Along with economic reforms our governance style should also change

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Along with economic reforms our governance style should also change

Dr Biswo Nath Poudel is the Vice Chairperson of the National Planning Commission. Madan Lamsal, Editor-in-Chief of New Business Age, recently sat down with Poudel to talk about the country’s post-COVID economy and other relevant issues. Excerpts:

It has already been six months since you assumed the office of the National Planning Commission? What are your impressions?
It is the place where work matters. But there are many challenges. Frankly speaking, there will be more challenges now. That’s because when I assumed office here, the government had already brought out the budget. One of its main functions is to help the government in budget preparation and see whether the budget is in line with the priorities laid by us. Since the budget was already brought out before I joined this office, our team couldn’t contribute to budget preparation. NPC prepares several long-term policies. We also do regular monitoring and follow ups to ensure that the needful work is being done to make these policies effective. Similarly, we revise programmes that are not becoming effective.

My tenure at the NPC began in a normal manner. Very soon, the government brought the Replacement Bill. Major festivals occurred during the same period. Now is the time to work.

You have often criticised the NPC and its programmes. What changes have you brought after assuming the office?
I never criticised the work of the NPC. The NPC is not the implementing agency. Criticising the works of the government is a different thing altogether. I have always been a supporter of the NPC. In the general convention of 1955, Nepali Congress leaders like Surya Prasad Upadhyaya had talked about the need for forming the Commission. After the Rana regime was overthrown in 1950, the Nepali Congress had taken a vision of forming a few agencies like the Public Service Commission, the NPC, Central Bureau of Statistics, and an independent and capable Auditor General’s Office. These agencies are the outcomes of the same vision. These agencies played a crucial role in ending the tyrannic and autocratic regime, and driving the country into the modern age. Though some economists were inspired by the Russian model at that time, many were for ending the tyrannic and autocratic regime.

You are the economic advisor of the government and a renowned economist. But you have become a mute spectator even though the country’s economy is facing several problems. What do you say about that?
I have not become a mute spectator. I was an independent individual before I joined the NPC. Now, I cannot write articles against the government’s activities or criticise the government on a television talk show like in the past. I won’t say the problems that we are seeing at present are unexpected. Our imports had come down during the COVID pandemic. Economic activities were down, but remittances were increasing. When we were making efforts to contain the spread of COVID, we knew imports would grow and that there would be pressure on the economy. Likewise, we knew there will be increased demands for investment for development activities.

But our tourism receipts didn’t grow. Another unexpected thing was remittances, which had increased significantly when COVID was at its peak, didn’t grow as expected. It caused margin pressure. Banks, which were investing with open hands when they were flush with cash, started tightening when real investors approached them for financing.

Despite this, we have made some efforts to address the situation. We sat with the Finance Minister and the Governor, and tried to make the interest rate stable. Interest rate was changing every week, but we have controlled it. Our primary focus is on managing interest rate volatility. Now the interest rate won’t grow at a fast pace. We have said that we won’t let the interest rate reach 8-12 percent. Interest rate on savings might have increased now, but it is stable. We won’t make any progress if we are afraid of the import bills of raw materials and machinery. We won’t reach anywhere.

But imports of products like clove and betel nuts are also increasing.
We are aware of it. There shouldn’t be unnatural imports of such commodities. There were also reports of unnatural growth in imports of these commodities last year. This year also, there has been unnatural growth in imports of some commodities. We are very much focussed against haphazard imports.

We have been imposing a 13% VAT on petroleum products. Can’t we do anything about this?
If we don’t impose VAT on petroleum products, there is a risk of cross-border smuggling. A few years ago, there was a difference of Rs 47 on a litre of petrol in Birgunj and Raxaul of India. We are selling petroleum products at a cheaper rate compared to India. Other countries, too, impose taxes on petroleum products. I don’t think cheaper petroleum products would do anything good for the country. If petroleum products are made cheaper, it would create pressure on our foreign currency reserves, lead to smuggling and invite anarchy.

There are some who say the government should stop subsidies on LPG and focus on induction cooktops, vacuum cleaners and charging stations. What is the government doing in this direction?
We are thinking the same. I personally believe this has to be done. But looking at the LPG consumption pattern, I think it will take some time to shift to electric appliances. Withdrawal of subsidies alone won’t encourage people to shift to electric stoves. If we remove subsidies, it will create an additional burden on consumers and it won’t help the demand for induction cooktops to grow. If we are to increase the use of electric appliances, we need to make investments in electricity transmission as well.

