Self-Reliant Economy : Myth Vs Reality

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Self-Reliant Economy : Myth Vs Reality

--By Akhilesh Tripathi

As Nepalis reel under the unofficial blockade imposed by India, calls for a self-reliant economy have come from different quarters. These calls have come at a time when the country faces an acute crisis of essential goods like fuel and medicine, among others, because of the Indian blockade. Some see this as a knee-jerk reaction while others think this is the start of a long overdue process of freeing the country from its over-dependence on its southern neighbour for trade as well as survival.

According to economists as well as business leaders, the blockade has made clear the harsh reality of Nepal’s situation – its dependency on one country for almost everything. Those supporting the idea of a self-sufficient economy say this dependence is dangerous as it can be used against our national interests. Therefore, they argue, Nepalis must learn the lesson they could not from the 1989 blockade by India and reduce import and strive for self-sufficiency.        

Economists define self-sufficiency or self-reliance as the state of not requiring any aid, support, interaction or trade with the outside world. It is generally believed that a fully self-dependent economy or autarky is not possible in today’s world.

So, is it possible or even advisable for Nepal, sandwiched between two of Asia’s largest economies, to go for self-sufficiency? Is the self-reliant economy just a theory and a myth or can it be turned into a reality?

“Self-reliance is a myth if it means a country depends on itself for all economic activities and thereby shuts out the rest of the world,” says former finance minister and senior economist Prof. Madhukar SJB Rana. He further clarifies, “Not quite a myth, however, if it means a national economy that seeks to use its natural and human capital to the maximum to generate growth and employment and, vitally, develop an economic and financial structure that is not excessively dependent on the outside world for markets, supplies and investments.”

Agrees Pashupati Murarka, president of the Nepalese Chambers of Commerce and Industry (FNCCI). “An autarky is not possible today. But that doesn’t mean we shouldn’t try to reduce our dependency on imports and strengthen from within and create a national economy based on domestic production,” he says.

Self-dependence or Interdependence?
According to a study carried out by economist Dr Damaru Ballabha Paudel for Tokyo University, the Nepali economy was 80 percent self-reliant in 2010 and met 20 percent of the domestic demand through imports. The study, which was based on Nepal’s input-output tables of 2010 and 2011, showed that Nepal was 47 percent self-reliant in the domestic demand of industrial productions and 90 per cent self-reliant in agriculture. 

Similarly, the country’s self-reliance in the hotel and restaurant sector was 95 per cent and that in electricity, gas and water was 55 per cent. Likewise self reliance in forest products, mine-based products, construction materials, telecommunications, transport, trade, and financial intermediation was 80 percent, 57 percent, 80 per cent, 90 percent, 61 percent, 82 percent and 78 percent, respectively. 

“Self-reliance has decreased while dependence on the outside world has increased over the last five years,” says Dr Paudel. According to him, we should seek self-dependence through interdependence in today’s world. 

“Interdependence means if we are dependent on a country for some products, we make that country dependent on us for some other products,” Dr Paudel says. “This is the way of becoming self-reliant today. An isolated economy as envisioned by Robinson Crusoe is not possible today.”

Former FNCCI president Kush Kumar Joshi echoes the same view and sees the current blockade by India in the same light. “We have been consistently dependent on India. This imbalance will change if we make developments to make India dependent on us,” he says, “Had we been exporting, say, 5000MW of electricity to India, it wouldn’t have dared to impose the blockade. That’s the power of interdependence.”

Economists say that the idea of interdependence is based on the production, consumption and export of goods and services that can be produced at competitive price and import of goods and services that cannot be produced or provided at competitive price. “This is the formula based on which the world economy functions today. Interdependence means self-dependence,” explains Dr Yubaraj Khatiwada, the newly appointed vice-president of the National Planning Commission and former governor of Nepal Rastra Bank.  

However, achieving self-reliance through interdependence is not easy for Nepal, either. What can it possibly export to other countries, including India to make such countries really dependent on Nepal? In the current situation, it is difficult to think of even one single such product. We have a vast potential in hydropower, but the bitter reality is, instead of exporting electricity, we are importing nearly 240MW of electricity from India.  

“Making a self-reliant and independent economy is not easy. It cannot be developed immediately and to achieve everything at once is only a delusion, says Nepal Chamber of Commerce (NCC) President Rajesh Kaji Shrestha, “If effective steps are seriously taken, then within five to ten years we should see some positive results.”

