Double-digit growth : Is it a feasible target for Nepal?

After the election, pubic expectation about the positive change in their lives has increased significantly. It is to be expected as they had been given hope by all national political parties about the availability of job opportunities, moderate and affordable rise in prices, better health and education facilities, and easy availability of basic goods. They voted with the hope of a competent and capable government to fulfill these promises. Now is the time for the political parties to fulfill their promises to survive in another election that will be held after the approval of the new constitution which will take not more than two years.

Against this background, a number of political personalities, a few social scientists and even responsible representatives of private sector have indicated the possibility of attaining double digit annual growth in gross domestic product like in India and China, two of the fastest growing economies in the world.

The high expectation itself is necessary for the increase in growth rate of the economy. The reason is that development itself, like inflation,

can be self generating. But for this, several — sufficient, in economic terminology — conditions have to be fulfilled. The important issues, therefore, are to identify the necessary and sufficient conditions for high growth, given the social, economic and political environment of the nation.

If these conditions are fulfilled, the development of the country, to use the term

popularised by Prof. Rostow, will be like flying an airplane which is both difficult

— if not dangerous, given the technical capability of the captain, condition of the airplane and airport — and simple too, once you reach a certain height as it will move, given the weather condition, in a set direction. The question is how to make economic development process simple and self generating.

In Nepal, both social scientists and politicians are preoccupied to fix the target of the economic growth rather than developing the programmes for implementation

by identifying both constraints and areas of specialisation given the available resources and opportunities. It is now common to argue among the economists too that it is possible to attain a double digit growth, that is, an annual increase in GDP by not less than 10%.

In support of these arguments, several of them have given the experiences of Bhutan and Maldives, two members of the SAARC, who have recently attained an annual growth of more than 7-8%. Unfortunately, the experiences of these two small countries with a population of less than a million can not be replicated in Nepal.

In Bhutan, the World Bank expected the GDP to increase by 14% in 2006 and 12% in 2007. This is due to construction of Tala Hydroelectric Plant by India. Similarly, in 2006, GDP increased by 18% in Maldives due to post-tsunami reconstruction of a few resorts. Now is the time to learn from our own experiences so that we are able to change the structure of the economy to attain the feasible goal within a given time frame.

In the last 25 years, Nepal was able to attain an annual growth of more than 7% only in two fiscal years, namely, 1987/88 and 1993/94, again due to low base of the previous year. Otherwise, the average annual growth rate had steadily declined from 5.5% in the interim period after Jana Andolan I to 4.7% in the Eighth Plan, slightly lower than the growth rate attained by the Panchayat Raj in the Seventh Plan, 3.7 % in the Ninth Plan, and 3.3% in the Tenth Plan. At the same time, in the last 25 years, economic growth rate has fluctuated from, say, 7.1% in 1987/88 to less than 0% in 2001/02. This is largely attributable to the performances of the agriculture sector rather than any other activities.

In the last three years of the Tenth Plan, the increase in per capita income was barely positive, while the annual inflation was 7.5%! The overall economic performances of the past two years as measured by change in basic macro economic indicators were no better than that of Royal regime!

Now the basic issue is to reverse the whole process. It is virtually impossible to attain an annual growth of 10% within a very short period. We can do it in the near future. The question is: How long will it take to attain an annual growth in GDP at par with India and China. That is the most important issue that needs to be discussed in depth by the politicians, planners, journalists and even buddhijibis associated with various political parties.

It is better to be ambitious but it should not be used to divert attention from other important issues, the most important of which is to prepare constitution as soon as possible to minimise the second interim period. That will be most important gift and policy prescription to maximise economic growth rate with better utilisation of available resources. Otherwise, our plane may crash before takeoff as the current performance indicates.

Dr Pant is executive director, Institute for Development Studies