Bringing Economy Back from the Brink

Never before has any finance minister been forced to prepare a budget with an acute scarcity of financial resources as Dr. Mahat.

the HRM

Drafting a federal budget has always been a hefty task as the Minister for Finance has to take care of the aspirations of many. From political head honchos to local-level leaders, from the private sector to civil service employees, all want their interests and issues to be served by the government’s fiscal policy.

As Finance Minister Dr. Prakash Saran Mahat and his budget team enter into the final leg of the drafting of the federal budget for the next fiscal year 2023/24, there have never been challenges surrounding the economy more serious than before. Never before has any finance minister been forced to prepare a budget with an acute scarcity of financial resources as Dr. Mahat.

In the last three years, the country’s economy has remained in the doldrums stemming from the Covid-19 pandemic. The past one and a half years have been exceptionally hard with the external sector imbalance hitting the economy in the last fiscal year and a serious imbalance in expenditure management and public finance management in the current fiscal year.

The fact that the Finance Ministry in a mid-term review of the budget slashed recurrent expenditure by 20 percent is evidence of the widening gap between the income and expenditure of the federal government.

The mishandling of the economy, especially during the tenure of Janardan Sharma as finance minister, the bringing of populist programs in the current fiscal year budget, the sluggishness in revenue collection, and import restrictions coupled with rising interest rates have crippled the country’s economy.

Given the scarcity of resources, mainly due to the sharp decline in revenue collection, the government cannot do much even if it wants in the upcoming federal budget. For the first time since the fiscal year 1967/68 that the country has witnessed negative growth in revenue collection.

Despite clear indications of possible difficulties in revenue collection, the then finance minister Sharma brought the FY 2022/23 federal budget with a number of populist programs, including raising the salary of government staff by 15 percent and lowering the eligibility age for receiving an elderly allowance to 68 years from 70 years. The salary increments and lowering of the eligibility age for the elderly allowance created an additional liability of around Rs 76 billion in the current fiscal year alone. He was also not logical enough to set the economic growth target of 7 percent which was unachievable given the adverse national and international scenarios.

In the last five years of federalism practice in Nepal, the Ministry of Finance has been facing huge pressure to accommodate as many projects proposed by local government, provincial governments, lawmakers, and top leaders. The magnitude of the pressure can be gauged by the fact that the National Planning Commission (NPC) had received a total of 4,005 projects totaling Rs 142 billion from the local and provincial governments. Of these, the NPC selected only 20 percent, or around 800 projects for complementary and special grants.

Economists say that given the state of the economy, the finance minister must control the temptation of increasing the size of public expenditure. According to them, the size of the next year’s budget should be kept lower than the current fiscal year without affecting the overall economic objective. If the weaknesses created and institutionalized by the previous minister in the revenue administration are corrected, the revenue growth rate could return to its natural pace in the next fiscal year, say analysts.

According to economists, the success of Dr. Mahat as the finance minister depends on new policy arrangements to institutionalize balanced public finances. They agree it is imperative to rationalize the scope, and periodical increase of social security allowances, which have been used as tools for political gains till now.

“The priority for the next budget should be to streamline both revenue and expenditure. This means that the government needs to identify all resources and ensure that revenue is collected effectively. Similarly, expenditure needs to be managed efficiently to ensure that projects are implemented in a timely manner and deliver tangible results. It is also important to examine the effectiveness of current policies aimed at stimulating economic growth,” said Nara Bahadur Thapa, former Executive Director of Nepal Rastra Bank.

Managing the resources prudently has become of utmost importance for now as the government has been able to collect revenue just over 50 percent of the target. With revenue of Rs 2.5 billion being collected on a daily basis, it looks quite impossible to meet the revenue collection target in the last two months remaining in the current fiscal year.

With the expenditure fast exceeding the income, the country’s treasury has been pushed into a deep fiscal imbalance forcing the government to slash amounts allocated to development and recurrent expenditures in the current fiscal year’s budget. The federal government has cut 50 percent of the third installment of the financial equalization grants to be provided to the provincial and local governments.

According to the Pension Management Office, the payments of pensions to 18,000 teachers for Chaitra month (mid-March-Mid-April) got delayed due to inadequacy of the budget because the government had budgeted around Rs 55 billion against the requirement of around Rs 75 billion.

There is a consensus among economists that there is no possibility to increase the revenue estimate for the next fiscal year given the precarious state of revenue collection in the current fiscal year. They say, if there is no increase in revenue, there will be no space to bring more programs.

