Clinton in South Asia
Though he missed - or chose to

miss - the opportunity to visit Nepal, US President Bill Clinton's weeklong visit to South Asia has failed to ease the tension and foreboding concerning security in South Asia. Both India and Pakistan continue to possess nuclear devices and the whole of South Asia now lives under the shadow of  nuclear India and Pakistan. Though President Clinton, in all fairness, did touch upon the nuclearization of South Asia, it cannot be truly and honestly said that his visit has resulted in a better security environment in the region. Even the US now appears to have accepted the concept of nuclear weapons as deterrent in India and Pakistan. To accept nuclear weapons as a deterrent is a wrong concept that must find no place in the 21st century. This is especially true in volatile regions but it also applies to all countries not excluding the five nuclear powers, who between them, have enough nuclear weapons to destroy the world several times over. All nuclear powers as well as the newly nuclear ones must take steps to destroy weapons of mass destruction if the world is to live in a more peaceful environment.

President Clinton's visit to India appears to have given a new direction to relations between the two countries. The vast Indian market will now open up to American investment. By asking India to allow the import  of Kodak products from Nepal, President Clinton has also brought his weight to bear on the understanding that had already been reached between Nepal and India. The Kodak case was a mere demonstration to show to western investors that by investing in Nepal they could export to India where no import duty would be levied. The Kodak product by itself is of little significance but what it entails for Nepal is highly significant. Moreover, Nepalese and Indian governments had been in touch with each other about this matter from the very beginning. Duty free entry of Kodak products made in Nepal could open up vast opportunities for Direct Foreign Investment (DFI) in Nepal, which we are confident, India, as Nepal's friend, also wants. The Clinton "request" should not go unheeded in New Delhi. Bill Clinton's India visit has no doubt been successful as far as the two countries are concerned.

President Clinton also paid a "flying" visit to Pakistan. The visit did not give legitimacy to army rule in that country, and he did well to call on the army rulers in Pakistan to return the country to democracy. This is as it should be. In addition to Pakistan, other countries in South Asia, particularly Bhutan and Maldives are no democracies and until they establish democratic dispensations in the two countries, they will continue along with Pakistan to be a blot on South Asia. It is precisely because of lack of democracy in Bhutan that about 100 thousand refugees from that country are languishing in camps in eastern Nepal. It is open to debate why some democratic countries want democracy in some countries and not in others. But in any case, the Clinton visit to three South Asian countries, coming as it did at the start of the new century and at the fag end of the Clinton presidency, can be expected to have a lasting impact on the region.

NEA, work it out with FNCCI  

It is hoped that after commissioning Puwa Khola, Modi Khola and Khimti I hydro projects before the coming monsoon of 2000 AD, Nepal Electricity Authority (NEA) will add in average about 500 Gwh/year electrical energy in its system. NEA at present has around 1475 Gwh (1998/99) available energy, of which 1052 Gwh was sold (loss - 23 percent). That means available energy to NEA by June 2000 will be increased by 33 percent. It has been forecast that around 240 Gwh energy will be spilled away every year. This is worth about 96 crore rupees per year (at average unit price of Rs 4.00) The spilled energy will increase by three fold, ie, 275 crore/year when Kaligandaki and Bhote Koshi comes in line by 2001 AD.

Right now, the only way to utilise this power is to sell it to India at 'dirt' cheap prices. It will be suicidal for NEA, to do so, when it is buying power from IPPs (Khimti, Bhote Koshi and Indrawati) at a much higher price than it is slated to sell to India.

At present, out of its total energy sale, only 39 percent of its energy is sold to the industrial sector at an average unit price of about Rs 4.50. It would be advisable on the part of NEA to start negotiation with individual industries, (to start with energy intensive industry like iron and steel factories) probably through FNCCI to consume more of its energy by way of increasing the factory's utilization factor. Industries should be persuaded to use more shifts (night shift included) or round the clock, if possible. To attract them, reduced energy price should be negotiated, so that both NEA and the individual industry benefit. NEA must devise a plan to work with individual industries. While negotiating, NEA should seek guarantee of minimum consumption of electrical energy in such a way that a little over the marginal cost of energy is met and spilling away of energy is minimized. In this way, the country is benefited in many ways. Industry's utilization factor increases, employment of labour is increased, the price of the product is reduced, GDP is enhanced and NEA gets its money. There will be many more multiplier effects which help the country's economy.

Let us hope NEA starts working on this issue, before it starts getting late.