That is why I don’t see the use of electrical appliances increasing immediately. Talking about petroleum products, we still don’t have clear data on the consumption by transportation and industrial sectors. We have asked the NOC to prepare detailed data on petroleum consumption. If the demand for petroleum products is coming from industries, I don’t think we should create unnecessary tensions. Still, there is a pressing need to substitute LPG by increasing the use of electric stoves and other appliances.

Some say the Finance Minister is not entertaining the suggestions of the central bank on the matter. Thus, it is inviting grave consequences for the future. The then Finance Secretary Rameshwar Khanal tendered his resignation when the government tried to bring a similar policy in the past. But we are hearing that you didn’t make any objection.
People have different working styles. You can’t expect everyone to resign and walk away. I don’t think there exists such differences in government offices. My understanding is that they are working in coordination.

Let’s change the subject. A report prepared by Swarnim Wagle has suggested transforming NPC into a think-tank. What will happen if NPC ceases to exist?
Economists might have different perspectives about the NPC in relation to Nepal’s development. NPC is a 65-year-old institution; one of the oldest agencies of the government. My opinion is that such institutions shouldn’t be uprooted on a whim. I don’t want to talk about the matter. If the policies made by NPC are not becoming effective, we should make them better. Our focus should be on this only.

Are such suggestions coming because the projects recommended by the NPC are not being implemented or its suggestions aren’t being entertained?
See, the governments have different perspectives about the NPC. But institutions like NPC, which have existed for the past 65 years, should not be dismantled just because somebody dislikes it. NPC has different responsibilities ranging from designing long-term projects to pre-budget preparation. It should be allowed to function. If a doctor makes a mistake in surgery, we shouldn’t say we don’t need doctors anymore. So, the calls being made to dismantle NPC and create anarchy are not very appropriate. NPC shouldn’t be judged on the basis of a Replacement Bill only. The government was formed at a difficult time, and the bill came accordingly. Some problems were seen due to COVID-19 and some projects of the previous government which had entered the bidding phase without arranging resources.

Is any change being made in Public Procurement Regulations?
Earlier, regulations of the Public Procurement Act would change four times a year. We have recently introduced a provision in the regulations that takes into consideration the capacity of the contractors to handle the project before awarding the contract. We don’t want to see 8-10 companies taking all the government contracts. We want to see more companies. We want to see development works progressing at a fast pace.

For better output, we need to do a lot of things from the planning stage itself. There has to be a healthy coordination between construction companies and bureaucracy. Bureaucracy should award projects only after it is convinced with the capacity of contractor companies to complete the project. They should also understand the vision of the political leaders. If our bureaucracy and construction companies understand this vision, there won’t be any problem in development works. Construction companies are not getting the vision of the government, and the government too is not understanding the problems of the contractors.

Pointing fingers at each other isn’t going to help. We need to bring programmes to enrich the capacity of contractors. If they are facing difficulty in getting the workforce, we should help them.

We should try to find out why the project is getting delayed. Shortage of raw materials is often seen in March-April. Our focus should be on addressing those issues.

NPC is currently in the budget preparation process for the next fiscal year. What can we expect in the new budget, policy and programmes?
We won’t include petty programmes. As the country is holding elections this year, arranging resources will be challenging. Our main objective will be on bringing programmes focussed on general people. Our soldiers are still living in difficult bunkers. I have seen it myself. We will address it. Likewise, girl children are going to schools far away which lack hostels. We have said that our programmes will focus on those who are not getting any services and facilities from the state. Drinking water problems and building embankments will also be of priority. Compared to the past, we are adopting a new approach to improve services and facilities for differently-abled and senior citizens.

This means we will see more populist programmes?
As the government has to work for the general people, most of its programmes and activities are populist.

Some say why is there a need to build more roads in rural areas when people there are migrating to urban centres. What are your thoughts on that?
Many people are still living in villages. People there need to visit hospitals. The government has certain priorities - it should look after the population and geography while delivering services. If people in rural areas need roads or drinking water facilities, we shouldn’t take it otherwise. People are migrating to urban areas because services and facilities are available here. We should develop villages by providing needful services and facilities.

