Poverty emerges from interlocking factors indicating a multidimensional social phenomenon. Farmers may link it to the unavailability of cheaper agricultural inputs, urban poor may assign it to rising prices and the rich to the deterioration of terms of trade.

The wage rates are not at par with food prices to maintain purchasing power. Therefore, the lag in wages behind food prices in Nepal due to the labour market imperfections is an important cause of poverty and food insecurity. Asian Development Outlook 2006 from ADB estimates that agricultural growth will slide to 1.5 per cent in 2006. Given the good weather condition and sustainable peace, it can be hoped that agricultural growth will pick up to 3.5 per cent in 2007 as forecast by ADB. The comparable data between Nepal Living Standard Survey (NLSS-I 1995-96) and NLSS-II 2003-04 is now available. To find out the cost of living, region-specific price indices have been considered on the basis of NLSS-I and NLSS-II and thus poverty line has been derived using the cost-of-basic-needs (CBN) method.

The statistics show that incidence of poverty has come down from 42 per cent in 1995-96 to 31 per cent in 2003-04, a decline of almost 11 percentage points. The eight year period between two surveys experienced almost 5 per cent GDP growth, 3.7 per cent of the annual agricultural growth, growth in manufacturing and also the growth from remittances, which accounted for 12.4 per cent of the GDP. This was the reason for the reduction in the incidence of poverty. The situation is different now. There has been continued decline in all the areas except remittance earnings, which also are declining globally. The Tenth Plan is a total failure in terms of bridging wide income inequality. According to NLSS-II, the Gini coefficients have increased from 34.2 in 196-97 to 41.4 in 2003-04. To address these complexities the new government including the CPN (Maoist) should seriously consider combining human poverty index (HPI) such as a short life, lack of education, and lack of access to public and private resources in a single poverty index as a useful method to capture the totality of human poverty as opposed to the conventional method of measuring poverty by income alone.

The pace of decline in the dollar-a-day poverty incidence is different in different regions. It was 14 percentage points in East Asia and the Pacific (EAP) and 7 percentage points in South Asia (SA). This helps in understanding why SA is still home to the world’s 35 per cent poor. Nepal within SA is facing the additional problem of increasing the share of absolute poor although incidence is found to have decreased. The reason for an increase in absolute numbers can be found out when we consider income inequalities by different groups and regions. The incidence of urban poverty has been lower than that of rural poverty. In 2003-04, poverty in Kathmandu remained as low as 3.3 per cent to 42.9 per cent in rural Eastern Hills indicating greater reductions in urban areas in terms of both the depth and severity of poverty.

Comparable South Asian literacy rates also indicate that the current status of educational achievements is unsatisfactory. The adult literacy rates in Nepal, India, Pakistan and Sri Lanka for 2003 are 48.6 per cent; 61.0 per cent; 48.7 per cent and 90.4 per cent respectively. The data reveals (NLSS-II 2003-04) 75 per cent of the population in the richest quintile is literate while only 25 per cent is literate in the poorest quintile. This indicates strong association between literacy rate and per capita household consumption. The challenge is to increase female enrolment to promote education. Raising the quality of employment-oriented education is important, besides the need for higher technical education.

In the past, the problem in health was inadequate public expenditure, interrupted service delivery and limited capacity of people to spend on health care. At present, the entire governance system is broken down because of the sustained conflict. Studies have shown that it is possible to contribute significantly to the restoration of disrupted health services with sensible goals and provision of adequate resources. The development partners should also compromise on reorganising the individual and collective working practices by specially designing the post-conflict rules. Nobody should strictly adhere to the conventional mechanism. A proper understanding of health status and service delivery problems in this case is important for assessing the need for human resources, health facilities, including health services management.

To conclude, policy measures such as the creation of productive assets base and additional employment opportunities have failed. The major problem with Nepal’s pro-poor policy is the adoption of a supply oriented approach without proper attention given to the purchasing power of the targeted population.

Prof. Pyakuryal is president, Nepal Economic Association