Low agricultural growth

Agriculture is still the mainstay of the economy, if not in terms of GDP, then certainly in the percentage of the total population, which is still directly tied to it. Any bad news from the agricultural sector is bad news across the board and vice versa. Last year agriculture presented a fairly upbeat picture thanks to a fulsome monsoon. So, not surprisingly the economy too ended up receiving a pat on the back from those, who keep track of its performance. The only spanner in the works was the flooding of our market by cheaper grain from across the border. That led to the stockpiling of indigenous grain, less money in the hands of local farmers and some bitterness all round. But last year was on the whole a good year. The same thing cannot be said for the entire first half of the Ninth Plan which completes its third year come next year. Growth in this sector during the period was a measly 2.9 percent, way below the target of 5 percent. Any hope of using agricultural growth
as an antidote to poverty and unemployment was disappointed. According to National Planning Commission officials, the main culprit behind this dismal showing is the low level of budget sanctioning, an administrative problem. Budget disposal during the first three months of the plan period was nominal, or 7.16 billion rupees out of the total of 21.52 billion available. It is now highly unlikely that the lag will be made up for in the rest of the plan period and the targets reached.

Another school of thought is that the poor implementation of the much hyped Agricultural Perspective Plan (APP) is at the root of the problem. It is alleged that the plan, instead of being actually implemented, is only being used as an excuse for drawing in as much foreign aid as possible. Practically all the projects under implementation under APP are said to have floundered. Considering how much store this country sets by long-term plans such as the APP and similar long haul approach in various other fields, the latest being a 20 year plan for the development of roads, it is indeed disappointing the way the APP has fared.

Part of the blame has also been put on the withdrawal of subsidies from irrigation and fertilizers. Subsidies are a much more complicated issue than may appear at first and it is not safe to generalize. But one reason grain coming here from India sold much cheaper than local grain was the subsidies available in that country. It is now beginning to dawn on decision makers here that subsidies have to be fine-tuned considerably to prevent their misuse. Similar is the story with fertilizer subsidy, something over which the authorities seem to have been blowing alternately hot and cold in recent times. Perhaps not surprisingly, land reform has also cropped up again as a means of stepping up farm output. This is a much politicized issue. But the bottom line is, no matter how we go about treating the ills besetting our agriculture, one problem that should he addressed right away is how future grain price differentials between Nepal and India are to be handled. Those differentials are symptomatic of much that is wrong with Nepalese agriculture.

Domestic price movements

By Sushil R Mathema

The policy stance of any developing country emphasizes primarily domestic stability with sustainable growth. In this respect, the monetary authority of the country which, in many cases, are the central banks have the final objectives to achieve domestic price stability through i) containing inflation to a desired level ii) improving the balance of payments iii) creating employment opportunity and, iv) attaining sustainable economic growth.

As such, inflation in Nepal has remained the uppermost concern of all the issues pertinent to its economic management. The structural adjustment programs, SAF and ESAF, beginning December 1985 through 1995 targeted to limit annual inflation at 5.0 percent. The country however experienced double digit average annual inflation of 11.6 percent and 11.1 percent during 1986-90 and 1991-96 respectively. The relatively lower level of single digit average price rise of 8.0 percent was recorded in 1995-00.

Various factors including exchange rate devaluation to upward revision of administered prices along with excessive monetary expansion resulted in a higher inflationary situation in the past. Recent experience, however, reveals that the movement of national prices is much dependent on the status of agricultural production, supply situation of food grains and movement of prices in India. The structure of the Consumer Price Index in Nepal has accorded heavy weight to grains and cereal products (29.43 percent in old series while 18.0 percent in new series). Likewise, past studies show that a ten percent rise in the Wholesale Price Index of India (WPII) would bring about 4.5 percent spurt in the national price measured in terms of Consumer Price Index (CPI) after a lag of three and half months. As the inflationary impact is generated basically due to the escalation in the prices of commodities under food and beverages group, the nature of inflation in Nepal is basically a cost-push one, which is mainly induced due to supply side constraints.

It is to be noted that Nepal heavily depends on the import of food grains and vegetables such as potatoes and onions from India to ensure better supply of these commodities in the domestic market. The higher annual average inflation of about 12.7 percent observed in the FY 1998/99 is attributed mainly to the implicit impact of the failure of above crops in India during first quarter and, even up to the beginning period of second quarter of 1999 and, long standing deficit supply of pulses in India and rise in the price of rice. This had gravely affected the supply and thereby the prices of the same in the home country. In contrast, the lowest ever recorded inflation of 3.3 percent in FY 1999/00 in the past decade is mainly the consequence of better production of food grains in Nepal and the dumping of rice from India, which pulled down the domestic price of paddy significantly.

