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CJ-led Government-18

Issue 29, July 21, 2013

Siddhi B Ranjitkar


The finance minister of the Interim Election Council of Ministers read out the budget speech for the fiscal year 2013 (2070) in the Harka Gurung hall at the National Planning Commission Secretariat in Kathmandu to the selected state employees on July 14, 2013 two days before the end of the fiscal year 2012 after President Dr Ram Baran Yadav issued 1) Budget Appropriation Ordinance of 2013, 2) Economic Ordinance of 2013, and National Loan Ordinance of 2013. In absence of the parliament, the head of state has approved the budget before the finance minister could make it public.


The budget is the collection of different activities submitted by the various departments under ministries. It has not shown any direction to the economic development. For example, the budget has stated the activity for running a test generation of electricity from the natural gas found in the Kathmandu Valley. Any geoscientist knows that the Kathmandu Valley was a small lake in the past. It cannot have a large natural gas deposit. Similarly, the budget has allocated certain amounts to the exploration of uranium, precious stones and petroleum exploration. Does the concerned department has the manpower and the technology to conduct such exploration, and will these activities contribute to achieving the growth target of the 5.5 percent of the gross domestic products (GDP) in the fiscal year 2013 (2070)?


Development of infrastructures and implementation of development activities except for few are not linked together to make them possible to contribute to the economic growth. For example, the apple development in several Himalayan districts will not contribute to the economic growth unless the apples can be sold in the market. The apple development areas should be linked with the market by the tracks or roads. Infrastructure development is somewhere else whereas the apple development is in the Himalayan districts. Only the three road improvement projects such as widening of the 1) Rani-Itahari-Dharan, 2) Birgunj-Pathaliya, and 3) Belhiya-Butwal are directly linked with the industrial development.


The large amount of subsidy on the agriculture and food transportation will not contribute to the agricultural development but to the moneymaking for the politicians, and state employees involved in these activities. With great efforts, the donor community in Kathmandu made it possible to do away with the subsidy in the past but notorious former Prime Minister Madhav Nepal put the subsidy on the agriculture back allocating Rs 2 billion in 2009. The current government has allocated Rs 6.7 billion to the subsidy on the agriculture inputs. If the government is really serious to develop the agricultural sector, it needs to link the agricultural products with the market; it needs to provide the farmers with agricultural inputs such as fertilizers and seeds at the planting season, and appropriate extension services whenever is necessary. The funniest thing is that the finance minister proudly said that the government is providing farmers with one hundred rupees for each apple tree planted in Humla and other Himalayan districts for three years.


The government has allocated Rs 1.11 billion subsidy on installing solar energy system at the 125,000 low-income households. This will produce 4,000 Kws electricity. Again this money will go into the pockets of the political leaders and cadres if the history is any guide. I have seen the wind turbine built either by the foreign assistance or by the government has remained unwanted in Kagbeni of the Mustang district in 1994. I also have seen the biogas plants built with the subsidy from the government remained unusable in Siraha in 1995 because the technology of the biogas is not so simple as we think it is. The solar panels to be installed at the 125,000 households might meet the same fate of the biogas plants and the wind turbine.


The government has increased the salaries of the State employees; it is good but the government should make them work without seeking rent from the common folks. The government should downsize the administration, and make it efficient. I have the experience of a clerk at the Department of Transport at Ekantkuna in Lalitpur keeping the people at the counter of registering the applications for driving licenses for hours for the lack of a red pen. I pay every year Rs 500 at the emission test to get the green sticker no matter how much fuel-efficient the vehicle is. Do such State employees deserve salary rise?


The finance minister has said that the government is going to build “senior citizen villages” in Kathmandu and in other areas, too but the minister has not said what does the “senior citizen villages’ mean and who are going to live there? However, the government has ignored the demand of the senior citizens for increasing the allowance from the current Rs 500 per month to the Rs 3,000 per month. The senior citizens have said that Rs 500 per month is not sufficient to have tea for a month not to mention to live on it. If the government is seriously taking care of the senior citizens then it will contribute to control the population, as the future parents will not bother to have sons as the old-age insurance.