Macroeconomic performance and bank lending

By Sushil Ram Mathema

The restoration of parliamentary democracy in 1991 was considered a milestone for addressing the issues in the country's economic development and that it would also help in attaining the country's main objective of alleviating rural poverty. Of late, the series of hanging governments that Nepal witnessed during the last couple of years and ongoing political upheavals within the present government has slowed down the pace of economic reforms pursued during the 1990's.   Although a silver-lining was seen as the country attained a moderate growth of 5.2 percent during the Eighth Year Plan, the recent declining trend observed in the latter half of the 90s  should be a matter of prime concern for it raises the question whether the country's plan efforts have failed to go in the expected direction. Domestic investment continued to decline after FY 1996 registering  an aggregate decline of 10.2 percentage points during the last three years  period to 17.0 percent of GDP in FY 1999. This is also corroborated by the development that credit to the private sector has been declining  over time after FY 1995 and has registered a growth of 18.8 percent only  in FY 1999.    

While the reluctance of private sector participation in production  activities due to constraints in smooth access to loan availability and stability of government policies and bureaucratic administration appeared to affect the pace of domestic investment,  blame has also been put on the banking sector claiming that commercial  banks have purposively diversified their loan portfolio from the productive sector in spite of their higher liquidity in the system. This is on account of the fact that commercial banks suffer from  high percentage of non-performing assets. Moreover, about more than sixty percent of such NPA's are concentrated in the two large  domestic banks- Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB). Non-performing loans as percentage of total loans of RBB and NBL stood at 16.8 percent and 24.4 percent in FY 1998. These banks have recently emphasized the loan recovery process and showed caution while extending fresh loans.

The accusation that commercial banks exhibit unwillingness  to lend for productive activities remains on the one side, but it is also the overall performance of the country's economy, which should affect  loan decisions. Particularly, the level of GDP growth rate, budgetary performance, inflation, trade balance and  foreign exchange risk factors are some  major macroeconomic indicators which carry a bigger weight in the banks' decision on  lending.    

On account of important changes made in the policy environment, Nepal experienced a relatively better economic growth till FY 1996. It however  showed a falling tendency in the ensuing years. The real growth rate   registered at 3.36 percent during FY 1999. Such low growth generally  leads to less consumption, reduction in sale and therefore low level of further investment. This leads to low level of lending as in a developing country like Nepal, investors resort to bank financing for investment  purposes.   

Nepal has experienced a relatively low rate of inflation at single digit  except for FY 1999 (12.7 percent). We know that when prices go down, profit margin is expected to be less and therefore it does not stimulate investment. Investors therefore decide to defer their investment  programs. As such, one could argue that low rate of inflation could be  one of the so many factors why both domestic investment and credit to  the private sector decelerated during the period when the country experienced non-escalatory annual movement of domestic prices.

Some scholars are of the opinion that low level of bank lending was  propelled not only by the willingness of banks to lend but also that it was the spillover effect of poor public expenditure, particularly, government development expenditure. Private sector economic expansion is greatly dependent on public sector spending in the case of Nepal. With the deceleration in public sector   spending as indicated by declining development expenditure which  registered, on average, 1.9 percentage points decline to 9.5 percent of GDP during the last five year period compared to the period of FY 1991-94,  private sector investments were   substantially discouraged  thus thwarting the expansion of bank lending.    

Among others, external sector is the only sector that has, perhaps, achieved the distinction of being the best sector after liberalization in terms of the performance of export growth and foreign exchange accumulation. Nepal has been enjoying a favourable trade balance on account of export growth outpacing import growth. This is certainly a sustainable situation for stimulating industrial activities. Figures reveal that exports as percentage of GDP increased to 10.9 percent in FY 1999 from 8 percent in FY 1996 while imports as percentage of GDP declined to 26.1 percent from 30 percent during the same periods. The ultimate effect of this favourable development in the trade balance should have been reflected as expansion in  industrial development. A cursory look at the bank's lending portfolio however depicted a different  scenario. The share of commercial bank's lending (including ADB/N) in industrial sector has, in fact went down to 42.3 percent in FY 1996/97 from 44.0 percent in FY 1995/96. On the contrary, the share of bank's credit in the trade sector has ascended to 37.1 percent from 36.6   percent in the same period. Doubts have therefore been raised that it is the non-sustaining nature of durability of export trade structure which  may hamper smooth transition of  external sector development to the real sector.

Although there has been a structural shift in the composition of exports in recent years as the share of manufactured goods increased to 45 percent in FY 1999, Nepal's export sector suffered  from its limited base as the export of main exporting commodities like Woollen carpets and Readymade garments declined drastically particularly in FY 1995 and FY 1997. Even the export of Pashmina which had been gaining momentum in the past has lost its pace in recent times. The government could have implemented an appropriate effective policy to consolidate the export trade to make it a more durable phenomenon. The expected impact would have been increase in demand for imports of  particularly  raw materials for the industries, which in turn would invigorate bank's lending to the industrial sector.