Price fluctuation in India thus greatly influences the domestic price movement on account of open border with India and mobility of goods and services across the border. This has also compelled the government to make occasional price adjustments in the administrative prices of essential commodities such as POL products, fertilizers and so on.

This has virtually discredited the monetary policy to contain domestic price movement in the country. Besides, the burden of adjusting domestic prices of essential commodities with the price factor development in India does create the situation of real appreciation of the domestic currency, curbing the export potential to a certain extent while encouraging imports, and thus, affecting the current account at the end. This will also subdue the efforts at maintaining nominal interest rate structure at a lower level, propelling the incidence of higher savings-investment gap. With the national prices tend to remain higher, it could make the nation’s poverty alleviation programs non-sustainable.

Regional factor has had a strong bearing in the movement of national prices in Nepal as observed in the recent past. The impact on national price is generally felt on account of higher prices experienced both in the Terai and Hills (8.8 percent and 8.7 percent) as compared to Kathmandu (6.6 percent) as observed during 1995-2000. Low production and productivity in the Hills necessitate the inter-regional movement of goods either from plains or imports from India and, vulnerability of prices in the Terai because of cross movement of goods across the border with India and, absence of spatial markets generally to push up the price indices in these regions.

Given that Nepal’s prices are determined by the movement of prices in India and supply side developments with respect to food-grains availability, it implies that the movement of prices in Nepal does not give an impressive indication of relative stance of monetary policy. An expansionary or credit policy would be reflected in the balance of payments developments rather than in differential price movements between India and Nepal. It is, therefore, suggested that a focus towards improving agricultural production and thereby its supply situation with the development of active regional spatial markets particularly in the Terai region is the current need as to the policy of containing price movement in the country.

Although the government has committed to following the Agriculture Perspective Plan (APP), the issue of ineffective implementing agency and the huge demand for financial requirements poses a question mark over its proper and timely implementation. In addition, in the wake of a new policy that advocates the reduction of grants and subsidies, price control through subsidy programme does not seem to be favoured under the government’s current strategic policies.

Constitutional ceiling

By Utpal Raj Misra

Why all the confusion about our democratic constitution? Different people are talking about a host of things regarding the constitution and simply confusing the people. But don’t be disheartened. There is a way out of this jingoistic morass.

All one has to do is listen to the experts on democracy and just simply believe them. Belief is a physiological remedy for those who cannot either think for themselves or those who cannot prove the authenticity of what they accept as the truth. Well, I cannot really tell you whether there is any difference between wishful thinking, hope, and belief.

Ask anyone in the street as to which party they believe would win the election and they will provide you with the answer in conformity with their desire, or wish. You can take the recent opinion poll published by Himal magazine as either the wishful thinking of the respondents or the reflection of actual reality of the country. Nevertheless, one of the questions that asked, "who should control the army?" is bafflement.

Either, the person who made the question had not read the constitution or there is some esoteric meaning in the provision of the constitution which the likes of me can never understand. According to the constitution, "His Majesty will (note: not may) utilise the army in accordance to the recommendation of the Security Council". It is as clear as that! So what is the vested interest inherent in the question asked by the Himal survey?

Of course, the very provision of the constitution also provides that the majority in the Security Council would belong to the Cabinet of the ruling party. And that the rules, regulation governing its functions will be made by the Council itself.

So by implication the army is to be controlled and used by a single party or rather the cabinet. No wonder that other parties are opposing the use of the army! No wonder, the army wants a national consensus on the matter! With the majority of fickle minded and unreliable persons controlling the Security Council, who have not been able to make feasible and viable rules and regulations for the Council, the manifest reluctance of the army is understandable.

But the question in the Himal survey indicates that there is more in the constitution than what is written. Not only that but there seems to be upper limit or ceiling on the provisions of the constitution as indicated by the statement made by the Prime Minister in Biratnagar about the journalists getting "…more freedom in our country than prescribed by the Constitution". That also indicates that there is in our Constitution (unwritten of course!) a sort of ceiling on the freedoms granted by it. How much freedom was granted? And what freedom is "more" than granted by our Constitution? Is their a ceiling or upper-limit to the provisions of the democratic constitution?

Such constitutional questions only make us more confused. So let us just follow what the Prime Minister of the one and only Democratic Party says and ignore what is written in the Constitution. Who should know democracy more than GP Koirala? If he blames the army, don’t even think of the adage about "bad carpenters blaming their tools". Follow the line taken by Himal, and be on the safe side. If Girija thinks Democracy is all about making confusing statements, so be it. Himal supports him. So should we. Don’t you agree?

Losing space and earnings

By Kuldip Nayar

I am not criticising Parliament for having discussed the India-Bangladesh border clash when the opposition did not allow even the debate on the Railways bills. Parliament did the right thing because the happening had jolted the country. My point of contention is that why the same Parliament did not likewise take up the most disturbing problem: the steep fall in the growth rate, from 7.6 per cent last February to mere 0.6 per cent this February?

