment to over 65% of the workforce and contributing to more than one-third of the country’s GDP. However, the sector faces several challenges, including limited access to modern inputs, poor infrastructure, and the impact of climate change. To overcome these challenges, there can be done to promote agricultural research and development, invest in rural infrastructure development, and promote climate-resilient farming practices. By addressing these challenges, Nepal’s agriculture sector can continue to grow and contribute to the country’s economic development .

Related Posts

Essay on Natural Resources in Nepal: An Overview

Leave a reply cancel reply.

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Opportunities and Challenges of Migration for Nepal

While there are economic benefits of migration, the impacts and the consequence of migration need to be carefully evaluated on a micro and macro level to understand the overall impact on individuals and the country., by aarya rijal | august 10, 2022, bottom-up growth, global integration, 7 minute read.

Migration Trend in Nepal Every year, Nepalis are propelled to migrate to foreign countries due to lack of employment opportunities in Nepal and the possibility of higher paying jobs in the destination country. In fact, more than 1,700 Nepali people travel abroad for employment daily. According to the 2021 Census Data , a total of 2.2 million Nepalis are abroad, out of which 81.28% are male and 18.72% are female. In the past years, more and more labor permits have been issued and as of 2020, the Department of Foreign Employment (DoFE) has approved labor migration to 110 countries . The population migrating out of Nepal is relatively young in age, which is around the age of 25-35 years, posing implications for domestic jobs. While there are economic benefits of migration, the impacts and the consequence of migration need to be carefully evaluated on a micro and macro level to understand the overall impact on individuals and the country.

Migration’s Contribution to Growth

Economic Growth

Migration plays a pivotal role in the development of Nepal’s economic landscape. Migrant workers send money they earn in their countries of destination to their households in Nepal; this inflow of money is known as remittances. In Nepal, one in three households receives remittances that contribute significantly to the economic dynamics of a household. Inflow of remittances, which accounted for 10% of GDP in 1999/00, has grown significantly over the last two decades. In the fiscal year 2019/20, Nepal received remittances worth NPR 875 billion, constituting 23.3% of the country’s GDP .

The income generated from remittances has been instrumental in Nepal’s economic growth by contributing to alleviation of poverty at the household level and has significantly improved living standards of the population. A research conducted by NRB shows that households that receive remittances are 2.3% less likely to get caught in poverty than households that do not receive remittances. As a matter of fact, the probability of households slipping into poverty falls by 1.1% with every 10% increase in remittance inflows to households. Remittance receiving households experience improvement in household income and wealth , which allows them to invest in productive areas like health, education and infrastructure while also fostering entrepreneurship and consumption. In addition, a large portion of Nepal’s foreign exchange reserve is contributed by remittances. In the last five years, remittances have contributed an average of 54.6% to the total foreign exchange of the country.

Impact on Remittance Receiving Households

With one in three households in Nepal receiving remittance, migration’s positive impact on income and household decisions is significant. About 9.7% of the total remittances received by remittance receiving households is used on education and health. In fact, remittance has proved to increase the probability of school enrollment by 3.8% with a 25.3% increase in the education expenditure, improving access to educational opportunities. Remittance receiving households also show an increased spending on higher-priced medical care and a higher likelihood of visiting a doctor. A research paper on the impact of remittances on household health care expenditure finds that a 1% increase in overall remittances leads to a 0.099% increase in health care expenditure. Moreover, households with at least one migrant member spend 0.27% more on health care as compared to the households with no migrants.

Since remittance increases household income, it also increases accumulated income and savings of a family. Remittance receiving households use 25.3% of the total remittances to repay loans and 28% of the total remittance was saved. This implies that remittances have and could potentially free up credit constraints and increase available capital, allowing the female members of the migrant sending households to start a business, to invest in one, or to be self-employed.