The finance minister has said that the government is made for holding the elections to a new Constituent Assembly on November 19, 2013; so, he has mainly focused the budget on the elections, and has allocated Rs 16 billions to the elections. However, most of the money for the elections must have come from the foreign donor agencies.


The total budget for the FY 2013 the finance minister disclosed is Rs 517.24 billion. Of the total budget, Rs 353.42 (68.33%) is allocated to the regular expenditure, Rs 85.10 billion (16.45%) to the capital expenditure, and Rs 78.72 billion (15.22) to the financial management. Out of the total budget, Rs 241.58 billion (46.70%) is allocated to the development, and Rs 275.66 (53.30%) to the regular administration.


To meet the total expenditures for the FY 2013, the finance minister foresees to receive Rs 354.50 billion (68.54%) from the tax and custom duties, Rs 5.50 billion (1.06%) from the receipts of principals and interests on the state investments made in various sectors, Rs 69.54 billion (13.44%) from the foreign grants, and the deficit will be Rs 87.70 billion (16.96%). The deficit is met by the foreign loan of Rs 43.70 billion, and by the internal loan of Rs 44.00 billion.


The finance minister has projected the growth of GDP at 5.5 percent for the FY 2013 against the achieved growth of 3.6 percent in the FY 2012, and the inflation rate at 8.0 percent. The projected growth rate is ambitious given the political situation and the capability of enforcing the development activities. Inflation is mainly imported from India. Major imports are from India. So, rise and fall of prices of every commodity depends on the prices of commodities in India, as the commodities flow to the markets on either side of the border where they fetch higher prices. It has been possible due to the open border.


According to the finance minister the causes of low growth of the GDP has been due to the low productivity of three sectors such as agriculture, industry and service that have been the main contributors to the GDP. Lack of prerequisites, and low agricultural extension service and technology have contributed to the low productivity of the agriculture. The power shedding means interruption of power supply and the problems of the industrial labor have contributed to the low productivity of the industry. The low capacity of using the skill, expertise, competition and the technology has contributed to the low productivity of the service sector.


The finance minister has attributed the inflation to the low economic growth that has caused the higher prices of locally produced and imported commodities. Most of the industries have depended on the imported raw materials. The weakening of the Nepalese currency has caused the higher prices of imported materials and adverse trade balance.


Again the Nepalese currency is pegged to the Indian currency. The weakening of the Nepalese currency against dollar has been due to the weakening of the Indian currency that has been caused by the high demand for dollars in India, and slow growth of the Indian economy.


The finance minister has said that 400,000 youths enter the job market every year. Only one fourth of them could find jobs. The sluggish growth of the construction and industrial sector has been the reason for not creating sufficient jobs.


However, most of the Nepalese youths have been working in the Middle East, Malaysia, and Korea. The problem is some of the Nepalese seeking jobs in the foreign countries fall in the traps set by the unscrupulous manpower companies that charge the youths with high prices for the jobs but don’t ensure the job availability. The government needs to punish such manpower companies, and protect the youths from the unscrupulous manpower companies. This will be the short-term solution of the unemployment. The longer-term solution is certainly the economic development.


The finance minister has said that a new labor law will be introduced in the coming year to ensure the rights and benefits of laborers, and to create the smooth relation between the labor and the industry. The Nepalese laborers have been so demanding that once you hire laborers then they start ruling the business with the support of the political parties. Even the state-run company called Nepal Electricity Authority (NEA) has been the victim of the trade unions. NEA has to cancel its decision on increasing the capacity of the Trishuli 3’A’ Hydropower from the 60 MW to 90 MW under the pressures of the three trade unions in mid June 2013. How the businesses and industries will flourish if the trade unions force the management to cancel its decision.


The finance minister has complained that the infrastructures required for the economic development have been lacking; and even the existing infrastructures have not been fully usable because of the lack of repair and maintenance. This has made difficult for attracting the investment in the country, and the existing industries have faced the high cost of production.