Storage Capacity
According to some economists, in its journey towards self-reliance, Nepal should first increase its capacity to store stockpiles of essential goods which it imports. “The blockade has exposed our poor petroleum storage capacity,” says an economist and commentator, “We didn’t learn from the 1989 blockade.”

He recalls that during the 1989 blockade, there was a lot of talk about exploring for petroleum within the country and exploiting alternative sources of energy such as solar power and hydropower. “But we forgot everything once India lifted the blockade and the situation became normal,” he says, “This time too, you will see the debate of becoming a self-reliant economy will fade once normality returns.”  

Agriculture and Hydropower
According to economists, these are the two sectors where Nepal can actually become self-sufficient. Agricultural diversification is possible in Nepal because of the topographical and geographical diversity. “Nepal should focus on the production of quality cash crops, vegetables and fruits and not only consume them but also export them to the international market. This way, we can achieve self-reliance in agriculture,” explains Dr Paudel. 

He also points out that for this, the government needs to focus on the modernization and commercialization of agriculture and provide subsidy to farmers who purchase fertilizers, seeds and agricultural machines and equipment to make our products price-competitive with Indian products.

Hydropower is another commodity in which we can not only become self-reliant but also export. For this, Dr Paudel says, the government should encourage both domestic and foreign investment in the hydropower sector. “We can also invite the Non-Resident Nepalis (NRNs) to invest in hydropower. Some NRNs have already invested in the 27MW Dordi hydropower project,” he says and adds that we have the potential to export electricity to not only India but also other South Asian countries.

Historical Examples of Autarky
• Afghanistan under the Taliban, from 1996 to 2001.
• Albania became a near-autarky in 1976, when Communist Party leader Enver Hoxha instituted a policy of what he termed "self-reliance".[5] Outside trade increased after Hoxha's death in 1985, though it remained severely restricted until 1991.[6]
• Burma followed a policy of autarky known as the Burmese Way to Socialism under dictator Ne Win, who ruled the country from 1962 to 1988.
• Cambodia under the Khmer Rouge, 1975–1979.
• Classical Greece idealized economic self-sufficiency at the level of oikos and city-state. This ideal broke down over time, and was redundant by the Hellenistic period.
• Nazi Germany under Adolf Hitler attempted to end international trade and considered economic self-sufficiency to be ideal. However, tasked with establishing full autarky in Germany as part of the Four Year Plan, (beginning in 1936) Hermann Göring failed to close the German economy.
• Guyana under Forbes Burnham's PNC dictatorship, from 1970 to 1985
• India had a policy of near-autarky that began after its establishment as an independent state, around 1950; it increased until 1980 and ended in 1991 due to imminent bankruptcy.[7]
• Italy, under the rule of dictator Benito Mussolini, claimed to be an autarky,[8] especially after the 1935 invasion of Abyssinia and subsequent trade embargoes. However, it still conducted trade with Germany and elsewhere.
• Japan was partially an autarky during the era known as the "Edo period", prior to its opening to the west in the 1850s, as part of its policy of sakoku. There was a moderate amount of trade with Netherlands, China and Korea; trade with all other countries was confined to a single port on the island of Dejima.
• North Korea's official state ideology, Juche, is somewhat based on autarky, though North Korea is not a genuine autarky as it conducts principles of trade with a few nations, as well as benefits on Chinese capital and trade.
• Romania in the 1980s. Nicolae Ceaușescu proposed such goals as paying the entire foreign debt and increasing the number of items produced in the country and their quality. The aim of these policies was to reduce dependency on foreign imports, as the relationship of Ceaușescu with both Western and Communist leaders was worsening.[citation needed]
• South Africa was forced into partial autarky during the later Apartheid era, when the country faced ever increasing economic sanctions from the international community, including an increasing oil embargo that motivated the state to embark on a successful coal-to-oil project and also establish its own military industries, including the creation of its own atomic bomb.[9][10]
• Spain, under dictator Francisco Franco, was an autarky from 1939 until Franco allowed outside trade again in 1959, coinciding with the beginning of the Spanish miracle.
• The United States, while still emerging from the American Revolution and wary of the economic and military might of Great Britain, came close to complete autarky in 1808 when President Jefferson declared a self-imposed embargo on international shipping. The embargo lasted from December 1807 to March 1809.[11]
• In the Dominican Republic, the rural peasants, escaped slaves, and freed slaves that lived in the sparsely populated woodland interior of the island nation between the 1600s and early 1900s. The weak Dominican government had no control on these autonomous subsistence agriculture based communities.