Missed opportunitiesThe budget fails to create confidence in the private sector and encourage investment
Nepal has witnessed enormous transformation in both political and social spheres in the last 15 years. Leaving behind many centuries of existence as a Hindu constitutional state, with a Hindu monarch, the country adopted a social democratic republican constitution with a federal set up and commitment to secularism. When it came to social issues, the marginalised groups especially women, have been greatly empowered by the new constitution. However, economically Nepal has not achieved its desired goals. The main reason for our stagnant economy is the political instability, capped by ten years of violence during the Maoist insurgency. We have missed the South Asian and regional economic boom of the last twenty odd years.
Economic development and growth find top priority in election manifesto of all major political parties. The targeted GDP growth rate for this year is 8 percent, and the current government promises to double the per capita income in the next five years and create jobs for all within the country. However, are the targets set by this powerful government with two-third majority in Parliament backed by a clear policy guideline, adequate budget allocation or concrete programs?
Employment and income generating schemes are projected as tools for prosperity. Indeed, the budget will more likely be remembered in future for missing a great opportunity. The new fiscal budget has failed to create confidence in the private sector and encourage them to invest further in the country. Rather, the budget has relied excessively on inane distributionary policies to create jobs. As a result, it has rightly come under severe criticism for its lack of consistency, creativity and clarity.
The government could have moved differently. The primary aim of the recently enacted Labor Act 2018 is to protect and preserve the well-being of labour force while improving industrial relationship. The commitment has received green signal from both FNCCI and all trade unions. The guarantees and protectionist provisions for the work force are welcome but no thought is given to the inevitable countervailing costs and consequences. It is also difficult to understand why the government is hesitant to implement the Act and the related contribution-based Social Security Act which in tandem were supposed to provide lasting solutions for a workable employer-employee relationship. The delay in mobilising the Social Security Fund (SSF), which has more than NRs 20 billion in its account, also shows the government’s ineptitude.
Creating jobs in the private sector requires more imagination and smart policymaking. For example, all statistics indicate that the current state of the manufacturing industries is dismal. Long term investors are reluctant to invest in Nepal. As per report of the World Bank on ‘doing business’ Nepal is ranked 105thout of 190 economies and as per the same report enforcing contract in Nepal takes 910 days and costs 26.8 percent of overall claim value. The government must first find ways to remove such barriers for investment and consequent job opportunities.
The private sector expected a lot from the first budget of a strong and stable government, but to a large extent they have been let down. The taxes have gone up, even for the middle class. While the focus should have been to expand the tax base, we’ve resorted to increasing the tax rate. These provisions will be counterproductive and lead to greater preference for and dependence in the safer non-productive sectors.
For a jobless individual, any job that pays is a source of additional income. But the corporation or business needs to ensure safety and reasonable return on investment, for itself and the investors. The management will likely turn to alternative routes around the law, the grey area such as informal or part time employees to square up his profit and loss accounts, at the cost of the regular full time employees. This is the unintended consequence of an ill-conceived policy. Hence, we need to create a balance between the labourer’s well-being and assurance to the investors that his money is safe or returns adequate even after complying with existing rules and regulations.
Productivity is key
That leads us to the nature of new jobs we are trying to create. We need to focus on creating jobs not for the sake of jobs but to create new wealth for the economy. The Nobel Laureate Milton Freedman once visited China where Chinese delegates showed him a new canal-building project. Freedman asked why the workers were using shovels instead of bulldozers. When he was told that the project was actually about creating jobs, he suggested that the shovels be taken off and each labourer be provided a spoon to dig. Obviously, that would create far more jobs.
There is a lesson in this example for Nepal as well: wealth creation and prosperity is achieved when we create an environment for productive jobs even if a few jobs are lost in the short term. There should be sufficient room for aspiring entrepreneurs and innovators to try out new innovations and experiments. The government should incentivise such endeavours by promising forward looking institutions or startups.
The lack of concrete and cohesive strategy and foresight in the current programs of the government renders the ambitious target of creating half a million job unattainable. First of all, government’s Policy and Programs identifies public sector, rather than the private sector, as a major job creator. The flagship state programs for job creations are Prime Minister’s Employment Program (Rs. 3.1 billion) and Challenge Fund, both of which have their predecessors in the previous governments and were generally regarded as failures. With the state relying on the same old programs with questionable track record and ignoring the private sector, there is little hope for creating half a million jobs per year.
Anecdotal evidences suggest that capital intensive projects are preferred by the private sectors. This year alone, machineries imports have increased by about 60 percent and one explanation for this is that the private sector is replacing jobs with the machines in this climate of unclear labour laws and migration. The government budget clearly is unfamiliar with this changing context. Given the current state of lack of capability or sincerity on part of the government to deliver on its commitments, the chances of achieving its set goals are slim—a bridge too far.
Rana is former Minister of State for Finance and Nepali Congress leader