Is Prachanda’s announcement of “adoption of capitalism” model of development by the soon to be formed government led by the Communist Party of Nepal (Maoist) a big deal politically? A. Frankly, I have no idea.

But here is a different question: Was Prachanda right? In fact, he has no choice. Karl Marx, in his famous book Das Capital, did not develop a Communist model of development. He was simply analysing the capitalist mode of production, and became anti-capitalist when it was out of date. Therefore, we can find similarities, for example, in the theory of inflation as discussed by Karl Marx and Milton Friedman, the guru of liberal economists. Communism was the ultimate goal that mankind is expected to reach just like Moksha (salvation) in the Hindu religion. Several writers criticised his work on the ground that it was religious in nature as it assumed the end of the history of mankind. Nevertheless, Das Capital is in three volumes and a very difficult and boring book to read; in the fifties Bernard Shaw claimed that he was the only one in the United Kingdom to read Das Capital. In any case, the so called communists’ model has either failed as in Europe or a few were able to preserve their political system by following capitalist model of production (China and Vietnam). Prachanda seems to have understood his limitations. He should have indicated which capitalist model, as there are many, he is planning to follow.

Now, Prachanda should have explained the policy prescriptions of CPN (M) to solve the current burning economic issues of the country. These are:

a) The country is suffering from acute “stagflation”, that is, declining real income and rising prices. The completion of election has led to skyrocketing expectation for (i) employment; (ii) moderation in the rise in price; and (iii) peace.

b) In Nepal everything is going up in price, especially of basic necessary goods, for example, rice (13.5 percent), pulses (13.4 percent) and oil and ghee (18.8 percent). These goods absorb about 52 per cent of public expenditure. Some measures are urgently needed.

c) There are indications of capital outflow due to (i) mismanagement of monetary policy; (ii) difference in productivity of capital between Nepal and other countries, including India and (iii) political uncertainty. This must be checked with appropriate policy measures.

d) Import is rising at a faster rate and, at present, is three times higher than export. Balance of payments has shown a deficit and this is developing into a trend. Unfortunately, the value of Nepali currency is appreciating pari passu with the value of Indian currency with which Nepali currency is pegged. As a result, the receipts from remittances have shown a declining trend leading to the rise in poverty.

e) Nepal is maintaining artificial exchange rate with Indian currency by buying Indian currency worth Rs. 100 billion in the last two years paying US dollars. The US dollar has emerged as the most important export item of Nepal to India. Let the market decide the correct exchange rate of Nepali currency vis-à-vis Indian currency.

f) The financial resources available to the government from domestic sources are not sufficient even to meet regular expenditure plus the repayment of loan. The government development expenditure is financed entirely by foreign assistance for which no commitment has yet been made by the donors. The Maoists will have to present the budget not later than the end of Asad (July 15) with details of their policy prescriptions and programmes.

g) The country has witnessed mushrooming growth of banks and finance companies. These institutions have not been properly monitored or supervised. Let us not forget that 1930 Depression started from a bank failure. We are sitting on an iron rod, and appropriate measures are needed.

There are some false issues, too.

a) The rise or fall in the so-called NEPSE index is not the barometer of public confidence in domestic investment. The stock market is nothing but a Glorified Casino.

b) The rise in price of petrol and the so-called loss of Nepal Oil Corporation is partly due to high government tax which at present exceeds Rs. 26 per liter of petrol. There is no need to increase the price of petrol as promised by the SPA after the historic political event. The government should reduce the tax on petrol per liter by Rs. 4.42 to Rs. 22.51 to control price. This is only one option; there are several.

No plans have been prepared by political parties to solve these issues. According ADB survey, the highest increase in inequality in Asia between 1990 and 2000 was found in Nepal followed by China and Cambodia. We have “fundamental disequilibrium” in the economy which must be solved with the participation of all stakeholders. I do hope it can, and must, be done soon.

Dr Pant is executive director, Institute for Development Studies