Economist Keshav Acharya says that in order to improve revenue collection, the budget should prioritize policies that increase revenue. A reorganization of the bureaucracy is necessary to improve capital expenditure, but the size of the capital expenditure should not be increased. “The bureaucracy should be mobilized in such a way that there is less leakage of revenue,” he said.

The current problem of resource mismatch, according to economists, is mainly due to the trend of introducing a bloated budget every year. “In the past, the government has brought in bloated budgets, only to cut them down after six months. Therefore, the government must be realistic when introducing the annual budget. In the next fiscal year, the government should aim to reduce expenses at any cost, while still building national pride projects,” said economist Govind Nepal.

Relooking taxing models
The government has been facing a significant challenge in ensuring that its revenue collection is efficient and effective. In recent years, there has been a significant leakage in revenue threatening the country’s financial stability.

One of the key areas where the government needs to relook its policies is the taxing model, according to the economists the HRM talked to. Economists have pointed out that the current Value Added Tax (VAT) refund policy of 13 percent is only benefiting big business houses. This policy is not helping small businesses or the economy as a whole.

Additionally, subsidies for export have not been of much help to boost domestic production. Instead, many import subsidies given to business houses are affecting the production of Nepal. To address these issues, the Finance Ministry needs to re-evaluate its taxing policies. The government should revoke the import subsidies and other tax exemptions that are not beneficial to the economy, they said. These policies have only resulted in a revenue loss of Rs. 150 billion, according to a recent report by the Auditor General.

The exemptions did not benefit the consumers in any way. It is, therefore, prudent for the government to eliminate tax exemptions from the next fiscal year onwards. This will help in increasing revenue and ensuring that the country’s financial stability is maintained, say experts.

“While the government offers a 13 percent VAT refund, it appears that only large business houses are benefiting from this policy, while consumers are not receiving any tangible benefits. Therefore, it is essential to restructure policies to ensure that they are effectively targeting the desired outcomes. This might involve reconsidering the criteria for eligibility to benefit from these policies or finding new ways to support smaller businesses and ordinary consumers. Ultimately, the goal should be to ensure that all citizens are able to benefit from the government’s economic policies and that the country as a whole is able to thrive,” said Thapa.

According to him, in times of crisis or even in normal circumstances, it is important for the government to ensure that tax policies are implemented effectively and equitably and it is not logical for VAT to be levied on poor people while rebates are given to rich businesspersons. “Therefore, it may be necessary to reconsider current policies and eliminate any subsidies, rebates, or tax incentives that are not serving their intended purpose or are not contributing to the economy. Revoking these rebates and subsidies could lead to an increase in revenue collection of up to Rs 300 billion,” he said, adding, “This would provide a much-needed boost to the government’s coffers, which could then be used to fund priority projects and initiatives aimed at stimulating economic growth and creating jobs.”

Prioritizing national pride projects
It is important for the government to prioritize certain national pride projects in the face of resource constraints. With limited funds and time, it is simply not feasible to allocate resources to all such projects, say economists. According to them, it is essential that the government prioritize projects that align with the goals and reflect the values of the nation. While the government has allocated a substantial budget to national pride projects in recent years, the quality of these projects has been largely unchecked and unmonitored. To address this issue, the government should implement a system of checks and balances to ensure that these projects meet certain quality standards and are executed in a timely and efficient manner, they say.

“The government also needs to prioritize national pride projects, but with extreme monitoring to ensure that there is no corruption or delays. These projects can help to boost economic growth and create jobs, but it is important that they are implemented in a transparent and responsible manner,” said Thapa.

The economists who talked to the HRM pointed out Sikta Irrigation Project and Gautam Buddha International Airport as ‘wasted projects’.

The construction of the Sikta Irrigation Project began in 2004, with the aim of irrigating around 43,000 hectares of arable land in the Banke district. The government spent nearly Rs 14 billion and close to two decades on this project. However, the project suffered major setbacks when the main canal was heavily damaged at various sections of a 5 km segment of the 45 km channel in June 2016 and July 2018 during test runs. However, the Apex Court recently deemed the dissoluble soil in the project area responsible for the failure of the project.

Likewise, the Bhairahawa-based Gautam Buddha International Airport was built with an investment of USD 76.1 million. However, the mega project has failed to attract international airlines, and the airport wears a deserted look.

“In the next fiscal year, the government should aim to reduce expenses at any cost, while still building national pride projects. Priority projects should be identified from the national pride projects, and budget allocation should be made accordingly. Some projects could be postponed for a year or two,” said Nepal.