The role of the government will be strengthened in removing the inequality and other adverse effects of the market economy, the finance minister has said. To attract the private investment in the economy, the government will remove all legal and procedural obstacles to the private investment, and will provide the foreign investors with the security of their investments, and major infrastructures projects will be implemented in the public-private partnership. It remains to be seen whether the government will be able to keep the commitments made in the budget speech.


The budget has set the following priority order for the development:

  1. Development, expansion and promotion of hydropower and energy;
  2. Commercialization of agriculture, and increase of its productivity;
  3. Construction of physical infrastructures;
  4. Easy access to education, health, drinking water, and sanitation, their quality development;
  5. Promotion of tourism;
  6. Creation of investment friendly environment for the development of the private sector;
  7. Import substitution, and export promotion;
  8. Improvement in the public service delivery, and good administration.


The government has put the ‘creation of investment friendly environment for the development of the private sector’ at the sixth place in the priority order. The first five priorities also directly or indirectly contribute to the private sector development. The government has placed the private sector development at the lowest possible order even though the government believes in the private sector contribution to the economic growth is considerable. However, it becomes clear in the budget speech later that the government is for spreading its network to the sectors that the private sector can do better.


The ‘Improvement in the public service delivery, and good administration’ has been placed at the last position on the priority list. It should be the first priority of any sincere government but every government does not believe in the good governance and good public service delivery. So, it is only a lip service.


The previous government has identified certain major projects as the nationally important projects, and focused on them to ensure the timely completion of those projects.


The finance minister has said that I have allocated sufficient budgets to the nationally important projects such as energy, roads, railways, irrigation, drinking water and tourism, and gave them a highest priority as they are the lifelines to the economy; I also included the Pashupati Area Development, Lumbini Area Development, Rastrapati Chure Conservation, and Bheri-Babai Diversion projects in the nationally important projects, and increased the budgets to them.


Fast-track highway between Kathmandu and Hetauda, and Melamchi Drinking Water projects also are included in the nationally important projects. The government has not allocated any budget to the fast-track highway. Both the projects were conceived in early 1990s. Fast-track highway between Kathmandu and Hetauda was the concept of former Prime Minister also the NC Leader Girija Prasad Koirala, and Melamchi Drinking Water project was of former Prime Minister also the NC Leader Krishna Prasad Bhattarai made in 1990s. Former Prime Minister Bhattarai had even told that he would bring the water from the Melamchi River to wash the roads in Kathmandu.


According to the news aired by the Radio Nepal at 7:00 am on July 16, 2013, the government has just signed off the contract with an Italian company for digging the tunnel to bring the Melamchi Water to Kathmandu. The contractor was supposed to complete the construction of the tunnel in 36 months. The government cancelled the previous contract for the same with another international company.


If all other nationally important projects meet the same fate of these two projects then the economic growth will hardly go beyond three percent.


The energy sector has received Rs 30 billion; the road sector has received almost 20 billion, out of which, Rs 4 billion is for the repair and maintenance of roads. The government has allocated Rs 6.7 billion for the subsidy on fertilizers, seeds, and machinery and other agricultural inputs. The government provides the farmers growing apple trees in the districts such as Kalikot, Mugu, Jumla, Humla, Dolpa, Manang and Mustang with one hundred rupees for each apple tree grown for three years. The finance minister has allocated Rs 11.1 billion for providing senior citizens, single women, disabled, and other underprivileged people with allowances. The finance minister has allocated Rs 3.7 billions for all the programs run under the ‘Poverty Alleviation Fund’. The government foresees to build one each senior citizen home and senior citizen village in each of the five development regions, and two senior citizen villages in Kathmandu in the public-private partnership. However, the finance minister has failed in increasing the allowances to the senior citizens.


The government has allocated Rs 10 million each to celebrate bicentenary celebration of Poet Bhanu Bhakta Acharya, and centenary celebration of BP Koirala.


According to the budget speech, the profit-making state-owned enterprises (SOEs), and the bank and financial institutions of class A and B need to send their staffs to the tourist areas in Nepal for seven days every year at the cost of these SOEs, banks and financial institutions. This is done to develop the internal tourism, and to set the tradition of Nepalis going on holidays. However, those SOEs, banks and financial institutions have to not only grant paid-annual leaves to their staffs but also pay for the holidays. Will the government be able to enforce this law remain to be seen.


