Past experience of development performance of the ongoing policy points to a host of challenges. The people’s war was started by CPN-Maoist when average growth of the economy was at around 5 per cent. At the same time, there were two aggravating trends in the economy. Not only did poverty increase among the marginalised sections of society but the gap between the haves and have-nots widened during the period of democratic practices. The share of landless population exceeded 23 percent, numbering more than one million households. The informalisation of the labour market accelerated with formal sector employment hovering only at around 6 percent of the total labour force. Human development indicators remained the lowest in South Asia.

The economic policy regime pursued since the early 1990s is influenced by neoclassical thinking, and is being synchronised with globalisation. It has a two-pronged albeit complementary approach in setting or augmenting the policy agenda. It seeks a full-fledged market system in the organised sector through a combined policy regime of deregulation, liberalisation, openness and privatisation. Understandably, the aim is to augment capitalistic production system. On the agrarian front, apparently a status quo approach has been followed, but only with respect to land relations. However, efforts are underway to transform the existing feudal-based production relation into a capitalist mode of production as abolition of many subsidies indicates. Today, Nepal is one of the most liberalised economies in South Asia.

Some underdeveloped countries have succeeded in accomplishing very high growth rates and accelerated socio-economic development through the capitalistic approach. Why is the case of Nepal different? Why do we have low growth amid social contradictions and distributional conflicts? In Nepal’s context, expectations of broad-based growth, export augmentation through enhancing of competitiveness and trickle-down of benefits or opportunities have turned out to be misplaced. The reality is that in the course of intensive liberalisation, many small industries and businesses have closed down. Despite promising prospects, agro and forestry based industries could not flourish with virtually no linkage between agriculture and non-agricultural sectors. The fiscal balance or economic stabilisation could be ensured by curtailing development expenditure. The deflationary biases have had detrimental impact on productive capacity of the economy. Despite proliferation of financial institutions, access to financial services among rural population actually declined over time.

No attention was given even to important factors as the policy regime was externally driven. In many instances, policies were implemented without laws and market institutions. In the absence of policy co-ordination through wider consultation at political and stakeholder levels, policies were captured by some vocal and resourceful small groups. By and large, a homogenous approach of assumption was adopted in the policy making process ignoring the spatial, region and local conditions and prospects. Asymmetries in macro policies along with rising transaction cost have had adverse effect on the competitive strength of the economy in general and industries in particular. Above all, little attention was given to address serious structural and institutional constraints. No entitlement or right-based approach in the areas of health and education was adopted. No food security policy was advanced and pursued. Reforms in state, bureaucratic and local institutions could not be pursued effectively. The role of state and the private sector could not be spelt out. The role of cooperatives was ignored.

The existing policy orientation consolidated an economic regime characterised by affluence of a tiny minority and further deprivation of larger sections of society. Experience tells us that both market- and state-led extreme economic policy regimes are not workable. Although the major political actors emphasise socio-economic transformation and economic revolution, many intricate problems remain. It is a well- known fact that even within the capitalistic development model, there is great heterogeneity in terms of adaptation or practices with differing income distribution or welfare related implications.

The conditions of Nepal are very different to the Swedish welfare model as structural and institutional bottlenecks aggravating social contradictions pose as big challenges here. Replication is simply impossible, more so due to perpetuation of underdevelopment. At the same time, the policy regime aimed at consolidating capitalistic path has failed dismally in almost all fronts. Now, time has come to pay the highest level of attention to the economic agendas even if all the political actors commit to embark on the path of capitalistic development.

Dr Khanal is an economist