It is a widely acknowledged fact that national pride projects have often been marred by poor quality and rampant corruption. Delays in the execution of these projects have also led to a significant increase in their costs. In light of these challenges, Dr. Dilli Raj Khanal says that it is essential that the government prioritize its investments in national pride projects based on rigorous analysis of the expected return on investment. “Instead of investing in national pride projects haphazardly, the government should focus on prioritizing two to three projects per year that align with the nation’s values and promote its identity. By investing all of its efforts and resources into a select few projects, the government can ensure that they are completed on time and within budget,” he suggested. To prevent the mismanagement of funds and the occurrence of corruption, the government should establish a system of oversight and accountability for these projects.”

Taking the private sector into confidence
It is crucial for the government to take the private sector into confidence and work collaboratively to address the current economic challenges. With demand for goods and services in the market dwindling and credit expansion falling, economic growth has been slow, with the government having to slash its growth target from 8 percent to 4.5 percent. The World Bank and the ADB have also projected Nepal’s growth to be below 5 percent, highlighting the need for urgent action.

The private sector is a critical driver of economic growth and job creation, and the government must work closely with businesses to create an environment that supports their growth and success. One of the significant challenges faced by businesses, such as the automobile industry, is the lack of economic activities in the market. This has resulted in businesses being hesitant to clear customs of vehicles, as they do not see sufficient demand to justify bringing them in.

To boost the confidence of the private sector, the government must implement policies that support businesses and encourage investment. This could include measures such as providing tax incentives for businesses that invest in research and development, simplifying regulatory processes, and investing in infrastructure to create a more conducive business environment.

Business community members say the government must also prioritize the development of sectors with high growth potential, such as tourism and technology, to diversify the economy and reduce its dependence on traditional sectors. They ask the government to take urgent action to address the current economic challenges and work closely with the private sector to promote growth and job creation. They say that by implementing policies that support businesses and create a conducive business environment, the government can boost confidence in the private sector, encourage investment, and drive economic growth.

According to Pashupati Murarka, former President of the Federation of Nepalese Chambers of Commerce and Industry, the major problem of the economy is that there is very little money flowing into the market currently. “When you ask anybody, from the general public to big corporate houses, nobody has money. Why has this happened? It is because the government has failed to increase the money supply in the market,” he said.

“To increase the money supply, the capital expenditure must be increased. This is the least expectation of the private sector for now. The government is the biggest buyer, and when capital expenditure is improved, money is properly supplied to the market through contractors,” he added.

The capital budget allocated for the current fiscal year is Rs 380.38 billion. So far, about 27 percent of the budget has been spent. The progress of the capital budget expenditure in the first and second quarters was very low. Although the expenditure has increased from the third quarter, the government now needs to spend Rs 277 billion capital budget in the remaining three months.

Remodeling social security allowances
The current social security system in Nepal, with its 76 different schemes spread across 10 different ministries, has become a significant burden on the government’s finances. While social protection is essential, the non-contribution-based social security model that Nepal employs has been increasingly costly to maintain, economists say. As per the World Bank report, Nepal has been spending 1.7 percent of its GDP on social protection, which is higher than the South Asian and global averages.

The government has been struggling to allocate funds for social protection programs, and their budgets keep increasing every year. The allocation for social security allowances alone was Rs 100 billion in the fiscal year 2021/22, a significant increase from previous years. The burden of non-contribution-based social security has only increased with time, and the government is facing a huge financial burden in managing these programs.

Economists and business community members say revisiting the social security scheme has become crucial in times like these. According to them, while providing social protection to needy citizens is necessary, the government needs to explore more sustainable and cost-effective ways of providing it, and the current model needs to be reconsidered to ensure that it remains financially viable and meets the needs of the population. The government may need to explore options such as contribution-based social security systems, public-private partnerships, or other innovative models to ensure that social protection is accessible and sustainable in the long run, they say.

“The social security scheme in Nepal has, unfortunately, become a tool for politicians to lure votes from the people. The system has been exploited, and people who do not genuinely need social protection have been taking advantage of it. For instance, it is not uncommon to find people with a house in Kathmandu, which they rent out, claiming old age allowance, which is a significant problem,” said Nepal. “This culture of expecting easy and free money from the government needs to be addressed. The government must ensure that the social security system is not misused and that only those who genuinely need it receive support. It is crucial to have a strong central bureau of statistics that can collect data on who needs government support and who does not.”