Consequences of Migration

Impact on Economy

While remittance contributes greatly to increase household income and raising the standard of living, it also poses challenges that do not contribute to the economy. These implications disrupt long-term growth of the economy and requires careful course-correction through policies and regulations. For instance, although the trend is gradually changing, remittances are hardly used for capital formation. Remittance receiving household use 23.9% of the remittance for consumption of daily necessities such as food and clothes, while only 1.1% is used to invest in productive sectors. Therefore, in Nepal, increase in remittance inflow increases the demand for consumable goods, most of which are imported from Nepal. This might further deteriorate the trade balance of the country (Figure 1). A study by Nepal Rastra Bank suggests that in the long run, there is a positive unidirectional causation from remittance to import, and from remittance to trade deficit. Moreover, since only 1.1% of the remittances is used on capital formation, remittance inflow has no direct impact on the export of the country. This implies that remittances increase merchandise import and deteriorates trade balance.

Figure 1: Remittance vs. Trade Balance

Source : Remittance data from CBS National Accounts of Nepal 2021 (Base Year 2011), Trade Balance data from NRB Current Macroeconomic and Financial Situation

Furthermore, migration is an expensive process for most migrants, which hinders the financial circumstance of migrant workers as well as aspiring migrant workers in the short run. Aspiring migrant worker often times rely on recruitment agencies to facilitate the search, matching, and paperwork associated with the recruitment process. These recruitment agencies charge hefty fees, resulting in 72% of migrant workers obtaining loans to cover the high cost of migration. Since remittance receiving households use 25.3% of the total remittances to repay loans, the cost of migration directly impacts the remittance receiving households’ ability to save and contribute to capital formation. While migration from Nepal has unpacked multiple avenues, remittance receiving households continues to survive on low savings and contribute very little capital formation, which can be attributed to the high cost of out migration.

Impact on Women

Migration, for a family, is a transformative process that reshapes the family structure and changes household roles regarding domestic work, care, reproduction, and production activities. Since 81% of the total migrants of Nepal are men, it is important to understand the impact of outward migration of male individuals on the wives and other females of the household, also called women left behind . Outward migration of male members results in added household responsibilities on the women of the family, which puts an added pressure on women and hinders their ability to be involved in the labor market or to start a business, regardless of the available financial capital. A study on the effect of male migration on the employment patterns of women in Nepal finds that migration of men has a negative impact on women as it reinforces gender roles by pushing women out of the labor market while the male members send money as remittances. Women’s inability to participate in the labor market makes them financially dependent on the migrant male members of their household and migrant men, even though abroad are the ones making major household and financial decisions .

The opportunities brought by migration from Nepal are manifold, however, they are usually supplemented by their own set of challenges. More often than not, the benefits of migration at the macro level fail to penetrate and resolve the structural challenges existing in the Nepali society. In order to minimize the negative impacts of migration, policymakers should focus on building a flexible and conducive domestic market that supports domestic industries and jobs, while also creating an environment that allows women to enter and re-enter the labor force.

Aarya Rijal is a recent graduate with a B.A. in Economics from Union College, USA. Her key interests are in corporate finance, macroeconomics, and international economics. Before joining NEF, Aarya worked as a student data analyst and a research assistant at Union College. She is currently working as a fellow at NEF.

<NEFTakes

Take the Quiz: Find the Best State for You »

What's the best state for you ».

Amid Opposition Protests, Nepal PM Wins Parliamentary Vote of Confidence

FILE PHOTO: Nepal's Prime Minister Pushpa Kamal Dahal, also known as Prachanda, delivers a speech before a confidence vote at the parliament in Kathmandu, Nepal January 10, 2023. REUTERS/Navesh Chitrakar/File Photo

By Gopal Sharma

KATHMANDU (Reuters) - Nepal's prime minister won a parliamentary vote of confidence on Monday amid protests by the opposition demanding a parliamentary probe into allegations that his home minister illegally took money from several companies before he entered politics.

Pushpa Kamal Dahal, a former Maoist rebel chief in the Himalayan nation sandwiched between China and India, formed a coalition cabinet in March with the support of the liberal Communist Unified Marxist-Leninist (UML) party and several smaller parties.

A fresh vote of confidence became necessary after a junior partner in the coalition withdrew support following differences with the leader.

The main opposition Nepali Congress said Dahal must set up a parliamentary panel to probe allegations that Deputy Prime Minister in charge of the home ministry, Rabi Lamichhane, illegally took large amounts of money from a number of cooperative companies, which are formed and run by small group of people, when he was a television show presenter before joining politics.

Lamichhane has denied the charges.

Parliament Speaker Dev Raj Ghimire said Dahal won 157 votes, exceeding the minimum 138 required, in the 275-member parliament in Monday’s voting in which the entire opposition - except one member - did not participate.