The foregone analysis on the relationship between the performance of  major economic variables and the bank's lending pattern suggests that  although macroeconomic performance affects bank's lending, the   theoretical expectations are not guaranteed by the Performa indicators due to the existence of various unseen imperfect market situation. Moreover, it can also be asserted that bank's lending is mostly guided by these imperfections rather than by the observed performance of key macroeconomic variables. This is also an indication of the situation   that in spite of liberal policies adopted by the country, it is still suffering from strong structural problems. It seems therefore too early to blame the bank's negative attitude towards productive lending that  has been cited in recent times.    

Nonetheless, commercial banks should accept it as their responsibility   to provide full cooperation and helping hand to the government in its  endeavours at economic development. In fact, they can resort to Consortium Lending in the government priority sectors such as hydroelectricity or road or other infrastructure development. This will, on one hand, solve  the problem of excess liquidity in the economy and also assist in  creating necessary infrastructure for a better investment environment  that, subsequently will contribute in the overall economic development of  the country.

The air is greener here

By Sagun S Lawoti

It has been quite some time since I had been to an Indian metropolis. Say, more than two years. And suddenly air dropped (I went by air) in the Indian capital, I found things which I could relate to.

For starters, it was the atmosphere that gave me a sense of belonging. The people and their (comparatively louder) voices. From the clothes the neighbours wore to the cars they travelled in. I mean the smallest of details added on to the feeling of deja vu.

The forever vigilant and aggressive taxi drivers, surrounding you and shouting Taxi! Taxi! to mean, do you want one? as one emerged from the airport, was only one of them. Lucky me, I could avoid the zealous lot. I had someone to pick me up. Someone I knew, courtesy my family.

And soon, with my luggage stacked in the trunk of the Maruti we took off. Hot and humid air gushed in as the van accelerated. But that didn't matter much. Because from road to traffic to policemen to the roadside trees, I was busy sizing up the surrounding.

Credit it to the limitless, infinite state of mind, even before realising, I was already walking down memory lane. My mind seemed to drift away to Bangalore, the Garden City now Silicon Valley of India, where I'd spent a significant part of my youthful days. Somehow unknowingly, I was already comparing things. In short, Delhi was bringing back memories.

But then my thoughts got interrupted. "I don't like driving in Delhi, I prefer travelling by bus," My host

said cursing the traffic. Unable to understand the point I asked him

why?

"You should see how bad the traffic gets by the night. It takes an extra hour, sometimes even more to reach the same place. Besides the jam, the traffic here moves fast and it can get scary. No day goes by without an accidental death being reported. While pollution is another nuisance", replied he.

Saying that he again blurted out, "Aren't your eyes burning? Isn't your nose itching? It's so polluted here! They say, Delhi has become the number one polluted city in the world."

That ended my dream. And almost automatically I began to see the black, thick, chimney of smoke that the whizzing vehicles left. And like what my friend had suggested, my nose soon began to itch and my eyes started to burn -- which only worsened during my three-day stay.

Finally, I flew back -- to the land where gods dwell. Chilly air greeted as I stepped out of the aircraft. The usual round of security and immigration, I found myself out in the open. It was then I realised, compared to Delhi, Kathmandu after all was heaven on earth.

Likewise, I also noticed the Kathmandu air was much-much cleaner. Breathing freely, without hesitation (unlike in Delhi), I thought to myself that we were indeed luckier. Only maybe, we needn't interpret the glass to be half empty, almost all the while.

BETWEEN THE LINES
Bhindranwale's ghost ?

By Kuldip Nayar

It was a short visit to Amritsar, Punjab's political capital. The Shiromani Gurdwara Prabhandak Committee (SGPC) and the Akali  Dal that controls Sikh politics have their headquarters here. The Golden Temple, the Sikhs' Vatican, is situated in the city. It is here that Jarnail Singh Bhindranwale blessed the militancy some 20 years ago. Pakistan, which jumped into the arena at that time, is only 15 kilometres away.

Will or can militancy, which ended some eight years ago, come up again? I sought an answer to this question while in Amritsar.

In some ways, the conditions are similar to the ones which prevailed before the birth of the militancy. What were termed as Sikh demands, more autonomy to the state (the Anandpur Sahib resolution), an equitable division of waters and integration of  Chandigarh with Punjab. These

stay unresolved till today. The unemployment among  youth has increased. And the administration is as corrupt and as unresponsive to the people's needs as before. Professional agitators too have not stopped from initiating another bout of confrontation in the state.

For example, some Punjab papers carried a few days ago an advertisement for the celebration of Bhindranwale's 53rd birth anniversary. Subsequently, there was a gathering in front of the historic Fatehgarh Sahib Gurdwara, where inciting speeches were made.

