Nepal’s history is full of glory. Our ancestors shared the composition of the Vedas about 4,000 years ago. They gave the world Buddhism 2,500 years ago. They also developed world class architecture and spread it to China and beyond 700 years ago. They built trade routes across the Himalaya to trade with China and through malaria-infested jungles to trade with India. Nepal was a conduit for commerce between these two neighbours, and the Nepali people enjoyed an almost comparable living standard.

Things started spiralling downward in the India-Nepal-China corridor during the 19th and 20th centuries. Due to industrial and technological revolutions, Europe and North America emerged as the most powerful and wealthy world civilisations, eclipsing China and India. This negative external shock for Nepal was intensified by fighting among the ruling classes, both during the Shah and Rana dynasties. Today, China and India have bounced back. In 2016, China was the largest world economy accounting for 18 percent of global production and India’s share was 7 percent. 

Setting priorities

However, the desire of the Nepali people to see a prosperous Nepal remains a pipe dream. The living standard of Nepalis has never fallen as far down as it has now in comparison to the two immediate neighbours. In the 1980s, the people of all three countries had very similar levels of income. Fast forward to 2016, a Chinese earns asmuch as seven Nepalis and an Indian earns as much as three Nepalis. Nepal, which has been sharing the economic ebb and flow with its neighbours through history, now risks being left behind permanently. Can Nepal get on the bandwagon? Yes, it can. But the road is rocky as changes have to come from political parties and policymakers. They need to rise above their petty personal interests and carry out a wide range of policy changes with resolve and discipline, come hell or high water.

With these in place, China and India can provide a launching pad for Nepal’s prosperity. If Nepal can integrate with them in terms of mobility of goods, services and capital, and develop business connectivity, the opportunities are boundless. These countries, which house almost a quarter of the world’s people who are becoming richer at an unprecedented speed, can absorb limitless goods and services that Nepal can competitively supply, creating abundant jobs in the country. Also, Nepali companies can learn from the world class multinationals that China and India harbour. It is not by receiving their foreign aid but by winning their markets that Nepal can attain prosperity. 

For Nepal to be competitive vis-a-vis its neighbours, several policies are required. There are a minimum of five milestones that Nepal must pass. 

One, establish rule of law. The pervading lawlessness is a killer of enthusiasm, incentive, innovation and competition, dragging the economy down. Two, establish a better business climate than that of the neighbours. Considering the cost of trading, ease of doing business, cost of start-ups, corruption perceptions and global competitiveness, Nepal is a lot costlier than its neighbours in doing business. This policy-induced cost has hollowed out Nepal’s industry and diverted investors away. Three, scrap regulations and unlawful barriers that impede competition. Allow the huge potential that lies in the private sector to participate in economic activities without obstruction. Four, provide a decent standardised and publicly funded high school education to all. Produce high school and university graduates who are at least as good as those from Chinese and Indian universities. 

Finally, gear policies to address the following facts. Nepal’s problem is not the open border with India; it is the closed border with China. It is not ‘too much’ trade with India; it is nonexistence of trade with China. It is not created by Delhi or Beijing; it is created by Nepal. It is not Nepal’s relative size; it is its fear and inaction. It is not lack of resources; it is mismanagement. Considering its geo-location, while dealing with its neighbours, Nepal should swallow minor irritants and stick to policies that drive long-term prosperity. The aim should not be winning the debate of the day but winning their markets for a century. 

Barriers to prosperity

Nepali politicians do just the opposite of formulating policies that will make Nepal stronger in the long run, and instead, they triumph in short-term rhetoric. They exhaust their energy by praising the neighbours to the point of romanticising them or chastising them based on real or perceived notions of interference. Both these reactions make Nepal weaker. The more Nepali politicians act this way, the more barriers to Nepal’s prosperity they create. Economic prosperity is paramount. Had Nepal been an emerging country, the world would have noticed its historical jewels—a pioneer in philosophy, torchbearer of peace, technology facilitator, trailblazer of globalisation, bravery and honesty—and made it one of the most respected destinations in the world. Ironically, because of lack of opportunity, even Nepalis are finding it hard to work in their own country. Jewels are buried in the mist. 

Nepal should grasp its history, not to dwell on it, but to draw a right set of policies. It is long overdue that Nepal take charge of its glorious history by marching forward towards economic prosperity. If ever there was a time of reckoning, action and accountability for Nepali politicians, it is now. Otherwise the forces that are stepping stones for Nepal’s prosperity may turn out to be stumbling blocks.

Acharya is an economist