The finance minister has said that the exploration of uranium, precious stones, and petroleum will continue; and the test production of electricity from the natural gas in Kathmandu will be started; the budget has been allocated to this end but has not said how much. Why the finance minister is shy to say the amount of the budget allocated to such exotic projects is not known.


According to the budget speech, the government will initiate work on setting up a “Cottage Industrial Products Exhibition and Sale Center’ in Kathmandu, and set up one each ‘Handicraft Village, and Handicrafts Collection Center’ in each of the five development regions. The government will initiate work on setting up a ‘SAARC Handicraft and Design Center’. Not long ago, the previous government had dissolved such centers, as they had been burden on the government but the current government is putting back the same institutions that had plagued the country in the past.


The finance minister has committed to build at least 400 suspension bridges at the sites where currently twines (ropes) are used to cross the rivers. However, the finance minister did not disclose how much money he has allocated to this important rural infrastructure. The government needs to build a large number of such suspension bridges on both sides of the highways to link the rural people to the nearest market towns and centers to alleviate their poverty. Most of the people living in the remote areas have been living at the subsistent level because they have no access to market either to sell whatever products they have or to buy their daily necessities.


The finance minister has repeated the old story that the management of the state-owned enterprises (SOEs) will be turned over to the private management, or leased the SOEs to the private companies for a long period; and the shares of the public enterprises will be sold to common folks. However, the government has been shy to take any initiative to this end but the government has never been tired of repeating this story.


The budget speech has it that the budget for the judiciary will be gradually increased to the one percent of the total budget; the government will make the provision for providing the underprivileged people with the free legal services for them to have an access to justice; and the government will build an integrated housing facility for the retired judges and justices.


The government will have zero tolerance for the corrupt, corrupt persons will be dealt severely with, and the anti-corruption agency will be strengthened according to the budget speech. However, the finance minister has allocated a huge amount of the budget to the subsidy it will increase corruption drastically. Subsidy is the main source of corruption in the State administration. One of the most corrupt persons is heading the anti-corruption agency called Commission on Investigation into Abuse of Authority (CIAA). The current government has appointed Lokman Singh Karki: the man with the background of repressing the people’s movement in 2006 to the chief of the CIAA.


The government has increased the salaries of the civil officials, military and police by 18 percent, and added one thousands rupees across the board. The salaries range from Rs 13, 425 to Rs 40, 695 after the increment and the allowance added to them. Every State employee receives one-month salary as the Dasain bonus. However, if we convert the salaries in dollars at the current exchange rate of one dollar to Rs 95 then the salaries are not so high; even comparing with the amount of wages earned by unskilled laborers the salaries are not much; even less when comparing with the wages of carpenters, bricklayers and other skilled laborers.


If we carefully analyze the budget for the FY 2013, the finance minister has sprinkled the State resources over many tiny programs and projects except for the hydropower, and road projects, and also has put back some of the state-unmanageable handicraft exhibition and sale counters, and allocated huge resources for the subsidy on agricultural, food transport, and solar energy. The subsidy is the main source of corruption. Political leaders and their cadres will fight for grabbing the subsidy amounts. The finance minister has intentionally or unintentionally dragged his feet to the state control of many things that the private sector is more efficient to do. The finance minister needs to immediately remove the obstacles to opening the bank accounts. The central bank called Nepal Rastra Bank has made it necessary for any bank to keep the records of the four-generation family members of the bank account holders. This is too much for banks to keep the records and for individuals to give the names of so many family members just for opening bank accounts. The finance minister also needs to avoid the situation of a State clerk registering any applications keeping the people waiting for hours for not having a red pen, and the finance minister needs to do away with the State employees wearing the state-provided uniform openly demanding money for giving green stickers to the private vehicles. These are the only few small State administrative evils I have encountered. If all the administrative ills remain then the country cannot achieve the target of the economic growth.


July 18, 2013

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