Print Edition - 2018-02-19  |  SILVER LININGS

The architect

- RUPAK D SHARMA, Kathmandu

Feb 19, 2018-

Right until 1990, Nepalis were restricted from opening businesses. They were also not allowed to import and export freely. And almost everything was under the control of the state. In those days, Nepal was virtually a closed economy and the private sector was non-existent. These barriers allowed only a handful of people, especially those with close ties to the monarchy, to prosper.

 

Everything changed with the restoration of multiparty democracy in the early 1990s. In 1992, the government introduced a liberal trade policy, which waived the license requirement for exports, exempted exportable items from taxes and duties, and enforced a duty drawback scheme. Around that time, a slew of laws—such as Industrial Enterprises Act and Foreign Investment and Technology Transfer Act—were also introduced, enabling Nepalis and foreigners to invest in almost every sector that would not pose a threat to Nepal’s sovereignty and create health and environmental hazards. This gave impetus to an industrial boom.

At that time, interest rate regime was also deregulated, private property rights were strengthened and foreign investors were allowed to repatriate investment and dividend.

These reforms gave a boost to the economy like never before. Even today, the average economic growth of 5 percent recorded between fiscal years 1990-91 and 1999-2000 remains the highest decadal growth rate in Nepal since the restoration of democracy. One of the key architects of these economic reforms is Ram Sharan Mahat, a senior leader of Nepali Congress and six-time finance minister.

Mahat was working for the United Nations Development Programme abroad when political changes took place in Nepal in 1990. He then immediately left the lucrative job, joined Nepali politics and took part in the parliamentary election from Nuwakot, which he unfortunately lost. The new prime minister of that time, Girija Prasad Koirala, then appointed Mahat as his economic adviser. He was later appointed as the vice chairman of the National Planning Commission. It was during this time that he introduced the Eighth Plan, which made sweeping changes to economic policies and empowered the private sector like never before.

“The fundamentals he helped put in place in the 1990s proved robust when Nepal went on to experience two decades of lacklustre economic progress during armed conflict and post-conflict transition,” says Swarnim Wagle, the incumbent vice chairman of the National Planning Commission.

Mahat is also credited for introducing sweeping reforms in the revenue sector. It was him who introduced value added tax (VAT) regime in the country, despite huge protests. It has now become one of the important sources of the revenue for the government. The reforms that he introduced in the revenue administration have helped Nepal to mobilise resources on its own to finance development activities.

In the 1990s, the government’s annual revenue stood at mere Rs12 billion. Today, the government’s income level has soared to over Rs700 billion, thanks to initiatives taken by people like Mahat. This expansion of revenue base has drastically reduced the government’s reliance on foreign aid as in the 1990s.

Mahat, however, continues to face criticisms not only from his opponents but from his own party colleagues. One of the main reasons for this is his abhorrence for myopic, populist and distributive policies, which his party colleagues claim has prevented Nepali Congress from stemming the rise of communists in the country. Mahat is also accused of having a soft corner for corrupt bureaucrats like Chudamani Sharma and Bharat Subedi. This has been his Achilles’ heel.

Nevertheless, Mahat has always stood firm and spoken against distributive policies, while stressing on the need to strengthen the health and education sectors to generate a robust pool of human resources.

Even today officials of the Ministry of Finance, who have worked with him, say they have never seen a finance minister like Mahat, who kept close tabs on activities inside the ministry and had the ability to quickly analyse consequences of certain policies and decisions. 

“He enjoys a degree of legitimate authority to stand firmly on a consistent plank of fiscal conservatism, liberal economy and a viable social welfare state,” says Wagle. “He is also a champion of non-partisan meritocracy, a keen chaser of talent, who believes that the country’s economic policy elite must be technically competent and politically attuned.”

— By Rupak D Sharma

Published: 19-02-2018 12:18

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