By Dr Kamal Raj Dhungel

The liberalisation policy in china is in effect since the end of 1970s. India has followed the same path since the beginning of 1990s. This resulted in tremendous progress, sustained growth and increased wealth in both China and India. Both the countries were characterised by mass poverty before the period of economic reform. Today, China has reduced the number of people under poverty to mere 2.8 per cent down from 64 per cent in 1981. Similar is the case of India. According to the government estimate, approximately 28 per cent of population is living below the poverty line down from 51 per cent in 1977/78. It reveals that people have tasted the fruits of economic progress resulting from economic reforms. 

Let's now look at the context of poverty reduction in China and India. The liberalisation of their economies have instigated tremendous progress, sustained growth and increased wealth with rapid industrialisation. They are achieving high economic growth rate above 9 per cent per annum. It has produced multiplier effect in their economies. They are investing their resources in the construction of infrastructure and establishment and promotion of basic industries. The private sector investment has been mushrooming. This has created sufficient employment opportunities within the country to the increased size of labour force. This provides opportunities to the poor people to improve their living condition and hence both countries have met the goal of poverty reduction in the same momentum though the degree and extent of it is different. Income, health and education of the people are gradually improving which results in the improvement of the human development index. Nepal's estimated incidence of poverty is at 30.9 per cent today down from 45 per cent in the mid 1990s. In terms of poverty reduction, al the three countries under consideration have the same trend over the same period of time. China and India have adequate reason to explain how poverty there has come down as they are achieving rapid economic growth rate. But in Nepal poverty has surprisingly come down when its economic growth rate is deteriorating. This makes the people doubt at the authenticity of the poverty reduction data.

Nepal also has the same story of economic liberalisaiton but with different outcomes. Policy of liberalisation has been initiated since the middle of 1980s albeit it has been gaining momentum only after 1990. As an effect of this policy, a large number of public enterprises were dismantled in the name of privatisation. They had produced basic goods like shoes, sugar, agricultural tools, clothes and paper etc. In the past, these industries made a significant contribution in the economy in terms of consumption, income and employment. But today they have vanished. It means those industries whose management had been transferred to the private sector are not in operation currently. The demand of the goods produced by these industries is being fulfilled by imports. The numbers of persons employed in these industries have become unemployed. Some of them have either migrated to foreign countries in search of employment. Others have remained unemployed. There is no doubt that liberalisation can play an important role in economic development. It can attract, promote and encourage private sector investment, both foreign and domestic in the development of overall economy, particularly in the manufacturing sector. But the manner in which Nepal has been exercising economic policy reform seems clearly unsustainable and making gloomy environment for private investment. Instead, it encourages opening up a large number of cosy dance restaurants in different urban centres of Nepal through private sector investment. Similar is the case of investment of private sector in education and health as private schools, colleges and nursing homes including private hospitals are mushrooming. They provide service only to a small fraction of population who are wealthier. It creates discrimination among the citizens in terms of social service. Clearly, the nation has been producing two categories of future manpower: a superior workforce which graduates from private schools and an inferior one that graduates from public schools. Majority of students who graduate from private schools are migrating to developed countries.

The failure of economic policy particularly after 1990 is reflected in the overall progress of the Nepali economy. In the initial stages of liberalisation, the growth rate of Nepali economy was encouraging to some extent. But it became disappointing gradually. The trend of Nepal's economic growth rate is not only disappointing but also humiliating (see chart ). The fruit of this growth did not reach people who were the main pillars in restoring democracy in 1990 and beyond. It means the distribution of national income among its citizens has been skewed. Since the decade of 1990s, corruption has become rampant. Anti-corruption mechanisms have been made ineffective. The living standard of the richest 10 per cent has been increasing over the years while that of the rest is deteriorating.

 The present economic growth rate, as seen in the chart, is declining over the years. It is barely enough to feed the population which is growing at the rate of 2.24 per cent per year. For the mass of people, hunger is routine, malnutrition rife, employment insecure, social security non-existent, health care expensive and livelihoods under threat. Youths are migrating to foreign countries and are supposed to send remittance by putting their lives at risk. As expected, remittance plays a vital role in providing livelihood to the people of Nepal. This is also giving an opportunity to the elite of Nepal to set up large number of banking businesses. But its contribution to economic growth seems insignificant. Today, Nepali people are experiencing banking business next door to their residence. It indicates that the growth of monetary sector (particularly of the institutions dealing with money) in recent years have been increasing while the growth rate of real sector is declining. It seems there is a weak association between the growth of monetary and real sectors. Practically speaking, for a healthy and balanced economic development, there should be a strong correlation between them. In addition, private sector investment has been growing in the construction of large apartments and residential buildings and opening up of departmental stores. This provides a major market for investment by the banks. This shows that the current trend of economic activities in which the investments are pouring is not sustainable. These activities would sustain for a longer period only when the country achieves high economic growth.

The ways in which our national income has been distributed irrespective of its shape and size among the citizens stands to cause devastating consequences. It can create social tensions and make the rich even richer. The unjust distribution of the fruits of democracy during 1990s has left us a great liability whose effect of course had been spreading all over the country. The nation has already lost over 13,000 lives. Despite such a huge loss of lives, the inequality today is still rising. The income gap between the rich and poor is more intense. Gini index with value between 0 and 1 (0 for perfect equality and 1 for perfect inequality) is used to measure the inequality in the distribution of income and wealth. At present, Nepal's Gini index a gauge of income gap, is 0.47. This index of 0.4 percent is considered a warning line Exceeding this mark signifies that the biggest part of the wealth cake is enjoyed by a minority. If the Gini index points below 0.2, income distribution is highly balanced, between 0.2 and 0.3 is a relatively balanced distribution, 0.4 and 0.5 means that the distribution is being largely spread  and if it reaches 0.5, then, distribution is highly unbalanced. Nepal’s Gini index is nearly 0.5 and it means the biggest part of the nation's income goes to only a few. It is because of the lack of equal access to opportunities. Opportunities inside the country are rare. Whatever opportunities are thesre inside the country, they are available only to those who are related with the powerful. Opening up the opportunities in most public sectors like police, military and civil service are not going to help as even such opportunities open other avenues for the powerful people for corruption. It indicates that the powerful and influential persons have hijacked opportunities, benefits, public spaces, shared resources, economic rights and political processes.

(Dr Dhungel is a Professor of Economics at Tribhuvan University, Kathmandu. He can be reached via email at [email protected])