India’s economic aid : In search of right strategy

With Prime Minister Koirala’s recent visit to India, a cloud that has oppressed the relations between the two countries with age-old social, economic and cultural ties has begun to clear out. The true beneficiaries of such a “qualitative enhancement of bilateral relations” would be the Nepalis. This is obvious even from the joint press statement released at the conclusion of the visit: The Prime Ministers of both the countries have not only acknowledged the importance of accelerating development process in Nepal, the Prime Minister of India conveyed India’s “readiness to render all possible assistance in accordance with the priorities and wishes of the Government of Nepal”. Accordingly, India has provided assistance in a number of areas with monetary value, according to the minister of finance, totaling Rs 11.4 billion, of which only Rs 7.5 billion is in the form of a 20-year loan with an annual interest rate of 0.75 per cent. More importantly, the government is free to use most of the assistance, both grants and loans, in areas, projects and year of its choice. It is difficult to provide any loan or grant softer than this.

At the domestic level, however, the basic question remains unanswered given the fact that all the assistance was provided in accordance with the priorities and wishes of the government of Nepal: Is this the type of assistance that we request for the “pursuit of peace, stability and prosperity” of Nepal from an emerging economic power that shares open border with us? This issue needs to be discussed in depth as this may serve as a guide for programme development in the future.

Nepal’s economic development, as indicated by India’s foreign secretary, Shyam Saran, as early as December 2005, is one of the important issues that is, in his words, “not only in the interest of Nepal but also in India’s interest” as well. (Refer to my article “Recovery or collapse: Time for an economic choice”, THT, December 20, 2005). There were even reports, almost immediately after Jana Andolan II, in both national and international press, though never officially confirmed, about the preparation of Himalayan Development Plan in New Delhi for Nepal’s development. It was, however, interpreted otherwise in the House of Representatives which warned PM Koirala “not to sell out to India” on the eve of his departure to India. It is difficult to know the reason for such a warning, but the honourable members did not mention even a single word about the economic issues that needed to be discussed at the historic summit though it was officially reported that the visit would focus entirely on economic agenda.

The government also did not make transparent the economic agenda to be discussed at the official meeting. Indications are that Nepal was not able to develop a detailed economic plan, a responsibility given to the minister of finance by the cabinet, for the consideration at the Prime Minister’s visit, notwithstanding a wish list of about Rs 75 billion reported, if not officially planted, in some of the newspapers. A detailed examination of the assistance provided by India clearly shows that it is directed largely to alleviate the difficulties faced by the minister of finance, the person responsible for coordinating aid efforts, to run the day-to-day administration of his ministry that was trying to implement the budget of the former regime for reasons that were never publicly disclosed. As expected, the government even asked for the budgetary assistance of Rs 1.60 billion though after Jana Andolan II it is not difficult to raise, say, Rs 10 to 12 billion through the floatation of, for example, Sambidhan Sabha bond in the domestic front.

It appears that the Nepali delegation requested nothing but cash, including, for example, to waive the dues on account of defence purchase; purchase of fertilizers at subsidised price; immediate release of funds under DRP; and reschedule the payment of dues owned by Nepal Oil Corporation to Indian Oil Corporation, and they received what they wanted. The architects of the current year budget must be very happy with Dr Mahat for following their policy and programmes, and for preserving the budget from total bankruptcy as we had predicted in our report issued on February 20.

The million-dollar question, however, remains yet to be answered: how we would have approached India for Nepal’s development? That issue needs detailed discussion at the national level and perhaps still cannot be answered without first developing a detailed strategy for national development with proper role for a country that by 2008 will have qualified graduates twice as many as China. This time the minister of finance, as expected, has been concentrating more on avoiding the financial crisis inherited from the previous budget. India gave us what we wanted but we could not properly use the opportunity provided by India led by the two prominent economists of Asia. I guess, I do not have to explain who they are.

Dr Pant is executive director, Institute for Development Studies