Deadlock again

With scant regard for piles of pending work, two opposition parties have again disrupted the smooth functioning of parliament. The unceremonious deadlock of this summer session has been attributed to Prime Minister Sher Bahadur Deuba’s radical land reform package, accompanied by an order freezing all land transactions. Though the package won overwhelming support from the leftists, it has proved a kind of bombshell for other political parties. The Rashtriya Prajatantra Party and Nepal Sadbhawana Party are raising a hue and cry over the reform package, demanding that the suspension of land transactions be removed immediately. It has also drawn flak from some sections of the ruling Nepali Congress. In a bid to break the four-day deadlock, Deuba is to hold talks with representatives of the RPP and NSP. Failure to restore normalcy to parliament may mean another workless session.

Disruption on one pretext or another seems to have become a permanent feature of our parliament. The House has hardly geared up for work after a disastrous winter session, and the two minority parties are stalling progress on many crucial issues. Had the two parties, which never tire of projecting themselves as democratic, some sense of responsibility, they would have tried to resolve differences on the parliament floor through healthy and constructive discussion. But it is not only the question of immediate withdrawal of freeze on land transactions. Lowering of ceiling on land holdings seems to be another unpalatable idea. They are now calling for a ceiling on property in general, not just on agriculture land. The manner in which they vent their resentment and dissatisfaction cannot be mistaken for any pious cause. More so with their members’ reputation for possessing tracts upon tracts of land. Complicated as they are, the issues involved in land reforms could put many people in a difficult situation, but this does not give any leeway for going about throwing tantrums in parliament.
It is due to such undemocratic practices that people are becoming disenchanted with parliamentary practice. While important bills and proposals are gathering dust, some irresponsible lawmakers are unashamedly enjoying their allowances, and creating a commotion over what could well be nothing more than vested interests.

With the Summer session nearing an end and frequent disruptions, it seems the fate of crucial bills and ordinances - such as those concerning women’s property rights, local governance, armed police force and a host of others - will remain undecided. And similar will be the case with the land reform package which is yet to be endorsed. As things stand now, it will take several months before the proposal is enacted into law. A sense of urgency is lacking among our lawmakers. Otherwise, why can’t they work in earnest and provide legal shape to Deuba’s 17-point agenda during this ongoing session? Whenever policies or development agendas are introduced, they are bound to run into opposition. And the land reform package is definitely no exception. But the issue needs to be settled decently, and not in a messy way as some political parties are trying to do. And if parliament cannot tackle the issue, then there are courts to fall back upon. During his first stint as PM, Deuba terminated dual ownership of land, and his decision was challenged in court. The disgruntled parties should take this as a precedent, and cool down.

The one way trade

By Bhaskar Sharma

Nepal and India share unique economic ties. Trade between the two countries is guided by the Nepal-India Trade Treaty, first signed in 1991 and later modified in 1996. Ever since the signing of the Treaty, bilateral trade between the two countries has grown tremendously. While imports and investment from India to Nepal has increased, export of Nepalese products to India has also grown. The increase in trade was largely as a result of the Indian commitment to provide duty free access for all Nepalese products, barring those in the negative list, to its market on a non-reciprocal basis.

Nepal and India recently held secretarial-level trade talks aimed at doing away with the impediments that came in way of effectively implementing the Trade Treaty. Though the meet was held in a largely positive environment and most issues amicably settled, the two sides could not reach consensus on the issue of export surge, raised by India. This prompted India to send a formal notice to the Nepalese government seeking review and revision of certain provisions in the Treaty. The notification came as depressing news to the Nepalese side which wanted the Treaty to be extended automatically in its present form.

Changing provisions in the Treaty with the sole objective of restricting Nepalese exports would defeat the objective of the Treaty. The Treaty between the two neighbours was signed with the vision of accelerating Nepal’s industrialization. If the market for Nepalese products is downsized, that would mean a setback to what has been achieved so far.

India had shown concern over the export of five products from Nepal, including vanaspati ghee, acrylic yarn, steel pipes, zinc oxide and copper wire, which it claims to have fallen under the surge net. India argued that these products were harming Indian industries. However, considering the meager volume of Nepalese exports, which meets only a fraction of the total market demand in India, should these five products invite the surge clause? Certainly not.