“As the number is the majority of all members of parliament, I declare the motion of confidence tabled by the prime minister as passed,” Ghimire told the parliament as the opposition Nepali Congress party protested and shouted slogans.

Dahal, who still goes by his war nom de guerre "Prachanda", which means fierce, led a decade-long insurgency from 1996 which caused 17,000 deaths before he joined mainstream politics under a 2006 peace deal overseen by the United Nations.

He is serving a third time as prime minister, although he did not complete the full five-year term during previous stints.

Nepal has had 13 governments since it abolished its 239-year-old monarchy in 2008 and became a republic.

(Reporting by Gopal Sharma; Editing by YP Rajesh, William Maclean)

Copyright 2024 Thomson Reuters .

Join the Conversation

Tags: Nepal , India

America 2024

Health News Bulletin

Stay informed on the latest news on health and COVID-19 from the editors at U.S. News & World Report.

Sign in to manage your newsletters »

Sign up to receive the latest updates from U.S News & World Report and our trusted partners and sponsors. By clicking submit, you are agreeing to our Terms and Conditions & Privacy Policy .

You May Also Like

The 10 worst presidents.

U.S. News Staff Feb. 23, 2024

Cartoons on President Donald Trump

Feb. 1, 2017, at 1:24 p.m.

Photos: Obama Behind the Scenes

April 8, 2022

Photos: Who Supports Joe Biden?

March 11, 2020

Trump’s Defense Gets Its Turn

Lauren Camera May 20, 2024

What to Know: FLiRT COVID-19 Variants

Cecelia Smith-Schoenwalder May 20, 2024

Who Was Iranian President Ebrahim Raisi?

Eric Lob May 20, 2024

The ICC, Explained

Aneeta Mathur-Ashton May 20, 2024

The Confusing U.S. Economy

Tim Smart May 20, 2024

The Week in Cartoons May 20-24

May 20, 2024, at 1:02 p.m.

Minister Basnet advocates for electric vehicles to boost Nepal's environment and economy

K ATHMANDU, May 18 -- Minister of Energy, Water Resources, and Irrigation Shakti Bahadur Basnet has said that it is necessary to increase the use of electric vehicles in Nepal to save the environment and reduce costs.

Speaking at a discussion program on 'Green Mobility and Tourism Prosperity' organized by Spark Cars on Friday, he said that he will initiate a policy with the government to increase the use of electric vehicles in the future.

Basnet emphasized that Nepalis should increase the use of electric vehicles not only to make the environment clean but also to reduce consumer expenditure on petrol and diesel. He said, "Electric vehicles are necessary because it costs less to drive a vehicle using our hydropower than to buy petrol."

He also mentioned that the roadmap and action plan for energy development in Nepal have been made, targeting the generation of 28,500 megawatts of electricity in the next 12 years. "To achieve this, the goal is to build infrastructure such as transmission lines and distribution systems, so the use of electric vehicles will increase in the coming years," he said.

Basnet said that plans have been made to advance the utilization of electricity. He said, "In 12 years, the average economic growth is expected to be around 7 percent, and there will be 14,000 megawatts of electricity consumption."

He also stated that work is being done extensively to expand the charging stations required for electric vehicles. He remarked, "There was sometimes confusion like the chicken or egg dilemma, but now vehicles and charging stations are developing together." He added that 51 charging stations are being built by the Nepal Electricity Authority.

Similarly, at the program, Tourism Minister Hit Bahadur Tamang said that tourist traffic could not be increased because Nepal's infrastructure is not as developed as expected. "The investment needed for tourism infrastructure is insufficient to create a tourism-friendly environment," he said.

Governor Maha Prasad Adhikari noted that not only green energy but also green banking is being practiced in Nepal. He mentioned that Nepal Rastra Bank (NRB) has issued environmental and social risk management (ESRM) guidelines to banking institutions. He said, "They do not invest without reviewing the EIA report while investing. This shows that the environment is a big priority."

Adhikari also pointed out that although policies are improving in the country, implementation is weak. He mentioned that through the review of the third quarter of the monetary policy released on Friday, the risk burden of loans taken for the purchase of electric vehicles has been reduced from 125 percent to 100 percent, which will facilitate the import of electric vehicles.

