Nepal paradox

  • The economy should begin producing goods instead of only distributing and consuming them

Apr 29, 2014-The World Bank has a special term to describe Nepal’s economy. It is called the ‘Nepal paradox’, which implies an impressive reduction in poverty despite a modest economic performance. While this phrase can be expected to remain the most succinct explanation of the Nepali economy for sometime more, Nepal’s prospects look brighter than they ever have in the past six years.

According to the Central Bureau of Statistics’ (CBS) national account estimate report released on Monday, Nepal’s economy is expected to grow at 5.15 percent in the current fiscal year. This is the highest since the FY 2008-09, up from 3.5 percent growth in FY 2012-13. The services sector—retail and wholesale trade, hotels and restaurants, transportation, communication, education, health and real estate—is expected to grow at 6.13 percent. This is the main engine of growth. Following this is the primary sector—agriculture and forestry, along with fisheries and mining—which has been projected to grow at 4.71 percent. Construction, industries and electricity, gas and water, termed the secondary sector, is expected to contribute the least at a modest 2.69 percent increase.  

While the prospect of higher growth is welcome news for the economy, a few things could be a drag on growth. To begin with, agriculture is largely dependent on a good monsoon and timely supply of farming input. In case the monsoon is weak and there is a delay in the supply of fertilisers, as in 2013, the expected rise in paddy and maize production will not be attained. Furthermore, a dismal 1.86 percent estimated growth in the industrial sector is a cause for worry. Industries, unlike agriculture, are a more dependable source of growth and at the same time, generate mass employment. Additionally, they establish a chain of forward and backward linkages which have widespread effects. An increase in sugar production, for instance, could lead to a rise in sugarcane cultivation and benefit farmers who grow the crop. Likewise, an increase in sugar production could boost the making of sweet biscuits which utilise it as an input. The CBS report projects a decline in both sugar and biscuit production this year.

Furthermore, the projected growth rate, which is largely dependent on the service sector—wholesale and retail trade in particular—indicates a strong demand and market for goods. Returns on investment in industries look to be immense for the private sector. But this requires a boost in investors’ confidence, for which political stability is a must, followed by the need to resolve the most binding constraint to industrial growth—power shortage.

So the projected growth is only an indicator of the potential of the Nepali economy. For it to materialise into reality, there is a need to shift focus from mere distribution and consumption of goods and services to actually producing them. Only then can we defy the ‘Nepal paradox’.

Published: 30-04-2014 09:17

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