‘Shall we cheer low inflation?’

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KATHMNDU, May 29 -Achieving a healthy economic growth accompanied by low inflation rate is the prime objective of any modern economy and this is what Nepalese economy is likely to enjoy the current fiscal year. The overall inflation rate during the first nine months of the current fiscal year remained at 2.2 per cent, as against 3.4 per cent observed during the like period last year.

According to the latest compilation by Nepal Rastra Bank, the inflation rate for food and beverage group registered a negative growth rate of 1.7 per cent while the same for non-food and services group was 6.7 per cent. Despite high price rise in the non-food group, the negative growth of food and beverage group, which commands 53.20 weightage in the overall national urban consumer price index played crucial role the keep the aggregate inflation rate at the ebb.

The tumbling price of grain and cereal products that bears a weightage of 18 per cent in the food and beverage group played the leading role in dragging down the index. The price of rice, which largely dominates the group, recorded a remarkable plunge of over 15 per cent item whereas such plunge during same period last year was just 1 per cent.

The present low mark inflation rate is neither a healthy one nor as desired by the economy since it has been achieved at the cost of slumping incomes of the farmers, which provides livelihood for around 90 percent total population. In Nepal, good harvest of paddy, which holds 53 per cent weightage in the total agricultural production, is the most determining factor income and saving of the majority rural families.

Experts too believe that huge dive in the paddy price is the main cause that has pulled down the inflation rate. "Paddy price has shrunk in the recent months and uninterrupted food supply largely helped to keep the inflation rate at the lower mark," Rita Pant, Director of Nepal Rastra Bank said.

Since the price of rice has tumbled to a record level of almost 20 per cent in the Terai, from where majority of the paddy production comes, the income and consumption of the rural people too has gone down remarkably. The sliding demand of fertilizers in the Terai and the hilly region is one such concrete proof.

This has completed dented the hope that bumper agricultural production witnessed this year would prop up the purchasing capability of rural peasants generating demand for industrial goods and services and, thereby, creating positive impact on curing poverty and unemployment.

Similarly, among the other major players of the food and beverage group, the price of vegetable and fruits sprouted by almost 8 per cent, while restaurant meal swelled by 9.4 per cent.

In the same way, cost of housing, which holds the largest weightage in the non-food and services group, registered a growth of 7.6 per cent against 9.9 per cent recorded during the corresponding period last year. Such growth rate, during the review period was highest in the hilly region and lowest in the Terai. A mark up of 11.8 per cent in fuel, light and water is the principal cause for such growth. The price rise of cloth, clothing and sewing services remained at 3.2 per cent while the cost of medical and personal care surged by 5.3 per cent. Education, reading and recreation posted the highest price rise of 14.4 per cent in the non-food group while the price of transport and communication soared by 8.1 per cent.

Though NRB officials seem confident that the domestic rate of inflation for the current fiscal year would be contained within 3 per cent - less than the budgetary target of 5 per cent - it would be difficult to enjoy similar low inflation rate in the coming year due to a possible decline in cereal food production.

Earlier indications have revealed that farmers are loosing their interest in commercial paddy cultivation mainly due to the record-level plunge of paddy price, making them unable to recover even the cost of production. Since the summer paddy cultivation in some part of the Terai region has declined by more than 40 per cent and a good chunk of the paddy produced last year is still unsold, peasants surely would not be much encouraged towards cereal food cultivation in the coming season. In effect, it will, hit production and mark up the rate of inflation.

Bandh’s effect on daily wage earners

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KATMANDU, May 29 - The three-day general strike called by the six left parties including the main opposition CPN-UML has hit hardest to the daily wage earners. Apart from them, it has also badly affected the street vendors and those who sell green vegetables carrying it from the outskirts of the valley all the way to major junctions.

Krishna Man Tamang of Jalbire, Dolakha district who earns his living carrying goods on his back from one place to another, says, "The three-day bandh has put us in serious trouble. Our family depends upon the daily earning for eating two times a day. As I could not earn any money these days, we are having just one meal a day".

Similar is the story of Juna Basnet. She sells green vegetables at New Baneshwor bringing them all the way from Balkot, Bhaktapur. Due to the bandh, she had to walk for more than one and a half hour carrying a large basketful of vegetables on her back. Yet she has to sell the vegetables at lower prices.

"Nowadays the prices have gone down and all the vegetables are also not sold as people stop buying before six o’clock", she laments.

Basu Shah, a street vendor of Adarshanagar ward no 3 Birgunj is also equally worried by the general strike. Shah has been selling seasonal fruits for the past 15 years. According to him, in the recent years his business is not doing very well because of frequent bandhs called by various political parties.