Environmentalist Bhushan Tuladhar highlighted that global temperatures are rising, creating severe conditions. He said that recent fires in Nepal have been exacerbated by droughts linked to climate change and that Nepal recently became the most polluted city in the world due to smoke from petrol and diesel vehicles and unorganized urbanization. He urged the state to address this issue.

At the program, Chief Executive Officer (CEO) of Cymex Inc., Sahil Shrestha, stated that electric vehicles are now very reliable and affordable. He said, "Increasing the use of electric vehicles is also good for the environment. The battery life of an electric vehicle is usually 20 years, making it cost-effective."

Roshan Ghimire, chairman of Spark Group, said that the program was organized to promote tourism while protecting the environment. He emphasized that all sectors should focus on environmental protection. He said, "With the increase in luxury hotels and resorts, there is a lack of luxury vehicles to serve those tourists."

This program organized by Spark Cars in collaboration with the Nepal Tourism Board was supported by BYD, IGI Prudential Insurance, Prabhu Bank, and Himalayan Everest Insurance Company. More than 200 people participated in the program, including representatives from the tourism sector, government, non-governmental organizations, diplomatic missions, multinational companies, corporates, and environmentalists.

Published by HT Digital Content Services with permission from Republica.

To Fight Inequality, America Needs to Rethink Its Economic Model

F or decades, economic policy in most liberal democracies has been premised on two core beliefs: that free markets would maximize economic growth, and that we could address inequality through redistribution.

The recent revival of industrial policy, championed by President Biden, is a clear repudiation of the first of these beliefs. It reflects a growing recognition among economists that state intervention to shape markets and steer investment is crucial for fostering innovation, protecting strategically important sectors like semi-conductors, and tackling the climate emergency.

But we must also reassess the second belief—that taxes and transfers alone can address the vast inequalities that have brought American democracy to such a perilous juncture. Doing so will lead us towards a more fundamental rethink of our economic institutions, and the values that guide them.

This is partly a pragmatic response to economic reality. The massive increase in inequality since the 1980s in America was mostly driven not by a reduction in redistribution, but by the growing gap in earnings between low skill workers, whose wages have suffered an unprecedented period of stagnation, and college-educated professionals whose salaries have continued to soar. And while inequality has increased in most advanced economies, that it is so much higher in the U.S. compared to Europe is mostly the result of bigger gaps in earnings than lower levels of redistribution. In other words, even if America were to increase the generosity of the welfare state to European levels it would still be much more unequal.

But the need to look beyond redistribution is about more than economics, it is about resisting the narrow focus on money that dominates most debates about inequality, and the tendency to reduce our interests as citizens to those of consumers. While government transfers are essential for making sure that everyone can meet their basic needs, simply topping up people’s incomes fails to recognize the importance of work as a source of independence, identity, and community, and does nothing to address the insecurity faced by gig-economy workers, or the constant surveillance of employees in Amazon warehouses.

This is not purely a moral issue. According to a recent paper by economists at Columbia and Princeton, the Democratic Party’s shift towards a “compensate the losers ” strategy in the 1970s and 1980s—taxing high earners to fund welfare payments to the poor—played a key role in driving away less educated voters, who disproportionately support “pre-redistributive” policies like higher minimum wages and stronger unions.

Things are moving in the right direction. President Biden has put “good jobs” at the centre of his economic agenda, claiming that “a job is about [a] lot more than a pay cheque. It’s about your dignity. It’s about respect.” Leading economists such as Dani Rodrik at Harvard and Daron Acemoglu at the Massachusetts Institute of Technology’s have started to challenge the prevailing orthodoxy that such jobs are an inevitable by-product of a well-functioning market economy. This shift of focus towards the production or supply side of the economy has been variously termed “ productivism ”, “ modern supply-side economics ” and “ supply-side progressivism .”

Read More: Why Joe Biden is Running on the Economy

And yet, to grasp the full potential of these ideas we must look beyond economics to philosophy. Contemporary thinkers such as Michael Sandel and Elizabeth Anderson have done much to put questions about work back on the agenda. But for a systematic vision of a just society that recognizes the fundamental importance of work we should revisit the ideas of arguably the 20th-century’s greatest political philosopher, John Rawls—an early advocate for what we would now call “pre-distribution,” who argued that every citizen should have access to good jobs, a fair share of society’s wealth, and a say over how work is organized.

