Spiraling out of control
- For a country that was already reeling under the strains caused by the earthquakes, recuperating from yet another crisis so soon will prove exceedingly difficult
Nov 7, 2015-The ongoing Tarai protests and the unofficial blockade imposed by India, which started with the obstruction of petroleum inflow into the country, is now having a knock-on effect on almost every sector of the economy.
Nepal is currently in the midst of a three-month-long Tarai protest and over a month of the Indian blockade. Owing to the crisis, compared to the 350 petroleum tankers and 42 bullets that Nepal had been importing from India on a daily basis, the country is now receiving only an average of 30-35 tankers and 3-5 gas bullets.
India’s obstruction is not only limited to the supply of petroleum; similar restrictions have been imposed on the shipment of cargo that are sourced from India as well as third countries. Based on the report that India presented recently at the United Nations Human Right Convention, held in Geneva, there are over 6,900 trucks/containers stuck at six, out of the 10, border points the two countries share. As per the report, 4,800 loaded trucks are stuck just at the Birgunj-Raxaul border.Huge swathes of the Tarai have now remained closed for almost 80 days. This
geographical region, which encompasses 20 of the nation’s 75 districts, contributes to a lion’s share of the Nepali economy. The region accounts for 59 percent of the country’s GDP, 76 percent of government revenues, 66 percent of the total cultivable land, 57 percent of cereal-crop production and two-thirds of the nation’s industrial output. It’s no wonder then that when such a region gets shuttered, the ramifications are felt across the entire nation.
Macroeconomic Indicators Dip
Economist Madan Kumar Dahal says that already the adverse effects on Nepalis’ income levels and on entrepreneurs’ profit and investment figures have started to become discernible. According to Dahal, the situation could cause a ‘low-level equilibrium trap’, which will leave the economy in a vicious cycle of poverty and stagnation.
What’s more, for a country that was already reeling under the strains caused by the recent earthquakes, recuperating from yet another crisis so soon will prove exceedingly difficult. The cumulative loss from the blockade is expected to surpass the seven billion dollar hit the Nepali economy took after the April 25 earthquakes. The government’s earlier projections of maintaining an economic growth rate of six percent, says Dahal, will probably to dwindle to as low as 3.5 percent.
Among the sectors that have been most severely hit is the government’s revenue-collection sector. The government has seen a major setback in customs collection, which is its biggest revenue source. The Customs Department’s records show that the department collected only Rs 35 billion in revenue by the first week of November. The government had set a collection target of Rs 60 billion for the period between mid-July to mid-November. The government usually collects around 30 percent of its annual revenue during the festive seasons of Dashain and Tihar. That shortfall in government revenue is likely to hit capital expenditure, which in turn will affect infrastructure development and employment in the long run.
The current crisis has also caused widespread inflation. At present, the market price of almost all daily essentials, manufactured goods and construction materials has already shot up. “In addition, as the importers are likely to pass on the demurrage/detention charges incurred due to the delay in consignment delivery to the consumers, that will also give rise to a cost-push inflation in the market,” says Dahal. A cost-push inflation occurs when the prices of raw materials and labour rises rapidly.
The manufacturing sector is reeling because all its various segments have suffered body blows—in manpower availability, the supply of raw materials and the supply of energy. According to the Central Bureau of Statistics, a total of 2,200 factories based in the Tarai region still remain closed, rendering 4,00,000 workers unemployed. In a country where the unemployment rate can get as high as 40 percent, these job-loss figures are staggering.
According to the Federation of Nepalese Chamber of Commerce and Industry, the manufacturing sectors have been facing an average loss of Rs two billion a day, while the cumulative loss from the blockade has reached Rs 100 billion.
Hari Bhakta Sharma, senior vice-president of the Confederation of Nepalese Industries, says most of the production plants and drugs manufacturers have closed shop due to the shortage of raw materials and fuel. “As most of their equipment, including boilers and hot water systems, cannot switch to running on electricity, a steady petroleum supply is absolutely essential,” he says. “Similarly, the supply of finished products has also been affected because of the fuel shortage.”
It is not just the domestic industries that have cratered because of the blockade. Some multinational companies have also reportedly closed down their production plants: while Unilever, Bottlers Nepal and Surya Nepal have already halted production, Dabur Nepal and Varun Beverages have heavily curtailed their production volumes.
The Health Sector
The shortage of fuel and essential goods has resulted in a multi-pronged crisis in the health sector. Patients have been deprived of basic medication because the flow of medicines that are procured both from India and the domestic manufacturers has now petered to a trickle. Many health facilities are running out of emergency drugs, life-saving medicines and other medical supplies.
Sharma, who is also the chairman of Deurali-Janta Pharmaceuticals, says that local drug manufacturers could have ratcheted up the production volumes of some of their medicines, but because the factories source their raw materials largely from India, or depend on materials routed through Indian ports, they cannot get their assembly lines rolling again.
According to the Child Health Division of the Department of Health Services, it has been struggling to carry out immunisationprogrammes across the country because Nepal imports almost all of its vaccines and antibiotics from India and third countries.
Many academic institutions in the Tarai have remained closed for the past three months. In addition, the fuel shortage has affected school-going children in other urban areas as well. According to UNICEF’s estimates, more than 1.6 million children have stopped attending school in the past two months.
Bishnu Karki, an educator, says the children in the Tarai have been most acutely affected by the current crisis. He is worried that the crisis could create a long-lasting psychological impact and loss in productivity among an entire generation of students.
The school owners too have found themselves in a hole that will be difficult to climb out of. On average, the annual investment figures in the domestic education sector hover around the Rs 86 billion mark. “Their investments will be in peril if the government does not address the situation on time,” says Karki, adding that the government mainly has to focus on continuing classes in government-and community-based schools.
According to preliminary estimates by the Ministry of Culture, Tourism and Civil Aviation, the average occupancy of hotels plunged below 20 percent in October following the Tarai unrest.
During the peak tourism season, September-November, Nepal used to welcome 2,50,000 foreign visitors; now the country is looking at less than a fourth of that volume of arrivals.
Not surprisingly, the number of trekkers during the current peak season has also drastically dipped. According to entrepreneurs, almost all high-spending holidaymakers have cancelled their trips. For a sector that provides employment to around 3,00,000 people, the damages incurred are set to be catastrophic.
Published: 07-11-2015 08:57