"You may expect that I sell more mangoes because people are walking all the way home, but in fact my sale has massively declined. Earlier, I used to sell up to 70 kg of mangoes, but in these days I can hardly sell 10-12 kgs", he said, "you can guess how hard I am hit by the bandh".

However, interestingly, the business of other street vendors who sell ice cream, grams, puffed corn and chanachatpate, a hot and spicy mixture of different edibles are doing well.

Suman Thakuri, who sells ice cream says, the only difficulty the bandh has created is in collecting the ice cream from the factory. In fact, my sale has gone up these days as people have to walk they feel more warm and stop for a moment to eat ice cream. I earn more these days, he adds.

Similarly, those who sell watermelon, puffed corn are taking advantage of the bandh.

Ramji Karki from Kavrepalanchwok district who has been selling roasted gram, soybean, puffed corn and roasted broad bean has been earning more during the bandh. When people have to walk, they stop for a moment and buy something.

"I am earning Rs 100 to 150 more these days. So the bandh has done more good than harm to me personally", he says.

Subsidy removal in STWs detrimental to farmers

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KATHMANDU, May 29 - Chedananda Pokherel of Chandragadi, Jhapa did just the right thing by installing a shallow tube well (STW) year before last. Not only himself, even his neighbors today are benefiting from the prudent decision taken by Pokherel.

Says Pokherel, "Thank God, I installed the tube well when the government provided subsidy on it. Had I delayed my decision, perhaps I could not have recovered my costs this year." It is the sharp increase in the total costs of installing a shallow tube well that has put the farmers in a dilemma.

And certainly all were not as lucky as Pokherel. Among the unlucky ones falls Ramprit Kahar of Raipur VDC in Merchbar, Rupandehi. He knew that installing STWs will drastically enhance his productivity and output. He planned to install the tube well last year, but unfortunately for him, the government had already retracted the subsidy and he could afford it no more.

"How can a poor farmer like me afford to pay Rs 50 thousand for a shallow tube well," laments Kahar. The cost of a shallow tube well during the subsidy regime ranged from ten to twenty thousand rupees.

The removal of subsidy in STWs has hit the farmers hard. Especially so because about 70 per cent of the country’s farmers own a meager half a hectare. For farmers who are deprived of the large-scale surface water irrigation project and deep tube wells, STWs remained the only viable alternative to bringing more land under irrigation.

It was the Asian Development Bank (ADB) that successfully coaxed the government during the signing of the Second Program Loan under the 20-year Agriculture Perspective Plan (APP) to scrap subsidy in STWs in 1999 along with urea. The APP aims to revamp the agriculture sector and irrigating 612 thousand hectares of land during the plan period.

However, following the revocation of subsidy in STWs, the demand of the groundwater irrigation system has declined drastically posing a threat to the success of the APP. Most farmers even today are waiting for the government to reintroduce subsidy in STWs.

"Look what is happening now. The government stopped subsidising urea and STWs. The price of domestic produce is at its lowest. How would you expect us to continue commercial farming under such conditions," laments Kahar.

It is not just the disgruntled farmers who are raising their voice over the subsidy issue. Even officials from the Agriculture Development Bank (ADB/N) agree that farmers without subsidy cannot survive under the present circumstances. "Irrigation has a major role in agriculture. The government’s decision to scrap it is a big blunder," declares Subodh Gautam, chief of the Bhairahawa branch of ADB/N.

The decision may not have impacted the farmers much had the government looked into other factors. With a country like India to the South, with which Nepal shares an open border, subsidy revocation back home would only mean discouraging domestic farmers, which represent almost 80 per cent of the total population. "Had the import tariff been protective enough, the impact of the subsidy revocation may never have been felt," says Gautam. Presently, the import tariff for agro-products stand at a mere 5 per cent.

The impact of the subsidy revocation has already begun to show colours. The growth rate in the agriculture sector this year, despite a favorable monsoon, has touched only 4 per cent, while it stood at around 5 per cent last year. The growth rate is lower than that initially forecasted.

Official concede that ADB’s argument saying subsidy was taken advantage by many well off and rich farmers is valid. However, they say the subsidy regime was benefiting the poor farmers all the way. The thrust of the ADB should not have been on removing subsidy but on targetting it to the real needy and the poor.

"Though some rich and well off farmers have taken advantage of the subsidy regime, over 75 per cent poor farmers were benefiting from the subsidy in shallow tube well," says chief of the Kailali-Kanchanpur Groundwater Irrigation Project, run under loan assistance of the ADB.

"The subsidy must be resumed," he concludes.