The publication of Rawls’s magnum opus A Theory of Justice in 1971 marks a watershed moment in the history of political thought, drawing favourable comparisons to the likes of John Stuart Mill, Immanuel Kant, even Plato. Rawls’s most famous idea is a thought experiment called the “original position.” If we want to know what a fair society would look like, he argued, we should imagine how we would choose to organize it if we didn’t know what our individual position would be—rich or poor, Black or white, Christian of Muslim— as if behind a “veil of ignorance.”

Our first priority would be to secure a set of “basic liberties,” such as free speech and the right to vote, that are the basis for individual freedom and civic equality.

When it comes to the economy, we would want “fair equality of opportunity,” and we would tolerate a degree of inequality so that people have incentives to work hard and innovate, making society richer overall. But rather than assuming that the benefits would trickle down to those at the bottom, Rawls argued that we would want to organize our economy so that the least well-off would be better off than under any alternative system—a concept he called the “difference principle.”

This principle has often been interpreted as justifying a fairly conventional strategy of taxing the rich and redistributing to the poor. But Rawls explicitly rejected “welfare state capitalism” in favour of what he called a “property-owning democracy.” Rather than simply topping up the incomes of the least well off, society should “put in the hands of citizens generally, and not only of a few, sufficient productive means for them to be fully cooperating members of society.”

Doing so is essential for individual dignity and self-respect, he argued, warning that “Lacking a sense of long-term security and the opportunity for meaningful work and occupation is not only destructive of citizens’ self-respect but of their sense that they are members of society and not simply caught in it. This leads to self-hatred, bitterness, and resentment” – feelings that could threaten the stability of liberal democracy itself. A focus on work is also necessary for maintaining a sense of reciprocity since every able citizen would be expected to contribute to society in return for a fair reward.

Rawls’s philosophy offers the kind of big picture vision that has been missing on the center-left for a generation—a unifying alternative to ‘identity politics’ grounded in the best of America’s political traditions. It also points towards a genuinely transformative economic programme that would address the concerns of long-neglected lower-income voters, not simply for higher incomes but for a chance to contribute to society and to be treated with respect.

At the heart of this vision is the idea that productive resources—both human capital (skills) and ownership of physical capital (like stocks and shares)—should be widely shared. People’s incomes would still depend on their individual effort and good fortune, but wages and profits would be more equal, and there would be less need for redistribution.

How might we bring this about?

First, we would need to ensure equal access to education, irrespective of family background. Sadly, the reality in America today is that children from the richest fifth of households are fivetimes more likely to get a college degree than those from the poorest fifth. Achieving true equality of opportunity is a generational challenge, but the direction should be towards universal early years education, school funding based on need rather than local wealth, and a higher education system where tuition subsidies and publicly-funded income-contingent loans guarantee access to all.

We also need to shift focus towards the more than half of the population who don’t get a four-year college degree. Our obsession with academic higher education—justified in part on the basis that this will generate growth, which in turn will benefit non-graduates—is simply the educational equivalent of trickle-down economics. At the very least, public subsidies should be made available on equal terms for those who want to follow a vocational route, as the U.K. is doing through the introduction of a Lifelong Learning Entitlement from 2025, providing every individual with financial support for four years of post-18 education, covering both long and short courses, and vocational and academic subjects.

Second, we must address the vastly unequal distribution of wealth . Thewealthiest 10 % of Americans have around 70 % of all personal wealth compared to roughly 2% the entire bottom half. Sensible policies like guaranteed minimum interest rates for small savers and tax breaks to encourage employee share ownership would encourage middle-class savings. But to shift the dial on wealth inequality we should be open to something more radical, like a universal minimum inheritance paid to each citizen at the age of eighteen, funded through progressive taxes on inheritance and wealth. If developments in AI push more income towards the owners of capital, something like this will become necessary.

