The poor work ethics of Nepalese are equally responsible for present state of Nepal’s development

Dr. Binod Karmacharya
Department of Economics, TU, NEPAL

An expert on Trade and matters related with Regional Cooperation, Dr. Binod Karmacharya obtained his doctoral degree in the discipline of Economics from the School of Economics, University of the Phillipines, Diliman, Philippines in 1990. His dissertation title was "Sources of Aggregate Bilateral Trade Flows in a Multi-country World: A case Study of Selected Asian Developing Countries". Prior to that Dr. Karmacharya did his M.S(Agriculture Economics) from the University of Philippines in 1982 and the thesis title then had been "Evaluation of Alternative Fertilizer Pricing Policies in Nepal".

Dr. Karmacharya is teaching Economics to graduate students at the Tribhuvan University, Central Department of Economics.

The following interview with Dr Karmacharya, conducted on 05 January 2000 here we reproduce it in the readership interest-Chief Editor.

TGQ 1: Dr. Karmacharya (BK)! How would you like to view the current economic situation of Nepal? Is Nepal’s development policy steering in right direction? If not, what are lapses on the part of government, donors, private sector and civil society?

Dr. Karmacharya: Nepal carried out widespread economic reforms during early 1990s for integration with the global economy. Although Nepal’s macroeconomic stability improved at least in the initial years, it has so far brought about a limited change in the structure of trade and production. That an extensive reform has failed to bring about a commensurate change in the volume and structure of trade is explained mainly by an excessively high cost of access to the markets beyond the immediate neighbors; the difficulty of protecting worthwhile infants given the open border with India; and the absence of complementary measures to promote supply resources. Weak trade response led to a weak impulse for the growth and restructuring of domestic production. Nepal’s growth rate is still far below what is required to make any significant impact on reducing poverty. In particular, the current estimate for agricultural growth is still below the population growth rate, highlighting the stagnation of the rural economy and the persistent failure to bring about any tangible improvement in living standards of the rural poor. Although estimates of the incidence of poverty vary depending on the methodology used, it is safe to say that close to half the population of Nepal still live in poverty as the twentieth century comes to close. Not only is poverty measured in economic terms is high; other indicators of the quality of life paint a rather dark future. Social indicators are low for all, and they are particularly low for the very poor. National averages mask significant differences across groups and areas. There are disparities across income/consumption groups, between urban and rural areas and within areas, and across socio-ethnic groups.

TGQ 2: Whom do you blame Dr Karmacharya at the first place for the ‘failed development’?

Dr. Karmacharya : It is unfair as well as difficult to blame any single institution for Nepal’s sorry state of development. The political instability has focused the attention of politicians on short-term maneuvering rather than putting their efforts on formulating long- term development vision and attaining them. Lack of good governance is one of the major problem. Institutional and legal infrastructure are inadequate as well as weak. As a result, development has suffered as key decisions have not been made on time or not been adequately implemented. Private sector has been reluctant to invest due to a combination of weak market institutions and a politically unstable environment. The trickle-down approach to development advocated highly by certain multilateral donor agencies on also appears to be partly responsible for the present state of Nepal’s development although they are giving due emphasis on improving sustainable human development since past few years. Finally, the poor work ethics of Nepalese are equally responsible for present state of Nepal’s development.

TGQ 3: You are one of the noted experts on trade and development in South Asia in general and Nepal in particular. Please tell us about the trade situation and prospects of Nepal considering our competitive strengths. What are the most suitable strategies you would like to suggest for Nepal to follow in the days ahead?

Dr. Karmacharya: As I said above, extensive reform of and trade regime and related aspects of the system of incentives has not brought any significant change in volume and structure of trade. The performance of merchandise exports is dismal. Merchandise exports have developed an unhealthy concentration in two major items, each of which faces uncertain prospects for future growth. Despite such questionable performance, Nepal does not have the choice of reversing the process of its integration with the global economy. The consequence of reverting to the protectionism of past will merely put Nepal in the state of de facto integration with India. There is no strong reason to believe that a de facto integration with India would be more beneficial to Nepal than a meaningful integration with the entire global economy.

Therefore, Nepal should find a way to translate its reform of trade and investment regime into a dynamic growth of trade and inflow of FDI and technology. Firstly, Nepal should take necessary steps to reduce transactions costs of doing trade in particular the high cost of transit to the ports from which it can access markets beyond those of its immediate neighbors. Nepal also needs to find a way of accessing the market of its sub-continental neighbors other than India. Secondly, Nepal’s cooperation with regional neighbors is essential for reasons beyond the removal of the disadvantage of its landlocked location. Cooperation between Nepal and its neighbors could profitably extend beyond trade and investment to infrastructural development involving large-scale indivisibilities. Nepal has great hydroelectric potential whose development can be justified only if a high proportion of the power generation is transmitted to its power-starved neighbors. Thirdly, successful regional cooperation will require Nepal to take substantial investment in trade infrastructure facilities to link up with similar facilities created in neighboring countries. Fourthly, Nepal must diversify the range of its exports and expand their output by appropriate investment. Tourism could be Nepal’s leading export with an enormous scope for further development. Much of the tourist services can be provided by labor-intensive methods, thereby contributing to an egalitarian distribution of income from backward linkage activities. Similarly, Nepal should also aggressively promote the exports of handicrafts in addition to preserving expanding its two largest merchandise exports, carpets and garments. Nepal should also try to revive some of its traditional exports such as jute products, which have greatly declined in importance in recent years. Nepal should also try to promote the exports of certain agricultural items by expanding their production base. A final direction of export drive would be selective electronic assembly to be developed in agreement with the multinationals, in the framework of "agreed specialization" within the SAARC, contingent on necessary investment in the development of specific skills that are needed.

Above policies are likely to have important adverse effects on sustainable human development. It is therefore important for Nepal to implement offsetting actions. They could include measures such as an expansion of employment through public work programs or targeted public distribution of food; timely availability of agricultural inputs in adequate amount; easier access to credit, an improved provision of extension services and improved marketing infrastructure for the marketing of output; egalitarian distribution of ownership of land; provision of social safety nets; and increased public expenditure for human development.

TGQ 4: Please also tell us given the absence of clear economic direction and economic policy subordinating political interests of those in power, the country can make real headway in development? Given a situation, in which many competent persons like you are ignored in policy debates, the policy being formulated have rational basis and helps fulfill the needs and requirements of the country? How sensible persons can be inducted in the policy process so that it will have legitimacy and continuity?

Dr. Karmacharya: There are many competent persons in Nepal who are non-partisan and would like to participate in the country’s development process in an objective manner. One way of inducting them in policy process is through the establishment of strong, independent and neutral Think Tank institute. Some of its main function would be to formulate development vision with appropriate time horizon, to monitor and assess the international and regional events and activities that could affect the country; to make an objective assessment of national development policies and provide suggestive measures.

TGQ 5: How the Nepalese media can help improve the conditions of governance and strengthen the existing partisan civil society?

Dr.Karmacharya: The Nepalese media can play definitely a very important role in improving the conditions of governance. It has been actively doing so since the restoration of democracy. However, the fact that good governance has not prevailed in Nepal despite positive efforts of media may suggest that they are necessary but not sufficient condition to improve governance. Some additional measures may be required.

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