Nepalese exports to India have risen from below Rs 5 billion in 1996 to over Rs 22 billion today. Reciprocally, Indian exports to Nepal also grew from below Rs 20 billion to over Rs 40 billion today. Figures show that the trade between the two countries is heavily tilted in India’s favour. As Nepal has not curtailed imports from India, India too should not check exports from a small country like Nepal. The trade deficit against Nepal today stands at over Rs 18 billion. Restricting exports from Nepal would widen the trade gap, crippling Nepal in the process.

There is no doubt that Nepal must address the genuine issues that India has raised. But in this case, it is not even clear what surge is. The treaty simply states that in case of the duty free market access facility leading to a surge in Nepalese exports appropriate steps will be taken. There is a need for definition and greater clarity before the Treaty is changed on this ground.

India has repeatedly said that the Treaty is heavily in Nepal’s favour. However, it has benefited India to a greater extent despite the non-reciprocity clause. While most Nepalese goods are subjected to countervailing duty (equivalent to excise duty) in the Indian market, over 75 percent of the goods coming from India into Nepal attract zero-duty. The CVD ranges from 16 to 40 percent. And the Indian government since its last budget began charging CVD on the Maximum Retail Price, revoking the former system of charging on transaction value (i.e. import price). This has eroded the competitiveness of Nepalese products in the Indian market. Nepal cannot compete with India on an equal footing since this landlocked country with hardly any industrial raw material has to bear the costs of back freighting. The Treaty should not be used as an excuse for equalizing business footing on the two sides of the Nepal-India border.

Joint venture companies in Nepal are disturbed by the latest Indian demand for a Treaty review. The huge investment that took place following the 1996 Treaty would go down the drain if the Indian side now takes stringent measures to curtail Nepalese exports. India is the largest investor in Nepal, and Nepal-India joint venture companies, which number around 180, would also suffer in the process. The increase in the limit for "Fast Track" approval by the Reserve Bank of India for investments in Nepal to around Rs 2 billion, a prudent move by the Indian central bank, shows the potential for further Indian investment in Nepal.

According to sources, India lately proposed to introduce provisions in the Treaty that would allow imposition of anti-dumping duties and quantitative restrictions on Nepalese exports. Such provisions cannot be accepted by the Nepalese side. After all a treaty is supposed to increase trade, not decrease it.

Furthermore, India is also said to have proposed including Nepal into the Most Favoured Nation (MFN) list after reviewing the Treaty. Surely if the Indian intention is to put Nepal in the MFN list, what would be the need of a Treaty. Even the World Trade Organization (WTO) contains provisions for MFN treatment. Nepal has applied for WTO membership, while India is already a member. Even under the global rules based trading system, the current Treaty will prevail as provided for by the enabling clause. The bilateral Treaty between Nepal and India would hold no significance and the very essence of it would be defeated if the MFN clause is inserted. There is no need to change it, at least not in such a short duration of time. Frequent policy changes would only degrade the environment for bilateral trade and investment.

Earlier, during the secretarial talks, the Indian side proposed either to impose quantitative restrictions on exports of the five disputed items or to tie a 30-percent value addition slab on raw material and labour before the finished goods are exported to India. The Nepalese government rejected both alternatives. And its refusal is justified as it would be backtracking on the Treaty. Nepal instead offered to raise export duties on goods in the surge net. It was an alternative that the Indians should have accepted.

The Indian demand for the 30 percent value addition came amidst repeated accusations that Nepalese businessmen are involved in transshipment. However, it seems India overlooked the fact that Nepal imports third-country materials paying in convertible currency. And certainly no one would like to earn non-convertible currency after spending hard currency. However, the Nepalese business community is ready to comply with the 30 percent value addition norm. But the fear of the government
and the business community alike is the hassles that Nepalese exporters may be subjected to in the name of value addition. Furthermore, can the Indian side promise to keep quiet once the Nepalese side complies with the 30 percent value addition norm.

