In the last three months, Nepal hosted three mega summits: the Power Summit, the Infrastructure Summit and the Investment Summit. The central message was that Nepal needs to attract foreign investment to overcome infrastructure deficits and attain the desired double digit economic growth rate. Political forces also reiterated their support for this initiative, and committed to facilitating the investment process in the priority sectors of energy, agriculture, tourism and infrastructure. 

Is FDI enough?

Investors from eight countries pledged investments totalling $13.5 billion in the Investment Summit. The question is whether an inflow of FDI alone will trigger the economic take off required to attain and maintain a double digit economic growth rate. It is necessary to sustain this growth rate for a decade for Nepal to be a middle-income country by 2022. 

From the beginning of modern Nepal, the economy has been subject to political transitions. All political systems have been unable to address the structural problems impeding economic growth. While reforms in the early 1990s were instrumental in effecting positive change, they neglected to address problems of land use patterns and rent-seeking mentality. Thus, government policies have been unable to match people’s expectations. Perhaps the second generation of reform initiatives currently underway will do better. 

While policy reform initiatives are undoubtedly a foundation for economic development, they are not enough. These policy reform initiatives need to be accompanied by a change in the deep-rooted structural socio-economic Nepali mindsets. The lahure mentality of Nepali society is ever present. In earlier days, youths used to leave for India in the hope of military recruitment, or for employment in the Indian labour market. Now, they aspire to leave for South Korea, Japan, Europe and America, or to get a job in the Middle East and Malaysia. There are few incentives for young people to stay in Nepal.

Despite exponential technological advancements and the creation of efficient tools for agriculture activities, Nepal’s agriculture sector remains at the subsistence level. Tools for commercialising agriculture and starting agro-businesses are unfeasible when people in the Tarai lack simple irrigation systems. And although pompous slogans abound in the tourism sector, there are no well-planned tourist destinations. Trekking routes lack standard safety measures, and historic places such as the Gorkha Durbar, Lamjung Durbar, and the Janaki Mandir are in a state of dilapidation. 

No clear policy frameworks

Nepal is beset by numerous problems that hinder prosperity; almost everyone from bureaucratic, political, academic and development sectors can pinpoint different obstacles. What’s more, everyone has a set of recommendations on how the country should be developed, and everyone believes that there is someone to blame. Several development partners and academicians have made policy recommendations that the government is trying to implement; however, this has not yet helped to accelerate economic development. National pride projects have been delayed, capital expenditure is low and the productive sector is sluggish. Large sections of the society are disappointed with the governance of Nepal’s current political parties, and claim that they are responsible for the sad state of affairs. However, the emergence of some new political parties with fresh leadership has led to renewed political initiatives. 

Recent discussions have proposed ways to bring in billions of FDI in diverse sectors, highlighting the fact that these investments could complement the goal of economic development. These discussions focus on Nepal becoming a ‘bridge’ between China and India, thus establishing a trilateral mechanism for cooperation among the three countries. This would facilitate Nepal’s participation in China’s One-Belt, One-Road (OBOR) initiative and create a regional energy cooperation mechanism in South Asia. These are external factors that could accelerate the economic growth rate; however, none of these are in the implementation phase. The government lacks a clear framework to execute plans connected with foreign policy. Though the economy is in need of an immediate push, the implementation of these mechanisms and the subsequent results seem distant. 

Behavioural perspective

Against this backdrop, it is important to focus on one particular area to bring about change so as to embark on the road to economic prosperity. This entails an understanding of Nepal’s current problems from the perspective of behavioural economics. The reason behind this proposition is the fact that Nepal’s development activities have been in limbo, not due to the lack of resources, but because of the behavioural tendencies of Nepal’s politicians, bureaucrats, development workers and citizens. I am drawing this conclusion based on my visits to over two dozen districts in the last three months, during which I interacted with local people, representatives from local government bodies, and development workers at the ground level. 

People at the local level have a tendency of staying idle, with the expectations that the state will provide something. However, the state often fails to meet even the basic expectations of these people. Instead of initiating and participating in ‘doable’ activities, individuals and communities have a proclivity for refraining from such enterprises expecting things to be done by the government. While it is the responsibility of the government to meet the expectations of its citizens to a certain level, there is an increasing reliance on the state to do everything, from keeping 

communities clean to building small infrastructure. 

Political instability and corrupt leaders are the main causes of Nepal’s socio economic backwardness. Leaders and politicians exhibit a general lack of responsibility towards the nation’s economic development. One of the reasons behind this mindset could be that the incentive structures have been distorted right from the beginning, with the opening up of the economy in the early 1990s. While some development initiatives have been taken by the people, such initiatives are on a very minimal scale. The inflow of FDI and the resultant development of infrastructure will certainly lead the country towards economic development. But behavioural change in our public and private sectors are prerequisites for such advancements. 

Nepal’s development bottleneck is not due to a lack of resources or policies per se. It is largely owing to the behavioural problems plaguing our leaders, bureaucrats and people in general. A large number of improvements could be made efficiently, and without state intervention. Development is a matter of conscious realisation where every individual works to improve the larger society. In the absence of this conscious realisation, nothing can help. 

Poudel is a political-economist associated with Think INChina, Asia