The great fallNepali leaders and India are both to blame for the dismal state of Nepali economy
There are many internal and external factors responsible for the terrible state of the Nepali economy. However, as a nation that is practically locked by India on three sides, external factors share a greater blame for the dismal economic state of affairs than internal ones. Unfortunately, Nepal seems to be incompetent to counter external pressures.
India plays a dominant economic role in Nepal as the latter imports around 60 percent of essential items and 100 percent of petroleum requirements from India. In addition, goods imported from third countries also have to enter Nepal through Indian transit points. Though Nepal is connected to China in the north, the mountainous terrain makes it difficult to transport goods.
And ever since India imposed a blockade on Nepal in support of the agitations in the Madhes, the latter’s economic dependence on its southern neighbour has been highlighted further. Yet, this is not the first time India imposed a blockade on Nepal. India first imposed a blockade back in 1969 after Nepal challenged the existing mutual security arrangements and demanded that the removal of Indian military mission from the country. Then in 1989, India imposed a blockade after Nepal allegedly purchased arms from China. And after each blockade, Nepali economy has spiralled downward.
Economic free fall
As in the past, the blockade and obstructions caused by the Madhesis have worsened matters for the millions of people who are still living in temporary shelters after the quake.
To put things in perspective, the economy was expected to grow at six percent in the current fiscal year after the declaration of new constitution. However, the Nepal Rastra Bank has now predicted that if the blockade continues till mid-January, the country could contract by 0.9 percent.
According to the Finance Ministry’s ‘White Paper on the Current Economic Situation and Immediate way Forward’ agricultural growth for Nepal is expected to be around one percent in the current year in contrast to two percent last year. And as imported chemical fertilisers, targeted for winter season crops, remain stuck at the border, the production of grains is also expected to drop. Industrial production growth which stood at three percent last year is expected to be negative this year. Similarly, the growth of service sector will remain at about three percent in the current year as opposed to six percent in the previous year.
The total number of tourists visiting Nepal this year through air routes is about 300,325 compared to 652,655 in 2014, a decline of 46 percent. Up to 75 percent of internal flights have also been reduced in this period. Worst of all, educational institutions remained closed for over 90 days only to be resumed sometime back in Bara, Parsa, Rautahat, Siraha, Saptari, Mahottari, Dhanusha and Sarlahi.
Even during normal times, India imposes non-tariff barriers and quotas on Nepali manufacturing items for entry into India. India has thus played a role in destroying the industrial base of Nepal after the two countries signed a trade treaty. Quantitative restrictions have been imposed on items such as vegetable fat (Vanaspati ghee) 100,000 metric tonne per year, acrylic yarn (10,000 metric tonne per year), copper products (10,000 metric tonne per year) and zinc oxide (2,500 metric tonne per year).
Establishing export-oriented industries is thus a risky venture in Nepal. Nepal cannot export more than the stated quantities to India. Therefore, numerous Nepali industries which were producing these items in higher quantity either shut down or reduced their production.
Border blockades, non-tariff barriers and quota impositions are visible and noticeable activities. However, there are also many non-visible activities which adversely affect the Nepali economy. For instance, every two years, the Indian Oil Corporation gives Nepal a hard time by not supplying fuel for months citing payment issues. The disruption of fuel supplies results in delay of mega projects—the Kathmandu-Nijgadh Fast Track Project, Second International Airport, Tribhuvan International Airport Upgradation Project. One can thus argue that India has negatively affected the overall development of Nepal.
Nepal has capacity to generate around 83,000 MW of hydropower. Yet, even after over 100 years since the establishment of the first hydropower plant in the country, Nepal has only been able to realise one percent of its hydropower potential. India, despite signing hydropower agreements with Nepal has not implemented any project so far. Slow implementation of Indian projects—Hulaki Highway Project, Inter-state Container Depot in selected customs points and Tarai Electric Railways—has also not helped.
Nepal is an unfortunate country. It can neither change its topography nor its neighbour. And India has a history of resorting to blockades to make a point undoing Nepal’s economic gains. Even so, the fault lies in the Nepali side too.
Nepali leaders have utterly failed to come up with a plan to reduce Nepal’s dependency on India. And Nepal is not the only landlocked country in the world to face such problems either. Yet, to hide their flaws, Nepali politicians are constantly argue that the country cannot do anything without the permission of its southern neighbour. It is high time leaders woke up from their slumber and devised a policy to counter Indian blockades and the resultant economic devastation.
Shrestha is a former Government of Nepal employee