Nepalese industries are surviving because of the duty differentials between Nepal and India. If India tries to impose barriers on Nepalese exports, by the way of anti-dumping duties or local duties or through any other measure, no incentive would remain for Nepalese industries to operate. The recent imposition of anti-dumping duties by India on export of zinc oxide by six Nepalese industries is a step that cannot be justified. Anti-dumping duties can be imposed only when products in foreign markets are sold at a price lower than the normal value back home. Certainly this has not taken place with Nepalese zinc oxide. Furthermore, the domestic market in Nepal is too small a market for a full-fledged industry. India must recognize this and show some flexibility over the export surge issue.

The two sides are sitting for a dialogue on this issue very soon. It is hoped that the concerns of the contracting parties would be settled in a most reasonable manner. However, reviewing and revising the Treaty on such measly grounds as the export surge of five products would not be justified. The Indian demand for the review comes most likely due to the pressure on the Indian coalition government at the centre from the state governments rather than the gravity of the issue involved. The Indian external affairs and defence minister, Jaswant Singh, in his recent Nepal visit gave assurances about keeping spirit of the Treaty intact. Let us hope Jaswant Singh keeps his words.

Dual culture

By Prakash Atreya

Nepal television has begun its transmission through satellite since last month. Almost fifty percent of homes in Kathmandu have access to Internet. E-commerce is establishing its roots in Nepal. Online shopping is gaining popularity among business tycoons. A new research centre
is being established by young scientists in the country.

Now consider this piece of news: "A woman was subjected to severe mental and physical abuses because she was thought to have been practicing witchcraft!!"

How does that sound? Doesn’t it seem like a small piece of Shakespearean world spurted out of nowhere but travelled along with the time dimension and landed on our planet? It is really absurd that when Nepal is rapidly moving ahead along with technological development, such ludicrous beliefs are still prevalent in many parts of the country. To make it worse, it has extended to a state of mental and physical harassment. It is not surprising that events like woman being beaten up and ostracized from society have been in news papers frequently.

There are more faces of the same story. Whenever something unfortunate happens on arrival of someone, mostly the bride, she is thought to have invited bad luck to the family and so the daughter in law is treated inhumanly at her home. This is more common than witchcraft incidents in rural Nepal and more serious too, because it jeopardizes the life of an innocent girl.

There are many other superstitious beliefs that have taken dangerous forms and have become a great risk to our society. To have such superstitious beliefs, at the time when we are saving our society from the technological disasters, is nothing more than an anachronism. This is an event which makes us chronologically out of time. Surprisingly, it is always the women who are the victims of these superstitious beliefs and men usually walk away with clear hands.

The so-called intelligentsia blame the government for not taking any preventive measures rather than the people who are to be blamed. There is nothing that the government can do about it. It can only punish a few hooligans who are involved in such crimes. But what can be done to eliminate superstitious beliefs from thousands of Nepalese who still believe in witch craft ?

Liberalization and poverty alleviation

By Gunakar Bhatta

The relationship between economic liberalization and poverty alleviation has become a topical issue especially in developing countries since the decade of the eighties. There is no doubt that rapid economic growth is an essential precondition for sustained poverty alleviation. And, a broad-based and sustainable growth is possible when incentives are provided for an efficient allocation of resources which may ultimately foster an open and transparent economic and financial environment.

Economic liberalization, in the present context, requires a drastic reform in the various dimensions of an economy including industry, trade, banking, finance as well as a deregulated and healthier competition in areas such as education, health services and water and electricity supply. Additionally, it greatly influences the agricultural sector through innovations like new technologies, progressive seeds and modern fertilizers. A sudden change in these different dimensions of an economy may have redistributive effects on income that can hurt the rich and the poor at the same time, but the degree of hurt may vary. Though economic liberalization may raise incomes in the medium term, in the short term some segments of society particularly the poor, can suffer losses. This is because the poor or near poor have no resisting capacity in times of economic hardship or transition. Since they have fewer assets, they are less able to absorb adjustment costs than other segments of society.