Finally, we need to give workers real power to shape how companies are run. The idea that owners, or shareholders, should make these decisions is often treated as an immutable fact of economic life. But this “shareholder primacy” is neither natural nor inevitable about, and in most European countries employees have the right to elect representatives to company boards and to ‘works councils’ with a say over working conditions. This system of ‘co-management’ allows owners and worker to strike a balance between pursuing profit and all the other things we want from work – security, dignity, a sense of achievement, community – in a way that makes sense for a particular firm. The benefits of co-management appear to come at little or no cost in terms of profits or competitiveness, are popular with managers, and may even increase  business investment and productivity.

Critics will no doubt denounce these ideas as “socialism.” But as we have seen, they have impeccable liberal credentials, and are perfectly compatible with the dynamic market economy that is so vital both for individual freedom and economic prosperity. Neither are they somehow “un-American.” As Elizabeth Anderson has reminded us , America was the great hope of free market egalitarians from Adam Smith through to Abraham Lincoln, whose dreams of a society of small-scale independent producers were dashed by the industrial revolution, and would have been horrified by the hierarchy and subservience of contemporary capitalism. Rawls’s ideal of property-owning democracy can help us revive this vision for the 21 st century.

Still, even sympathetic readers might wonder whether there is any point talking about a new economic paradigm when the U.S. has failed even to raise the Federal minimum wage since 2009. But this would be to ignore the lessons of history. As the neoliberal era comes to an end, we should learn from its leading architects Milton Friedman and Friedrich Hayek, who were nothing if not bold, and saw their ideas go from heresy to orthodoxy in a single generation. As Friedman put it “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around."

It often takes a generation or two before the ideas of truly great thinkers start to shape real politics. Now, for the first time since the publication of  A Theory of Justice  just over half a century ago, there is an urgent need and appetite for systematic political thinking on a scale that only a philosopher like Rawls can provide. In the face of widespread cynicism, even despair about the American project, his ideas offer a hopeful vision of the future whose time has come.

More Must-Reads from TIME

• The New Face of Doctor Who
• Putin’s Enemies Are Struggling to Unite
• Women Say They Were Pressured Into Long-Term Birth Control
• Scientists Are Finding Out Just How Toxic Your Stuff Is
• Boredom Makes Us Human
• John Mulaney Has What Late Night Needs
• The 100 Most Influential People of 2024
• Want Weekly Recs on What to Watch, Read, and More? Sign Up for Worth Your Time

Contact us at [email protected]

• Share full article

Advertisement

Supported by

Guest Essay

China’s Dead-End Economy Is Bad News for Everyone

By Anne Stevenson-Yang

Ms. Stevenson-Yang is a co-founder of J Capital Research and the author of “Wild Ride: A Short History of the Opening and Closing of the Chinese Economy.”

On separate visits to Beijing last month, Secretary of State Antony Blinken and Treasury Secretary Janet Yellen bore a common message : Chinese manufacturing overcapacity is flooding global markets with cheap Chinese exports, distorting world trade and leaving American businesses and workers struggling to compete.

Not surprisingly, China’s leaders did not like what they heard, and they didn’t budge. They can’t. Years of erratic and irresponsible policies, excessive Communist Party control and undelivered promises of reform have created a dead-end Chinese economy of weak domestic consumer demand and slowing growth. The only way that China’s leaders can see to pull themselves out of this hole is to fall back on pumping out exports.

That means a number of things are likely to happen, none of them good. The tide of Chinese exports will continue, tensions with the United States and other trading partners will grow, China’s people will become increasingly unhappy with their gloomy economic prospects and anxious Communist Party leaders will respond with more repression.

The root of the problem is the Communist Party’s excessive control of the economy, but that’s not going to change. It is baked into China’s political system and has only worsened during President Xi Jinping’s decade in power. New strategies for fixing the economy always rely on counterproductive mandates set by the government: Create new companies, build more industrial capacity. The strategy that most economists actually recommend to drive growth — freeing up the private sector and empowering Chinese consumers to spend more — would mean overhauling the way the government works, and that is unacceptable.

The party had a golden opportunity to change in 1989, when the Tiananmen Square protests revealed that the economic reforms that had begun a decade earlier had given rise to a growing private sector and a desire for new freedoms. But to liberalize government institutions in response would have undermined the party’s power. Instead, China’s leaders chose to shoot the protesters, further tighten party control and get hooked on government investment to fuel the economy.