This speaks well of democracy and freedom of expression that India has sustained, despite all vicissitudes. But this does not speak well of the three sponsors, Gurcharan Singh Tohra and Simranjit Singh Mann, both Parliament members, and Gurtej Singh, who writes against his name IAS, even after having resigned from the service.

All the three have sworn to uphold the constitution and the country's integrity, the first two before contesting election and the third before joining the service. Still they are flouting the letter and spirit of the constitution by encouraging separatists and  fundamental forces.

Understandably, their fight is against Chief Minister Prakash Singh Badal, who does not divide the Punjabis into Sikhs and Hindus, but who has failed to perform. He is a political force to reckon with. Since they cannot defeat him in that field, they have resorted to playing the religious card.

Had Tohra and Mann the courage of their conviction, they would have resigned from Parliament and come in the open to preach secession. But they hide themselves behind the slogan of Sikh identity or yudh (war) in defence of Sikh religion. They do not say what they mean nor mean what they say.

They have hailed Bhindranwale as "the great Sikh of the 20th century." Surprisingly, the revolutionary Bhagat Singh and the great Punjabi writer Bhai Vir Singh do not figure in their reckoning.

Punjab and the Sikhs have suffered for one decade because of such persons who trade in hatred. In fact, the state has not yet fully recovered  from the damage that militancy caused. There are already efforts to destroy whatever has been built so far. The Sikh community has got hurt because of the wrong impressions created about it, not only in India but also abroad. It does not want Tohra or Mann. It wants to be left alone.

The family of Bhindranwale said on the eve of his birth anniversary celebration: "It is the habit of political persons to talk politics whether the occasion is the birth or death. We keep out of all political matters." Still so many persons have involved the family for their political ends.

Punjab's biggest problem is that its mainstay, agriculture, has hit a plateau. In fact, the standard of living is coming down. Other avenues like industry have to be opened to provide opportunities for employment and development. Investors have not yet returned to the state. They would be scared if there is even a whiff of suspicion that militancy can revive.

That the Sikhs should have a feeling of their identity is not something reprehensible. All communities in India fancy the same idea. Also, the effort to  make the country a federal polity is understandable. All states are clamouring for more say in their own affairs. The Constitution Review Committee has the devolution of powers on the top of its agenda.

But when the  threat of militancy is hanging on the head, even genuine demands are doubted. They get pushed from the realm of discussion for  solving problems. If they are kept pending, disruptive forces get a boost.

Thankfully, the attention of people at present is not focused on militancy. They want better governance and a cleaner administration. In their search, they may go from the Akalis to the Congress when the Assembly elections are held next year. But the elements representing Tohra and Mann will again be in the wilderness. They have nothing except fanaticism to sell.

It is wrong to assume that the scourge of terrorism that blighted the state for some eight years went because of police action. The Sikhs themselves revolted against  militancy. They themselves shut the door on the terrorists, to whom, many among them had given shelter in the belief that they would articulate the community's feeling of neglect and economic hardships.

Terrorists became oppressors and did not spare even the Sikhs. Political demands by the community were exploited to justify murder, loot   and the like. When popular support dwindled, the base of the terrorists cracked.

The real tragedy is that as soon as terrorism was defeated, the centre turned its back on Punjab's genuine demands. Even the killers of 3,000 Sikhs at Delhi in 1984 in the wake of Indira Gandhi's assassination went unpunished. Belatedly, the centre has agreed to constitute a commission to find out the real faces behind the 1984 rioting. Still there is no talk about the removal of other grievances.

In fact, the remnants of terrorist outfits have not yet reconciled themselves to the fact that they do not count with the public any more. This is clear from the alliance they are seeking with militants in  Kashmir. But this is ominous of Punjab. Both can one day pose a threat to amity in the state.

Still, it is unlikely that militancy will return to Punjab. The reason is the sufferings the people in the state have gone through. Thousands of innocent people were killed and businesses worth crores of rupees ruined. The young skipped their youth and found themselves adults in the midst of guns. They wanted jobs, not guns.

There is yet another point rankling in the minds of the people of Punjab. If the government had punished the police and other public servants, who committed excesses, the pain of the aggrieved would have lessened. There would have been a feeling that the guilty did not go unpunished. But the politics of convenience had the better of the government. None have been touched. This remains a blot on the administration's face. It does not, however, mean that the ground is getting fertile for militancy. All it means is that Punjab's problems are yet to be solved and that there are elements wanting to disturb peace and amity on one ground or the other. The centre has to keep this in mind.

The controversy over the Sikh (Nanakshahi) calendar is an expression of accumulated grievances. That the dates of festivals and the birthdays of Sikh gurus will be different from those followed at present is a symptom, not the disease. The disease is that the mechanism for sorting out things is getting rusty. People want to air their differences and they will use any method to do so. It may look as if they are washing their dirty linen in public. But what they are looking for is attention.