Nepal’s economic growth: At the bottom of South Asian ladder

South Asia achieved annual growth rate of 8% during 2001-2006 period in comparison to 5% growth rate of 1980-2000 period. And while East Asia and China achieved growth of 9% and 10% respectively, South Asia grew at 8.6% in 2006. Growth rates in India, Pakistan and Bangladesh were 9.2%, 6.6% and 6.7% respectively. With the exception of Nepal even other smaller and conflict-affected countries in South Asia achieved growth rates of 6.4% or more. In the coming years too South Asia is expected to maintain growth of 7.5% or more annually with India growing at an average of 8% and others except Nepal at 6% or more. Poverty level in South Asia is expected to go down to 13% by 2015.

The impressive economic performance of South Asia can be attributed to economic reforms and liberalisation measures enacted in India and other countries as well as growing exports, robust domestic demand and increasing net capital inflows including FDI and remittances. However, South Asia still has infrastructural constraints, widespread illiteracy and deficiency of healthcare facilities, in addition to facing serious constraints to employment generation for a growing labour force and rural youths. Growing inequalities in income and wealth are posing critical challenges for human and overall socio-economic development; nevertheless, East Asian experience provides firm lessons and encouragement that these challenges can be managed within foreseeable time, provided governance reforms and cooperation among stakeholders are maintained. Thus most South Asian economies, perhaps with the exception of Nepal, are poised for higher growth and poverty reduction and economic prosperity.

In contrast to other South Asian nations, socio-economic conditions in Nepal remained disappointing. Annual economic growth during 2001-2006 was 2.7% against the population growth of 2.3% and was further reduced to 2.5% in 2006. Agriculture and forest production increased by 0.6% and industrial GDP growth was 2.16%. According to Economic Survey 2006/07, total foreign trade declined by 2.6% and both exports and imports were reduced by 6.6% and 1.1% respectively. Other disappointing results were in the areas of construction, electricity, water and hotels. However, some marginal improvements were visible in tourist arrivals.

Nepal is one of the poorest countries in South Asia with lowest per capita income and with one-third of its population living in extreme poverty. More than 50% of Nepalis are illiterate. The nation is gripped with shortages of petroleum products, cooking gas and fuel, industrial raw materials as well as other daily necessities.

Transportation bottlenecks keep constraining movements of people, goods and services causing severe hardships in trade, industry and agricultural sectors. Life and property remain insecure. Development projects remain unimplemented. New investments are not forthcoming, severely constraining production and job creation. Political process and stability remain uncertain and dysfunctional.

Nepalis have been wondering how long the nation has to pass through chaos and politico-economic dysfunction. After every major political upheaval, Nepalis hoped for some concrete initiatives for socio-economic transformation and far-reaching changes from government and political groups. Unfortunately, Nepali politicians were mostly guided by self-interest and lacking in long term vision. After Jana Andolan II people expected mature politicians to behave as sincere statesmen with sound knowledge of national interests and global happenings and long-term vision for national consolidation, peaceful change and development and work towards democracy, political stability and economic prosperity. But again, that does not seem to be happening.

Nepalis were hoping that firm steps would be taken to settle contentious political issues and people were hopeful of free and fair CA polls after the signing of the comprehensive peace agreement among political parties and the Maoists. Settling the political process through free and fair CA polls, deciding on the new structure of State through drafting of a new constitution should be the compelling factors agreeable to all. Removal of political confusion, check on corruption, alleviation of sufferings of the downtrodden and correcting the dysfunctional political and economic order cannot be deferred further.

Nepal cannot be governed for long through political discretion of the politicians who have either lost their credibility or by those who have yet to win people’s trust through ballots. The CA polls are a must for the country. It is high time that an appropriate environment was created for the emergence of young, dynamic and energetic leaders who can define the contours of a new Nepal and bring the country in step with others in South Asia and beyond.

Dr Dhungana is an economist