Economists say the government must identify the genuinely needy groups and provide them with the necessary support and take away the protection from those who do not require it. This will ensure that resources are allocated appropriately, and the social security system remains effective and sustainable.

According to some economists, the old age allowance provided by the government should be given to people above the age of 75 years instead of the current age limit of 68 years. This is because at the age of 72-75 years, people become economically inactive, and it would be an ideal time to provide them with support. Instead of providing an allowance at the age of 68 years, the government could consider providing support to the elderly in terms of healthcare. As people age, they require more medical attention, and the cost of healthcare can be a significant burden on their finances. Therefore, providing healthcare support to the elderly would be an effective way to assist them during their non-economic years.

Cutting unnecessary expenses
In Nepa, the government’s spending decisions have always come under scrutiny. For instance, the allocation of Rs 7.5 billion for the Prime Minister’s Employment Program last year was questioned due to its effectiveness. Despite being announced to provide employment opportunities to 200,000 people for 100 days, the program has only provided employment to 171,000 people for just 71 days, with reports of menial tasks such as weeding and gardening.

Similarly, the decision to distribute Rs 200,000 each to former combatants of the then People’s Liberation Army who were not eligible for integration into the Nepal Army and other security services has added at least Rs 800 million to the state coffer at a time when the country is going through an economic crisis. These actions raise concerns about unnecessary spending by the government.

According to Dr. Khanal, unnecessary expenses should be reduced, and social security allowances could be lessened in a way that ensures that needy people are not hit. “Nepal can save an extra Rs 3 billion by reducing unnecessary spending,” he said.

Economists also urged the government to check the hefty expenses it has been spending on the medical treatment of VIPs abroad. Recently, President Ram Chandra Paudel was sent to India for treatment, and reports suggest that the total bill for his treatment amounted to over Rs 20 million. This situation raises concerns about the disproportionate allocation of healthcare resources in Nepal. “While the country faces a range of pressing healthcare challenges, including a shortage of medical personnel and facilities, it appears that a significant portion of the healthcare budget is being spent on the medical needs of VIPs,” said Khanal. “If the treatments could be done in Nepal, a huge amount can be saved.”

Prioritizing agricultural sector
Despite relying on agriculture as the primary source of livelihood for 50% of its population, Nepal heavily depends on imported agricultural products. This has resulted in billions of dollars flowing out of the country to countries such as India, Ukraine, and the United States. To address this situation, Nepal needs to introduce policies that promote agriculture and reduce reliance on imported agricultural products.

One way to achieve this is by increasing investment in the agricultural sector. This can be done by providing farmers with better access to finance, modernizing agriculture technologies, and introducing incentives to promote agriculture. The government can provide subsidies on fertilizers, seeds, and irrigation facilities to help farmers increase their yields and reduce reliance on imported products.

“After that, the government needs to work towards centralizing the collection of agricultural products, which can help reduce imports of goods from India and promote the consumption of domestically produced agricultural products. This can not only help to reduce the trade deficit but also support local farmers and promote agricultural growth in the country,” said Thapa.

Another strategy could be to develop agro-based industries to process and add value to locally produced agricultural products. This can create jobs and boost the economy while also reducing the need for imported products. “The government can work towards strengthening the agricultural supply chain, including transportation and storage facilities. This can ensure that locally produced agricultural products reach markets in a timely manner and reduce the need for imported products,” said Thapa.

According to Murarka, to ensure sustainable growth, domestic production must be increased, particularly in the agriculture sector. “This can be achieved by investing in agriculture, which will not only increase production but also save significant amounts of money currently spent on importing agricultural products from India,” he opined. “Given that around 50 percent of Nepal’s population relies on agriculture, there needs to be an agro-friendly policy that supports farmers. However, one of the biggest ironies in Nepal is that despite being an agricultural nation, farmers do not receive fertilizers on time, which negatively impacts agricultural production.”

According to him, Nepal’s lack of modern technology limits crop yields to one harvest per year, whereas developing and developed countries can harvest crops up to three times a year. “If Nepal can modernize its agricultural sector, it can become self-sufficient in food production,” he said.

Supporting SMEs
The Covid-19 pandemic has dealt a severe blow to Nepal’s small and medium enterprises (SMEs), and the current economic woes have only added to their struggles. Many SMEs are struggling to stay afloat due to a lack of business and the inability to pay rent. For SME owners, access to loans has become increasingly difficult which has only exacerbated the situation and led to many businesses closing down.