For a long time, no one minded. When economic or social threats reared their heads, like global financial crises in 1997 and 2007, Chinese authorities poured money into industry and the real estate sector to pacify the people. The investment-driven growth felt good, but it was much more than the country could digest and left China’s landscape scarred with empty cities and industrial parks, unfinished bridges to nowhere, abandoned highways and amusement parks, and airports with few flights.

The investment in industrial capacity also generated an explosion in exports as China captured industries previously dominated by foreign manufacturers — mobile phones, television sets, solar panels, lithium-ion batteries and electric vehicles. Much of the Chinese economic “miracle” was powered by American, European and Japanese companies that willingly transferred their technical know-how to their Chinese partners in exchange for what they thought would be access to a permanently growing China market. This decimated manufacturing in the West, even as China protected its own markets. But the West let it slide: The cheap products emanating from China kept U.S. inflation at bay for a generation, and the West clung to the hope that China’s economic expansion would eventually lead to a political liberalization that never came.

To raise money for the government investment binge, Beijing allowed local authorities to collateralize land — all of which is ultimately owned or controlled by the state — and borrow money against it. This was like a drug: Local governments borrowed like crazy, but with no real plan for paying the money back. Now many are so deep in debt that they have been forced to cut basic services like heating, health care for senior citizens and bus routes . Teachers aren’t being paid on time, and salaries for civil servants have been lowered in recent years. Millions of people all over China are paying mortgages on apartments that may never be finished . Start-ups are folding , and few people, it seems, can find jobs.

To boost employment, the party over the past couple of years has been telling local governments to push the establishment of new private businesses, with predictable consequences: In one county in northern China, a village secretary eager to comply with Beijing’s wishes reportedly asked relatives and friends to open fake companies. One villager opened three tofu shops in a week; another person applied for 20 new business licenses.

When mandates like that fail to create jobs, the party monkeys with the employment numbers. When monthly government data revealed last year that 21 percent of Chinese youth in urban areas were unemployed, authorities stopped publishing the figures. It resumed early this year, but with a new methodology for defining unemployment . Presto! The number dropped to 15 percent.

But Mr. Xi’s policy options are dwindling.

With the real estate market imploding, the government can no longer risk goosing the property sector. It has begun touting a revival in domestic consumption , but many Chinese are merely hunkering down and hoarding assets such as gold against an uncertain future. So the government is again falling back on manufacturing, pouring money into industrial capacity in hopes of pushing out more products to keep the economy going. With domestic demand anemic, many of those products have to be exported.

But the era when China was able to take over whole industries without foreign pushback is over. Many countries are now taking steps to protect their markets from Chinese-made goods. Under U.S. pressure, Mexico’s government last month reportedly decided it would not award subsidies to Chinese electric vehicle makers seeking to manufacture in Mexico for export to the U.S. market; the European Union is considering action to prevent Chinese electric vehicles from swamping its market; and the Biden administration has moved to encourage semiconductor manufacturing in the United States and limit Chinese access to chip technologies, and has promised more actions to thwart China.

China won’t be able to innovate its way out of this. Its economic model still largely focuses on cheaply replicating existing technologies, not on the long-term research that results in industry-leading commercial breakthroughs. All that leaves is manufacturing in volume.

China’s leaders will face rising economic pressure to lower the value of the renminbi, which will make Chinese-made goods even cheaper in U.S. dollar terms, further boosting export volume and upsetting trading partners even more. But a devaluation will also make imports of foreign products and raw materials more expensive, squeezing Chinese consumers and businesses while encouraging wealthier people to get their money out of China. The government can’t turn to economic stimulus measures to revive growth — pouring more renminbi into the economy would risk crushing the currency’s value.

All of this means that the “reform and opening” era, which has transformed China and captivated the world since it began in the late 1970s, has ended with a whimper.

Mao Zedong once said that in an uncertain world, the Chinese must “Dig tunnels deep, store grain everywhere and never seek hegemony.” That sort of siege mentality is coming back.

Anne Stevenson-Yang ( @doumenzi ) is a co-founder and the research director of J Capital Research, a stock analysis firm. She spent 25 years in China as an entrepreneur, analyst and trade advocate.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips . And here’s our email: [email protected] .

Follow The New York Times Opinion section on Facebook , Instagram , TikTok , WhatsApp , X and Threads .