September 26: Although the festive season is just around the corner, there is no excitement in the market. The market is still struggling due to the slowdown caused by Covid-19 pandemic. On top of that, the import control policy adopted by the government and the current capital loan guidelines implemented by the central bank have further weakened the market.
As the foreign exchange reserves began to decrease, the panicked government adopted a policy of tightening imports. However, this policy could not work effectively. Except for few items that were restricted, all others were easily available in the market through illegal channels, resulting in skyrocketing of prices. As the revenue loss from unauthorized imports increased, the government lifted the ban on imports.
Even this step could not bring the market back to the rhythm. Entrepreneurs say that now the production of industries has fallen to less than a quarter of their full capacity. While the government is claiming that the economic indicators have improved, the private sector is not ready to accept this.
The private sector believes that the market is going into recession. Hari Gautam, senior vice president of Birgunj Industry and Commerce says, “There are no signs of improvement in the market. Positive statistics alone is not enough. The market should feel the impact accordingly.”
Currently, the consumption of construction materials, clothes and daily consumables has decreased. Businessmen say that the halt in works of the construction industry has had a ripple effect in demand and production.
Industrialists say that the demand for the products of large industries like cement and iron has decreased heavily.
Consumption of medicine also decreased
According to Prabhat Rungta, treasurer of Nepal Pharmaceutical Producers Association, the consumption of even essential medicines has decreased. Businessmen say that the demand for medicines has decreased due to the increase in health awareness since the onset of the Covid-19 pandemic and cheap medicines available in the market and health insurance schemes.
Rungta said that since the government has been supplying medicines provided under health insurance through global tenders, domestic manufacturers have not been able to compete in the market. Producers estimate that the consumption of domestically-produced medicines has decreased by 25 to 30 percent.
How to solve?
The lack of investable funds (liquidity) seen in the banking system is one of the main reasons for the contraction in business of the private sector. Due to the high interest rate, the construction works have stopped and there is lack of new investment. Businessmen say that the overall demand has decreased due to its cyclical effect.
Subodh Kumar Gupta, chairman of the Trade Committee under FNCCI, suggests that the government should increase its public spending capacity to make the market vibrant. Gupta says, “If the government fails to cut unnecessary expenses and increase capital expenditure, there may be a serious economic crisis. The government has not been serious about it yet,” said Gupta.
The business community believes that if investment is increased in the market to create demand, the economy will return to normalcy. Ashok Kumar Temani, president of Madhesh Province chapter of FNCCI, says that the provision of current capital loan guidelines should be suspended for now and the market should be made operational.
Businessmen say that a long-term solution to the lack of liquidity should be sought. Senior Vice President Gautam says, “There should be a clear policy arrangement to keep the interest rate under control.”