The civil service apparatus, which survived even during the height of armed conflict, now suffers from limited government capacity to guarantee sufficient material benefits to the poor. A weaker management structure, increased level of centralization at the ministerial level, poor supervision and misplaced accountability has been the salient feature of Nepal’s current governance system. Historically, Nepal has always experienced high degree of political and socio-cultural inequality and exclusion. The challenge in new Nepal is therefore, to maintain distributive justice and equity with regards to the allocation of goods and services. The fundamental question in a resource and capital-poor economy is the division of scarce goods by designing a modality where efforts can be made to offer fair share to every citizen.
INVERSE RELATION BETWEEN GROWTH & DEVELOPMENT
In spite of having major objectives to achieve accelerated growth and paradigm shift of outward-looking approach in the development policy, Nepal’s GDP growth rate remains one of the lowest in South Asia from the very beginning of its development planning. Nepal is the only country in the region whose real GDP growth rate declined in the period of 2003-2008 (3 percent) in comparison to the period of 1997-2003 (4 percent).
Nepali economy is still characterized by subsistence agriculture with high incidence of pervasive poverty and a large degree of disguised unemployment. Industry has been the weakest contributor to gross domestic production. The GDP growth rate is low and erratic. The highest growth rate was realized at 7.6 percent in the year 1994 and was as low as 0.12 percent in 2002. The likely reasons are narrow industrial base (it is sad the contribution of industrial sector, in general, has remained less than ten percent), fluctuating contributions from agriculture and prolonged conflict. On the other hand, the contribution of service sector in the total GDP has increased continuously. Service sector started to pick up since 1975 and surpassed agriculture sector in 2001. Provided that an enabling environment is created for trade and investment by restoring political stability, the contribution of this sector is expected to increase further.
Nepal is the only country in the region whose real GDP growth rate declined in the period of 2003-2008 (3 percent) in comparison to the period of 1997-2003 (4 percent).
Nepal’s agricultural products, including the food grain productions, are not cost competitive compared to India’s. The Government of India, in its annual budget of the FY 2010/11 has earmarked IRs 3, 75,000 crore (15.4 percent higher than previous year’s budget) for increasing agricultural production and productivity through easy access to credit. For infrastructure development the government has allocated IRs 1, 73,552 crore, which constitutes 46 percent of the total plan outlay. Focusing upon development of small and medium industries, the allocation stands at IRs 2,400 crore, which is 34 percent higher than last year’s. The list is long. This necessitates policy adjustment in Nepal’s forthcoming budget to diffuse negative impact of India’s budget on Nepal’s economy.
Nepal experienced a huge decline in the exports of readymade garments, thread, pulses, brans and zinc sheet to India as a result, exports dropped by 4.0 percent in the first half of 2009/10 as against a growth of 1.3 percent in the corresponding period of the previous year. The reason Nepal is experiencing increasing BOP deficits is because of the excess of imports over exports. For example, in terms of destination, the imports from India grew by 33.3 percent in the review period compared to a growth of 12. 4 percent last year.
HOW INCLUSIVE IS INCLUSIVE GROWTH
Nepal Living Standard Survey II conducted in 2003/04 indicated that poverty incidence declined from 42 percent in 1995/96 to 30.8 percent in 2003/04. The mid-term evaluation of Millennium Development Goal (MDGs) by National Planning Commission (NPC) reveals that poverty incidence in Nepal had further declined to 25 percent in 2008. Huge inflow of remittance (contributed one fifth of the total reduction in poverty) is considered to be the key factor for poverty reduction. Other factors include, the government’s budgetary allocation of around 43.7 percent for poverty reduction programs; non-governmental organizations’ efforts; social safety programs and infrastructure development. Increased road access, in fact, induces poor people to adopt modern technology in agriculture to diversify their agricultural products for generating more income.
It took more than four decades (1951-1993) for Nepal to add nine thousand kilometer of road while the country added another eight thousand kilometer of road just within ten years from 1993-2004. Impact of road on poverty reduction has already been studied in Nepal. World Bank found that rural infrastructure had significant impact on poverty reduction and is pro-poor. Similarly, Government of Nepal found that increased access to road has positive impact of reducing poverty and the impact is stronger for lower quintile of the people.
First, poverty did not come down proportionately for all the people in different regions. Secondly, income inequality increased simultaneously with the decrease in poverty incidence for the period 1995/96 and 2003/04. For instance, in 1995/96, Gini Coefficient was 34.2 but by 2003/04 it increased to 41.4. This indicates disproportionate distribution of the benefit of development among different people. Such trend necessitates the development of appropriate policy instruments to facilitate the concept and practice of inclusive growth.
What is worrisome is that the declining incidence of poverty is accompanied by rising income and expenditure inequalities. It indicates policy failure in structural transformation, which was aimed at achieving higher rate of growth. Therefore, the reason that inclusive growth is on the top priority list is to make accessible public services and inputs such as land and credit to the poor. The policy under inclusive growth should focus on productive employment rather than on direct income redistribution.
A developing country’s political system is pressured to contribute to direct income redistribution rather than directed towards creating productive employment. In an inclusive growth scheme, the pace of growth needs to be hastened and size of the economy enlarged, by guaranteeing equality of opportunity in terms of access to markets and resources through regulatory mechanisms. It means expansion of both individual and economy-wide potential becomes possible under inclusive growth scheme. As long as significant segment of disadvantaged group of people are not included in the mainstream development process, there is a possibility that entire chain of prosperity will be broken. To conclude, efforts are needed to reinterpret development itself to avoid the dilemma that development is not merely a growth in per capita incomes. The fundamental reason to conduct such exercise is to find out the ways how the fruits of development percolate to the lowest level through the political economy of development.
bishwambher@yahoo.com
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