Will the expected economic growth trickle down?

By Prem Khanal

KATHMANDU, Dec 7 - The first-ever second consecutive year 6 percent growth projected for this year is likely to make a significant dent in the fight against deepening poverty and worsening unemployment situation, say expert.

Economists believe that the increasing per capita income - though a biased indicator of national welfare - has brought a renewed hope in achieving the national goal of poverty reduction.

"As majority of the population is heavily dependent on agriculture, the healthy GDP growths under the boon of good monsoon will surely have positive impact on poverty reduction and employment generation," says Dr Shankar Sharma, Member of National Planning Commission.

The projected GDP growth rate for the current year is different from that achieved last year for various reasons: Firstly, the historic GDP-bounce recorded last year against relatively low base in the previous year, while the expected 6 percent growth rate for 2000/01 sprouts from a higher base. Second, the projected high-growth is so far accompanied by low inflation - 2.3 percent in the first quarter of the current fiscal year. However, experts argue maintaining this rate makes up a major future challenge since Indian inflation, which highly influences domestic inflation rate, has already crossed 7 percent.

Besides, recent hike in the prices of petroleum products and continuously strengthening greenback, would definitely fuel the domestic inflation.

Answer to a critical question, whether the present growth would trickle down to lower strata of populace largely depends upon the number of job created by non-agriculture sector and farm income to the rural farmers. Another critical issue is whether the growth rate would be achieved for another couple of years.

To maintain the current upward growth trend in agriculture, the government must ensure the round- the-year irrigation facility and uninterrupted supply of fertilizers. However, indications in this direction so far are depressing: The expected increase in the use of fertilizer following the subsidy withdrawal has not materialized. Similarly, out of the targeted installation of 8,000 shallow tube-wells last year, only 2,000 were installed. A dismal performance in the agriculture sector has been a major obstacle to sustainable economic growth.

Good harvest of paddy, which is a major source of income for rural household families, has spread the hope that increased income of farming community would prop up their purchasing power, generating demand for industrial goods and services and, thereby, creating other multiplier effect.

However, unlike last year, this time such assumptions might not fully work due to sharp decline in the prices of agriculture products. The present slide in price might not even contribute to maintain household saving at par with that of last year. However, Dr Sharma opines that since the expected agricultural growth rate is calculated in real price after deducting inflation, any serious impact on the rural households is unlikely to occur.

Sustained growth in the non-agriculture sector is expected to provide an anchor for the long-term growth.

In past, the non-agricultural sector had played remarkable role in preventing GDP to crash to the bottom, even at a time of negative growth in agricultural sector. For instance, despite negative growth in the agricultural sector in 1991/92, the real GDP growth achieved was 4.62 percent mainly due to strong non-agricultural sector growth of 9.76 percent. The healthy growth of non-agricultural sector is very important in the sense that it is the only major sector that can create extra employment opportunities and absorb the huge disguised unemployment of the agricultural sector.

Among the major components of non-agricultural sector, manufacturing sector is expected to grow by more than 7 percent. Robust growth in the garment exports and export to India, particularly the products of Indian joint ventures, have played crucial role in boosting manufacturing sector.

Similarly, community and social services is only the expected sector to registered double-digit growth, mainly fueled by bountiful increase in the pay scale of civil servants and subsequent rise in the salaries of private sector employees. Though it is too early to contemplate the economic impact of increased pay scale of the employees, it could be fairly assumed from the familiar consumption/expenditure patterns of most of the employees, that inflation rate could trigger  up since most of the increased income would be used in consumption expenditure.

FNCCI delegation to Indian Embassy

Post Report

KATHMANDU, Dec 7 - A delegation of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) led by its officiating president Ravi Bhakta Shrestha met Dev Mukharji, Indian Ambassador to Nepal here today.

According to an FNCCI press release, they held talks on the recent negative news reports covered by the Indian media regarding the unrestricted flow of cheap Chinese goods to India through Nepal.

Ambassador Mukharji appreciated the proactive role played by FNCCI, FNCCI Confederation of Indian Industry (CII) and Joint Economic Council in promoting Nepal-India trade and economic cooperation. He also stressed on the need of regular exchange between the Embassies and private sectors of the two countries. He also suggested including the Embassy Representatives at the future FNCCI and CII meet, states the release.

The delegation led by FNCCI Second Vice President Diwakar Golchha, included ex officio vice president Rajendra Kumar Khetan, committee chairpersons Kishore Kumar Khanal, Narendra Kumar Basnyat, Santosh Kumar Tibrewala and secretary general BP Ojha. First Secretary of Indian Embassy Nagma Mallik was also present on the occasion.

Carpet export likely to decline

Post Report

KATHMANDU, Dec 7 - Nepal Carpet Exporters’ Association (NCEA) has drawn the attention of the government towards the declining trend and has asked for the waiver of income tax on carpet exporters’ earnings and to reduce the floor price of carpet by 30-50 percent.

In a press release issued today, the NCEA has said that the government has been turning a deaf ear to the suggestions of the carpet exporters, which has resulted in the decline in the export of carpet. The government should take timely measures to help arrest the declining trend, says the release.

As per the government estimation, the carpet export is expected to fall by 10 percent in the current fiscal year. Last financial year, the export witnessed a decline of 3.64 percent. Nepal exported a total of 264 thousand four hundred and 75 square metres of carpet in fiscal year 1998/99 which went down to 259 thousand four hundred and 52 square metres in the fiscal year 1999/2000.

During the first quarter of the current fiscal year, Nepal exported 754 thousand three hundred and 32 square metres of carpet. While it had exported 923 thousand and 63 square metres of carpet in the corresponding period of the last fiscal year, which is 18.27 percent lower than the last fiscal year’s export, states the release.

Even if the export goes up in the remaining period; it is not likely to exceed 221 thousand square metres of carpet during the current fiscal year, projects the Association.

The Association has demanded with the government to provide facility to the carpet exporters on par with the other exporters in order to enhance the competitiveness of the Nepalese carpets.