According to Thapa, it is clear that Nepal’s economy faces a number of challenges, particularly when it comes to supporting SMEs. “While big business houses often receive the lion’s share of government support, SMEs are frequently left to fend for themselves and may struggle to access the resources and support they need to succeed,” he said, adding, “To address this issue, the government should consider introducing targeted subsidies and benefits that are designed specifically to support SMEs. This could include measures such as tax breaks, access to funding, and support for training and development programs.”

He is of the view that by providing these types of resources, the government can help to level the playing field for SMEs and create a more supportive environment for them to grow and thrive. “In addition to these measures, the government can also ease access to modern technologies and services that can help SMEs to become more productive and efficient,” suggested Thapa. “For example, the government could work with private sector providers to set up factories or provide other infrastructure that SMEs can use to improve their operations. By doing so, the government can help to create a more supportive environment for SMEs, and promote the growth and development of these critical contributors to Nepal’s economy.”

Taxation without research has also threatened the existence of SMEs. For example, the government levied taxes on domestic sanitary products while making sanitary pads imported from India tax-free. As a result, domestic products were unable to compete with Indian brands, leading to the closure of 22 domestic industries. According to DB Basnet, Chairperson of the Cottage and Small Scale Industry Committee of the Federation of Nepalese Chambers of Commerce and Industry, the SME sector has been severely impacted by the series of unfortunate events in the last three years, with many firms closing down and there is little hope for the revival of such businesses in the foreseeable future.

“Although the government introduces programs for SMEs every year, none of them are effectively implemented. This is troubling, as the SME sector is a significant source of job opportunities for a large number of people, and without government support during times of crisis, many are losing their jobs,” said Basnet, adding, “Unfortunately, it appears that the government is not fully committed to the success of the SME sector. For example, the government levied taxes on domestic sanitary products while making sanitary pads imported from India tax-free.” As a result, domestic products were unable to compete with Indian brands, leading to the closure of 22 domestic industries. According to Basnet, this policy decision has adversely affected the SME sector, and it shows that the government is not prioritizing the growth and success of local businesses.

“Streamlining revenue and expenditure should be the priority”

Nara Bahadur Thapa, Former Executive Director, Nepal Rastra Bank

The government should prioritize streamlining revenue and expenditure in the upcoming fiscal year›s budget. This means the government needs to identify all revenue sources and ensure that they are being collected effectively. Similarly, expenditure needs to be managed efficiently to ensure that projects are implemented in a timely manner and deliver tangible results. It is also important to examine the effectiveness of current policies aimed at stimulating the economy. For example, it is important to see whether these measures related to tax relaxations and rebates are actually helping to increase production. While the government provides the VAT refund facility, it appears that only large business houses are benefiting from this policy while consumers are not receiving any tangible benefits. Therefore, it is essential to restructure policies to ensure that they are effectively targeting the desired outcomes. This might involve reconsidering the criteria for eligibility to benefit from these policies or finding new ways to support smaller businesses and ordinary consumers. Ultimately, the goal should be to ensure that all citizens are able to benefit from the government›s economic policies and that the country as a whole can thrive.

Given the current state of the economy, it is particularly important to review these policies to ensure that they are not putting undue strain on the government’s finances. Revoking the tax rebates and subsidies could lead to an increase in revenue collection of up to Rs 300 billion. This would provide a much-needed boost to the government’s coffers, which could then be used to fund priority projects and initiatives aimed at stimulating economic growth and creating jobs. By doing so, the government could ensure that it is using its resources effectively to benefit all citizens, rather than providing unnecessary benefits to a select few.

It is clear that Nepal’s economy faces a number of challenges, particularly when it comes to supporting small and medium-sized enterprises (SMEs). While big business houses often receive the lion’s share of government support, SMEs are frequently left to fend for themselves and may struggle to access the resources and support they need to succeed. To address this issue, the government should consider introducing targeted subsidies and benefits that are designed specifically to support SMEs. This could include measures such as tax breaks, access to funding, and support for training and development programs. In addition to these measures, the government can also ease access to modern technologies and services that can help SMEs to become more productive and efficient. For example, the government could work with private sector providers to set up factories or provide other infrastructure that SMEs can use to improve their operations.

Investment is key to driving economic growth and creating jobs. The government needs to focus on developing critical infrastructure, such as reliable electricity and good roads, to support industries and promote the movement of goods and services. One way to achieve this is by allocating a significant portion of the budget towards improving the quality of electricity supply in major industrial estates. This would not only benefit large businesses but also small and medium-sized enterprises that rely on a consistent and reliable source of power to operate.