It is apparent that every segment of economy is getting a battering. Not only has the slowing down of economy in Europe and America affected us. But the dumping of foreign goods in our markets has also aggravated our difficulties. The industry is rapidly losing space and earnings, resulting in vast unemployment. Two lakh small units have closed down in UP alone. Our agriculture is still breathing because of support price. Prices of commodities without subsidy are fast tumbling.

I had imagined that the government would have prepared by this time a plan for how to stop dumping and how to retrieve the industry from the morass of low growth rate in which it has sunk. The government had given an assurance during the winter session of Parliament that it would introduce necessary measures to meet the situation.

But the replies, which Finance Minister Yashwant Sinha and Commerce Minister Murasoli Maran have given to the questions in the Rajya Sabha, indicate that the government has no plan or strategy to face the foreign onslaught. Parliament members, concerned as they are, have persistently asked why no action has been taken to revive the industry and to stop the dumping of foreign goods. The ministers’ stock reply is that "the government is seized of the problem." It is still considering counter-measures and, in the meanwhile, the economy is deteriorating.

A few months ago the issue was smuggling. Today, it is dumping. Still there is no change in the government’s attitude. In fact, Maran has said that the government will not stop the import of cheap Chinese goods. This is no way to tackle the problem. It looks as if Maran has not only said goodbye to politics but to effective functioning as well.

Despite all the warnings the government has allowed the situation to come to such a pass that there is no light even at the end of the tunnel. Maran and Sinha do not seem to realise how deep the crisis is. There is practically no export of finished goods. The textile industry, which gave employment to thousands, has collapsed. Readymade garments do not sell abroad any more. Steel is accumulating in godowns.

Hundreds of people are joining the unemployed every day, with no new avenues in sight. Planning Minister KC Pant has come with a brilliant suggestion: pay more attention to health and education. Where are the funds? The social sector is the worst sufferer these days because the government has slashed allocation for it. It is time the government convened a meeting of the National Development Council comprising chief ministers to discuss the gravest economic situation the country is facing since independence.

Even normally, the states should be consulted because they are the ones which bear the burden of central policies formulated in the light of WTO directives and the World Bank’s goals. Except for the Union Territories, which have the Centre’s largesse, the states have to raise money for development from their own sources. It is a pity that they have to suffer because of New Delhi’s policies which have resulted in this flood of foreign goods in our markets and the marginalisation of our own industrial units.

Yet the government says that there is nothing to worry about. The main argument given is that India’s foreign exchange assets have gone up to $ 35 billion. In no way can it be attributed to exports. Foreign investment is also very low. There is some other reason for the accumulation of assets. In any case, their increase is good news for importers. Our problem is to make some dent in unemployment. The mere rise in foreign exchange reserves does not do so. One way out may be deficit financing. Printing more notes may be bad economic because it causes inflation. But more money in the market will generate jobs - the jobs needed by millions. A bit more inflation will hurt us far less than unemployment.

Unfortunately, the ruling National Democratic Alliance (NDA) has done something worse; it has enhanced the age of retirement from 58 to 60. The recommendation of the last Pay Commission was the opposite. It is time we went back to 58 because the government will be able to offer more vacancies. True, its establishment is colossal. Around 38 lakh employees are on its pay list and they cost the exchequer Rs 31,500 crore in 1999-2000. This amount does not include expenditure on the armed forces and paramilitary contingents. But in the face of lessening opportunities elsewhere, the burden is justified.

Sinha announced in the budget speech that the government would constitute a pool of surplus staff and offer it a voluntary retirement package. Such schemes may decrease the government’s burden, but they will add to the woes of people who depend on the government, the largest employer. New Delhi cannot run away from its responsibility of expanding employment opportunities. The government cannot throw out employees in the name of voluntary retirement. Already there are examples where the banks have been denuded of senior staff in the name of voluntary retirement. Some employees have been literally pushed out, disrupting the normal business of banks.

Coming back to Parliament, I am glad that the deadlock between the NDA and the Congress has nearly ended. When I took up the matter with the Prime Minister at the beginning of the session to agree to the appointment of a Joint Parliamentary Committee on the understanding that it would allow a debate on the Tehelka expose, he did not want to give any undertaking. He said that his mind was open. I conveyed the gist of the talk to the Congress. It was not then prepared to accept what it has accepted now: "an open mind" of the government.

The Congress, which is prepared to accept even a CBI inquiry, should realize that the Prime Minister feels personally hurt over the words Congress has used against him. "Nobody has ever called me in my 40 years of parliamentary life at my face, chor (thief). Let them make amends for the abuses they have hurled on me," he told me. If the Congress wants the JPC, it must apologise in some way for calling the PM bad names.