Nepal Rastra Bank has released an economic report for the first four months of the current fiscal year (2005-06), which registers inflation at 8.5 per cent compared with the three-month figure of 7.8 per cent, and says further rises are likely. This is attributed to the rising global price of oil and a recent three per cent hike in VAT. The report also predicts a ‘modest’ GDP growth rate for the year, continuing the trend of the past four years. Trade deficit jumped by 51 per cent. Imports surged (36.5 per cent) as against the 17.2 per cent growth in merchandise exports. Likewise, the manufacturing output has been sluggish at 2.4 per cent. Food grain outpurt is projected to be negative this year too. The remittances from Nepali workers abroad, the report points out, have been a major cause of a swell in the total money supply as well as a key contributor to making the blance of payments favourable. Fiscal deficit has widened by five per cent of total expenditure.

Nepal presents a strange case of a negligible growth rate combined with a sizable reduction (from 42 per cent to 31 per cent) in the absolute poverty rate (if recent government statistics are to be believed), thus virtually meeting the 10th Plan target of cutting it to 30 per cent three years ahead! (Even high-growth economies like India and China may envy it.) Overall production is decreasing while consumption continues to go up, and the recent mid-stream budget changes have certainly encouraged imports. The government seems to give the impression that it is laying greater emphasis on VAT as a major source of revenue rather than on income tax, thus sending wrong signals to the general people that it aims to tax the consumers more than those who make a profit.

The balooning unproductive expenditure and an unsatisfactory level of spending on development, coupled with unenviable performance on fronts such as revenue collection, domestic production and exports as well as on most of the other economic indicators, hardly give cause for consolation, let alone jubilation. There has also grown a tendency of blaming poor results in almost any sector largely on the conflict, but this betrays a dangerous desire to shift responsibility on the part of those who are supposed to design proper policies and programmes and impement them effectively. Undeniably, the economy cannot remain unaffected

by a conflict of the widespread nature of the Maoist insurgency. But it should not serve as an excuse for not doing what is feasible. Several other countries can provide good examples.