The government needs to work towards centralizing the collection of agricultural products, which can help reduce imports of agri goods and promote the consumption of domestically produced agricultural products.

By digitalizing services and making them more accessible to the general public, the government can increase revenue collection and reduce leakage. This would not only provide much-needed funds for capital expenditure but also help to create a more efficient and transparent tax system. The government also needs to prioritize national pride projects, but with extreme monitoring to ensure that there is no corruption or delays. These projects can help to boost economic growth and create jobs, but it is important that they are implemented in a transparent and responsible manner.

The government should also ensure that financial discipline is maintained and that loans are invested only in the proposed sector, as this can help to bring SMEs under the law and promote growth in this vital sector. Overall, efficient resource management and investment in critical infrastructure and projects are necessary for driving economic growth and creating jobs in Nepal. The government must prioritize transparency and accountability in all its actions, and work towards creating a more equitable and prosperous society for all Nepalis.

It will be prudent to abolish tax exemptions from the next fiscal year onwards

Keshav Acharya, Former Executive Director, Nepal Rastra Bank

To improve revenue collection, the budget should prioritize policies that can 6+increase revenue. A reorganization of the bureaucracy is necessary to improve capital expenditure, but the size of the capital expenditure should not be increased unnecessarily due to the resource crunch. It is important that existing resources are utilized effectively. Additionally, the constitution provides local bodies with the authority to collect taxes on various subjects. However, these bodies have only been collecting taxes on aggregate goods. To improve revenue collection, local bodies should explore other areas where they can levy taxes as per the constitutional arrangements.

According to a recent report from the Office of the Auditor General, the government incurred a loss of Rs 150 billion due to tax exemptions and rebates. Unfortunately, these exemptions did not benefit the consumers in any way. As a solution, it will be prudent to abolish tax exemptions from the next fiscal year onwards.

Furthermore, the government needs to focus on increasing foreign aid rapidly, but there appears to be a lack of will to do so. For example, the Chinese government is willing to invest a significant amount of money in road projects in Kathmandu and elsewhere. However, there are complications such as the presence of electric poles and issues surrounding land acquisition that need to be resolved before the Chinese will commit to funding the projects.

Important for the govt to be realistic when announcing the annual budget

Dr. Govind Nepal, Economicst

The management of resources is currently a significant problem for the government, as revenue collection has declined dramatically. Due to economic activities shrinking, revenue collection has suffered, and therefore the government’s current target should be to gain the confidence of the private sector and consumers.

In the past, the government has brought in bloated budgets, only to cut them down after six months. Therefore, it is important for the government to be realistic when announcing the annual budget. In the next fiscal year, the government should aim to reduce expenses at any cost, while still building national pride projects. Priority projects should be identified from the national pride projects, and budget allocation should be made accordingly. Some projects could be postponed for a year or two.

The subsidies provided by the government should be reflected in output. For example, subsidies for exports and agriculture have been provided, but production has not increased. Therefore, mechanisms should be implemented to identify whether subsidies are being utilized effectively and whether production is increasing.
The government has recently lowered the age requirement for receiving old age allowance to 68 years. This allowance has been used as a tool for political parties to gain votes, but the government is currently facing difficulties in paying pensions and salaries. Therefore, at such times, the approach should be to cut expenses across the board.

Focus should be on increasing industrial and agricultural productivity

Pashupati Muraraka, Former president, FNCCI

As the government is the largest purchaser in the market, increasing capital expenditure can boost the economy by infusing money into the financial system. However, to ensure sustainable growth, internal production must be increased, particularly in the agriculture sector. This can be achieved by investing in agriculture, which will not only increase production but also save significant amounts of money currently spent on importing agricultural products from India.

Given that around 50 percent of Nepal’s population still relies on agriculture, there needs to be an agro-friendly policy that supports farmers.

However, one of the biggest ironies in Nepal is that despite being an agricultural nation, farmers do not receive fertilizers on time, which negatively impacts agricultural production. Furthermore, Nepal’s lack of modern technology limits crop yields to one harvest per year, whereas foreign countries can harvest crops up to three times a year. If Nepal can modernize its agricultural sector, it can become self-sufficient in food production.

The government’s claim of increasing electricity production is commendable, but it fails to provide adequate power to industries. This creates obstacles for private-sector production which ultimately increases the price of goods. To increase production and ensure competitiveness, the government must prioritize providing uninterrupted electricity to industries.