There are a total of 54 airports in the country, but only 31 are in operation. Of them, only 13 are making any profit? Do you think we need this many airports?
Let’s not talk about airports that are in profit. Of the airports that are not in operation, some might not be needed altogether. Pokhara and Bhairahawa will be having international airports, but they won’t be like Tribhuvan International Airport. The proposed airport in Nijgadh will be an international airport in the true sense. I feel all domestic airports should be like the one serving Lumbini. If we can operate some international flights from there, it would be even better.

Economic reforms which started after the political changes of 1990 have been obstructed for the past two decades. Some are saying that reforms should resume now? Will we see anything regarding reforms in the budget?
I believe doing business should be easier for small entrepreneurs. The budget will have programmes to improve doing business for small to big industrialists. The budget will be focused on facilitating entrepreneurs starting from business registration, to tax payment and electrification. I am also focused on this.  

Talking about reforms after 1990, we witnessed some negative results. Agricultural and manufacturing sectors fared the worst. How should the coming reforms be?
There is a need to increase manufacturing activities. Manufacturing activities decreased not because of the reform programmes. Manufacturing wasn’t good in the Panchayati regime as well. We were mobilising revenue of Rs 12 billion in 1991. At that time, public enterprises (PEs) were logging losses of around Rs 1.75 billion. Performance of PEs wasn’t good at that time either. Strong voices were raised about the matter during the reign of leaders like Surya Bahadur Thapa and Kirtinidhi Bista. They didn’t take any steps, but chose to increase their debts.

The Nepali Congress at that time took some unpleasant decisions concluding that it wouldn’t be able to allocate resources for education and infrastructure if it continued to invest in PEs. Privatisation was one of the decisions. Government personnel were removed also on the basis of reports prepared by different Commissions. Before 1990, everything was controlled by the government - the licence regime was prevailing. After the political changes of 1990, people got some independence. But the licence regime has returned. This needs to be improved.

Many say crony capitalism that we are seeing today is the outcome of those economic reforms which increased corruption drastically. How can people benefit more than cronies?
Let’s stop talking about capitalism. I have studied cronyism. We saw a similar scenario in the Panchayati regime. We are trying to reform this starting from the process of opening a letter of credit. Still, there is the fear of everything going to the hands of a select few. We need a system which can benefit the general public. There was less ‘fairness’ when there was a non-Nepali Congress government. We have seen leaders favouring people close to them in local to federal levels. This is wrong. We have seen tendencies of doling out grants and trying to give money to cadres through consumer committees in the past. This is wrong. In my opinion, along with economic reforms our governance style should also change. People should feel a sense of equality. The NPC is focused on it and I am very much committed.

Income inequality is increasing in Nepal. Some studies show the Gini coefficient has already reached 0.5. An NPC study showed the Gini coefficient reached 0.47 in 2015. What are your plans to decrease inequality?
Subarna Shumsher’s first budget of 1951 had two priorities - increasing prosperity and reducing inequality. Everybody should be equal for us. I am very much committed to decreasing inequity. My concern is on whether the government’s economic policy is helping in wealth centralisation.  In the construction sector, we can see government contracts going to a few contractors. Looks like importers, bankers and industrialists too are mobilised by the same person. Imports are skyrocketing, and limited people are involved in it. Only a few people are having their say in trade. New people have control on newer businesses. It is driving the country towards modernism. But I feel it will lead to inequality. We are holding discussions on how inequality can be controlled. Money is flowing into our households, thanks to remittances. This is a positive thing. The government shouldn’t remain a mute spectator. It should function properly.

We already have the initial findings of the national census. What policy suggestions are you giving to the government based on the new data?
Initial findings show the population has declined in 32 districts. One of the reasons behind the decline is migration. Migration has caused population growth in plains and urban areas. We need to make more investments to create jobs in places which have seen population growth. It is high time we retain people in hilly areas. We need to conduct a study on how they can be retained. We need to see if we can retain people there by increasing investments in the agricultural sector. Hospitals, schools and drinking water infrastructure are at distant places in hilly areas. Our focus should be on this as well. We need to think differently and manage resources for the development of tourism and to provide necessary facilities in hilly areas. 

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