Basically, poor people do not have sufficient resources to meet their basic needs. Economic liberalization is a kind of economic fluctuation that results in abrupt change in the economic environment and to this sudden change poor are more vulnerable since they lack physical, financial or human capital. This lack makes the switch from the existing established framework of the economy to the reformed ones much more complicated. The impact of reform may be a severe shock to the poor which can transform transitory poverty into a permanent phenomenon. This is the most significant point to be considered while talking about the relationship between economic liberalization and poverty alleviation. Once the poor lose in this transitory phase of liberalization, they have to lose opportunities to acquire human capital through education, health care and nutrition and thus suffer in their ability to get out of poverty in the near future. Another important aspect in this regard in developing countries like ours is the little political voice that the poor typically have and thus they have little or no chance to influence the way liberalization takes place. This disenfranchisement means the effect of liberalization on the poor will be less likely to be taken into account while policy decisions are made and, consequently, it becomes an influencing factor in the challenge to the established socio-cultural and political framework of a country in the long run. Most third world countries are now facing this challenge in one way or another.

But advocates of liberalization say that though there are short term complications for the poor especially because of the adjustment costs at the time of economic transition, it can also benefit them through a number of ways in the long run. Liberalization provides an opportunity to the poor by lowering the prices of imported goods including basic foods, pharmaceuticals, clothing and other usable products. Likewise, poor producers can be benefited by a removal in export taxes and prohibitions on the one hand and by the import of new technologies and processes on the other. Liberalization can also increase government revenue which it can afford to spend the poor as economic activity increases. Similarly, the increased volume of trade as a result of lowered tariff and reduced incentive for smuggling and corruption will also contribute to government revenue. Conversely, there is general concern that liberalization may reduce government revenue since tariffs are lowered or eliminated, and as the government may cut social expenditures or implement new taxes in an effort to maintain macroeconomic stability. This could affect the poor disproportionately. It is a fact that liberalization, particularly with reference to trade may have positive, negative and neutral impact on government revenue. It all depends on how effectively domestic tax reforms and expenditure measures are designed so as to minimize any adverse effect on the poor. It becomes reasonable not to raise excise and other charges on basic foodstuffs, pharmaceuticals, clothing and other basic goods and services that are used by the poor and cut back on non productive government expenditures rather than on those which have a direct impact on the poor.

An important factor in sustained poverty reduction , as mentioned above, is robust economic growth in which the poor can participate. Though in the short term growth can be affected because of the open policy environment, liberalization helps the rate of growth of an economy in the long run through incentive effects on investment and innovation. Economic liberalization is usually associated with higher flows of foreign direct investment with attendant spillovers of technologies, new business practices and other effects that increase the overall level of productivity and growth. Liberalization will make an economy more open and foster deeper economic integration with the rest of the world. This helps in diversifying exports in line with comparative advantages and making the economy less dependent on single export markets or products. In addition, integration with foreign markets helps an economy diversifying risk away from the domestic market, so that domestic economic downturns are offset by growth in the international economy. However, openness may also make an economy more vulnerable to external shocks, such as abrupt changes in the terms of trade, which can have an important effect on growth. If the shocks affect certain sectors such as agriculture or informal production directly, they can have a large effect on the poor.

People in Nepal, as in other countries of the world, strive for a better future with more investment, stronger economic growth, and better social development. In this country, we have two extreme poles in which forty percent of the total population subsists under the line of absolute poverty on the one hand and more openness is being welcomed in the economy on the other. The above discussion is centered on the key thesis that liberalization offers both opportunities and challenges for the poor also, along with other segments of society. Economic liberalization need not always be on obstacle in the road of poverty alleviation, rather it can also contribute in promoting the living standard of the poor. It functions unfolding many new areas of income and employment on one hand and threatening the traditional and established sources of income, employment and other socio-cultural aspects on the other. Times of such ups and downs, the life style of the poor including their income, employment, education and potentiality for development are badly affected and they need protection in one way or another. The role of the government becomes very significant as it can promote and foster private sector-driven growth in ways that are pro-poor. As the transition needs to maintain a trade off between liberalization and poverty alleviation, rational policy options are required for building the right climate for investment and empowering the poor to share in the growth. Investment friendly environment requires macroeconomic stability and openness, quality infrastructure, good governance and strong institutions. And, an environment to empower the poor so they can participate in growth needs the government investment in and promotion of education, social protection and community participation.