VOL. 05, NO. 03, July 22, 2011 (Shrawan 06, 2068)

The jubilation of the private sector over the timely presentation of budget after three years of untimely ones turned out to be a short-lived one. They were alarmed with what they call ‘subtle and not-so-subtle’ shift in the focus of economic policies. Budget, they said, was committing a ‘misadventure’ by attempting to raise the state and cooperatives on equal footing with that of private players.

By SANJAYA DHAKAL

The wide consensus among the parties to pursue the ‘three-pillar economic policy’ of promoting private sector, cooperatives and government role in national development is starting to cause distress among the private sector.

Although the opposition to the policy adopted way back in 2007 in the interim constitution had been muted till now, the budget of 2011 has re-opened the debate in a fiercer manner.

Deputy Prime Minister and Finance Minister Bharat Mohan Adhikary outlined promoting the role of state, cooperatives and private sector as the major objective of the budget.

Coming from the government almost totally dominated by the communists, the policy sent shockwaves to the private sector already used to the open market economy followed actively since the political change of 1990s.

No wonder, the first point in the official reaction statement of the umbrella body of private sector – the Federation of Nepalese Chamber of Commerce and Industry (FNCCI) – to the budget was the expression of their anguish to ‘move towards controlled-regime.’

“It is quite clear from the budget that the government wants to increase the role of government and cooperatives. It is also clear that in the pretext of mixed economy and three-pillar policy, government wants to take the economy towards controlled regime,” states the FNCCI statement.

Private Role

At present, the country’s economy is dominated by the private sector. They contribute to almost 70 percent of the GDP followed by the government at around 28 percent and cooperatives sharing the remaining few percent.

Leaders of the ruling parties, who have openly backed the three-pillar policy, contend that the time has come to explore the possibility of promoting cooperatives particularly to create economic opportunities in rural areas.

They don’t, however, portray themselves as anti-private sector.

“It is inconceivable at this point to negate the role of private sector. But having said that, we must not forget that had the old policies worked well, we wouldn’t have seen conflicts and discontentment. Therefore, the current shift is towards promoting the coordinating role of the state in developing balanced economy,” said Surendra Pandey, former finance minister and a senior leader of the ruling Unified Marxist Leninist (UML).

But the private sector is not ready to buy that argument.

“Economic transformation of Nepal is impossible without open and liberal economy. The role of government should be limited to regulator and facilitator. Controlled regime could further worsen the economic crisis,” reads the FNCCI statement.

For Equitable Distribution

One logic the proponents of the policy shift present to strengthen their case is the failure of the market economy to address the problem of inequitable distribution of wealth.

They say that past experiments are ample proof why the country needs the shift in policy.

But the libertarians reject this logic. They disagree that government can ever distribute the wealth equally. “Poverty, yes they can distribute, but not wealth,” says Dr. Bhola Chalise, former secretary and an economist.

He says that the word equitable and equality are used as cover by the political parties to consolidate their hold over the population.

“It is the innate nature of human beings that they use their knowledge, art and skill. In the name of attaining equality, the parties want to suppress this quality and turn the population into pliant herd of cattle,” Dr. Chalise said.

But one thing is certain. The debate between the two will not provide any clear single winner. In fact, similar debate has been raging in the international arena since the global financial crisis was triggered in 2008.

Even the US government had to wear the cap of strict controller at some points to tame the financial distress.

Does that mean the mixed economy is the right recipe for Nepal? There is no clear answer yet. Country’s own experiment with mixed economy during Panchayat regime had not been successful.

Budget 2011
A Glance

After striking a deal with Madhesi parties, Deputy Prime Minister and Finance Minister Bharat Mohan Adhikary presented the budget for the fiscal year 2011/12 at the parliament on July 15.

He unveiled Rs 384.90 billion-strong budget – more by nearly Rs 50 billion compared to last year.

The budget has increased the salaries of hundreds of thousands of government employees by up to 43 percent.

The salary hike coming together with fuel price hike could further increase inflation in the coming year by double digit despite the budget projection of taming it at 7 percent.

“The budget focuses on production, investment and social justice,” said FM Adhikary.

The budget target is mainly dependent on handsome growth in revenue. This remains uncertain though.

In the fiscal year 2010/11, the government collected Rs 206 billion as revenue – short by Rs 10 billion from the target of Rs 216 billion. Undeterred by the decrease in revenue growth rate, this year the budget aims to collect Rs 241 billion as revenue.

If this target is not met, it could undo several other budget targets.

The budget has tried to relax the real estate sector by increasing the amount for which people need to show source.

But if the stiff opposition he faced before and during budget speech is sustained, the Finance Minister will be facing uphill task to implement the budget.

Budget 2011 In Figures

·         Total Outlay – Rs.384.9 billion
·         Regular expenditure – Rs 266.61 billion
·         Capital expenditure – Rs 72.61 billion
·         Financial Provisioning (Share and Loan Investment) – Rs 25.38 billion
·         Payment of debts/interests – Rs 20.30 billion
·         Revenue target – Rs 241.77 billion
·         Foreign grant – Rs 70.13 billion
·         Foreign loan – Rs 29.65 billion
·         Budget deficit – Rs 37.41 billion
·         GDP growth forecast – 5 percent
·         Inflation growth forecast – 7 percent