Economy under siege

By Nirjal Dhungana  

The country’s economy is in doldrums. Practically speaking, almost all the sectors of the economy have been pushed into a tailspin.  Ambiguous policy incongruous with the basic tenets of liberal economy, paralyzing power shortage, wage dispute, and fast fading investor’s confidence can be attributed to the country’s gloomy economic performance. 

The historic political gains the country has achieved will not be sustainable if economic sector continues to flounder in crisis.

Recent industrial data poignantly mirrors the sorry state of the country’s economy. A string of political and non-political problems have forced some 78 industries situated in the 10 industrial estates -Balaju, Patan, Bhaktapur, Hetauda, Dharan, Nepalgunj, Pokhara, Butwal, Birendranagar and Rajbiraj- to halt their operation.

The abrupt closure of industries across the country has rendered some 70,000 people jobless. Exerts are fearing that the ongoing industrial crisis may unleash the flood of unemployment which in turn might jolt the current societal balance.

It is estimated industrial output plummeted by almost 1.05 percent in the first quarter of the current fiscal year compared to the same period last year. It can be safely predicted that the industrial sector will continue go downward hill due primarily to outrageous power cuts and swelling mistrust between employers and laborers.

Industrialists have been warning that that if the prevailing problems dogging the industries are not sorted out immediately, a large number of medium-range industries that are posting marginal profits will face debacle, rendering some 500 thousand people jobless.

This likely scenario will not only prevent both domestic and foreign direct investment in any venture, but it might also spark off an unprecedented industrial unrest. 

While talking specifically about the wage dispute, various trade union leaders are saying the reluctance on the part of industrialists to abide by the basic labour rights has stimulated them to launch protests for the sake of workers. On the other hand, the employers have been accusing that political parties are using their respective trade unions to create industrial anarchy to gain petty political advantages. 

In fact, the lack of a comprehensive labor law can be ascribed to the recent onset of wrangling between employers and employees. This has also inhibited the expansion of labour market. It won’t be imprudent to say that the rigid labour law has prevented the workers from widening the prospects to raise their incomes to comfortably meet their basic needs apart from discouraging investors to make new investments.

A host of provisions of the law are not conducive to a healthy and competitive industrial atmosphere.  For instance, the law makes it mandatory for those factory owners with more than 10 workers to grant the status of a ´permanent´ worker to anyone working in a factory after a 240-day probationary period. Moreover, the owners are not allowed to fire anyone unless and unless he/she commits acts of criminal offence.

Such unscientific provisions have only contributed to swell the cost of production, which, in turn, has eroded the competitive edge of domestic products in both domestic and international market.

As the workers are also finding it tough to meet their daily needs from their wages, the performance of the job market has been somber, to say the least. The industries are reeling under the yoke of inability to compete and even those labourers endowed with a permanent status are, no wonder, not getting enough remunerations to easily eke out their living.  

Hence, there is a glaring need of a well-conceptualized and flexible labor policy that assists the entrepreneurs to come up with innovative measures to create more wealth apart from helping the labourers to get enough perks and benefits to smoothly support their family. 

The flexible policy can well allow entrepreneurs to adjust their labor force in line with the fluctuations in demand with due layoff compensations.

Likewise, another grave challenge for the economy is a whopping inflation rate of over 14 percent. The failure on the part of the government to regulate retail markers has also somewhat contributed in swelling of inflation rate. 

Depressingly low expenditure in the development sector also does not augur well to the economy. Spending in development activities during the last six months of the current fiscal year has declined by 23 percent to Rs 7.8 billion against 10.28 billion recorded in the same period last year. If to believe credible reports, low capital expenditure in development activities is the output of slow works in big projects either due to shortage of power or escalating labor disputes.

Similarly, the global economic meltdown has also already started to hit the inflow of remittance-one of the major pile-drivers of the country’s economy. Majority of Nepali overseas workers are in Malaysia and Qatar and these countries have been drastically cutting recruitment of migrant Nepali workers. During the first four months of the current FY, the inflow of remittance has gone down by 40 percent in comparison to the corresponding period of the last year.   

The slum in remittance will adversely affect the spending in various activities that may eventually cast blight on the health of the country’s economy. 

In its budget presented for the fiscal year (FY) 2065/66, the Maoist-led government has set the target of registering around 7 percent economic growth. And, of course, the volume of revenue collected during the first four months of the current FY is encouraging. Nonetheless, it is hard to predict that the revenue collection will continue to gather momentum.

The obstruction created by trade unions in industries, terrible power shortage and the deteriorating business climate is bound to mar the industrial output, which, in turn, will negatively affect the revenue collection.

The current revenue policy also seems to be inclined towards discouraging those who produce more. This will, in all likelihood, will stifle the endeavors towards poverty reduction by deterring investments in commercial avenues. If we look at other countries, a flat tax rate of 10-15 percent has been successful in reducing the tax evasion and higher revenue collection. So, there is a conspicuous need to revamp the tax policy in a more scientific manner.

If the economy continues to get mismanaged like this, we would be even more dependent on foreign largesse.  The first step the government can take to really turnaround the economy could well be doing away with non-transparency, unaccountability and ambiguity while making decisions and taking actions.

After all, it is a value system that any democratic government should follow for the greater good of a nation and her people.  

The writer can be reached at dnirjal@mos.com.np

Have your say ! (Registration required)