Safeguarding Nepali Eeconomy

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Safeguarding Nepali Eeconomy

National pride projects are important to safeguard the domestic economy from the Indian economic recession.


Despite establishing trade relationships with nearly 150 countries worldwide, Nepal depends on India for over 75% of our essential goods, including food, fuel, medicine, and chemical fertilisers. The half-yearly report of the Department of Customs for the fiscal year 2022/23 shows, Nepal imports goods and services worth Rs 486.33 billion from India, compared to exports worth Rs 57.84 billion, resulting in a trade deficit of Rs 428.33 billion. The open border and porous security facilitate unofficial and informal economic transactions between the two countries, indicating the deep dependence of Nepali communities on Indian products.

Fuel and agricultural products are vital components of the Nepali economy, and fluctuations in their cost due to tax increments, investment management, and minor adjustments in monetary policy in accordance with Indian budgetary documents could impact not only Nepal's growth and development cycle but also inflate the cost of living for marginally poor people, pushing them further into poverty.

The economic survey of the Reserve Bank of India (RBI), India’s monetary authority,  in December 2022 showed that the country’s economy will grow at the rate of 6.8% in this fiscal year, much lower than the earlier anticipated growth of 9.2%. The increasing deficit in both fiscal and revenue collection indicates that the government is unable to acquire funds from the market to spend on productive sectors.

Additionally, India's economic output during the fiscal year 2019/20, particularly in the manufacturing sector, has not yet recovered from its slump. The proclamation made by a London-based economic research centre that India would become the world's third-largest economy by 2037 remains uncertain.

Despite several structural and policy-related weaknesses, the Indian government believes that the failure to achieve growth targets and generate employment is mainly due to the sudden and prolonged lockdowns imposed worldwide during the pandemic, as well as global inflation driven by high costs of consumable goods.

Despite being ranked 107th out of 121 countries on the global hunger index, the subsidy on food security, chemical fertilisers, and other benefits for the common people has been reduced in the current budgetary provision. The austerity measures adopted by the Indian government, including the reduction in grants and subsidies and the decrease in employment opportunities, are likely to impact the common people, making it hard for marginalised populations to sustain their livelihoods in the coming days.

The drastic reduction in funds allocated for grants and subsidies in the budget package indicates that the economic recession that India has been experiencing is likely to continue in the fiscal year 2023/24 as well.

The Russian invasion of Ukraine has caused a disruption in the European market due to the lack of oil supply from Russia. However, India has been successful in controlling inflation through supplies of oil from Russia and wheat from Ukraine, thanks to the Modi government's neutral diplomacy maintained with both countries.

However, relying excessively on imported Russian subsidised oil to regulate market inflation is a short-sighted economic policy. This policy could be disrupted depending on how the upcoming Russian-Ukraine war unfolds, and how India - as the newly elected leader of the G-20 countries - sways its diplomacy in contrast to its present neutral stance.

As Nepal shares a porous border with  India on all three sides, it will be affected not only by India’s prosperity but also by the economic hardships that can transmit through the porous border in a multiplier mode.

Moreover, the daily imports from India to Nepal are primarily geopolitical commodities, and the interruption of these supplies from the Indian side for a couple of days could paralyse the social and economic harmony of our society.

As a matter of fact, the Nepali economy cannot expect to achieve anticipated economic growth and poverty reduction if there is skyrocketing price inflation in India.

Safeguarding Nepali Economy
Any disruption in the regular supply of oil from the Indian Oil Corporation to the Nepali market could have a significant impact on the nation's economy, affecting everything from food supply and transportation across the country to the functioning of airports and industries. Nepal's low rate of agricultural productivity means that the country cannot feed its entire population without importing food items from India.

To stabilise the Nepali economy and avoid the likely repercussions of price inflation on Indian commodities, it is crucial to displace fossil fuels with locally generated hydroelectricity and modernise agriculture by adopting the latest technology. Growth in energy production and agriculture products is the only means of safeguarding the Nepali economy.

As a matter of fact, the country's planned policies and programs have placed agriculture growth as the first and foremost priority since the beginning. Several irrigation schemes have been strategically designed within the framework of the national pride project to make the country self-sufficient in food production as enshrined in the Constitution of Nepal, 2015.

Of the 21 national pride projects, six are irrigation projects to provide year-round water for crops to be planted in mass mechanised agriculture fields in the Tarai region. The four hydropower projects are meant for hydropower production and transmission to meet the country's energy demands.

The federal government's expenditure on national pride agriculture water use and hydroelectric projects have been systematically worked out to ensure adequate economic returns from the day they begin delivering water for crops and electric power for mechanised farms and agro-industries.

The nomenclature of national pride projects has been attributed to their capacity to generate employment for youth, increase crop production to reduce Indian imports, lower the present level of market dependency on India, and, above all, feed the ever-increasing population of our country.

However, the recent progress reports show that financial expenditure on these national pride projects has not exceeded 25%. When we evaluate the importance of national pride projects connected with the production of food and other essential commodities, concentrated efforts for timely completion of these projects followed by intensified utilisation of water and power would give glimpses of hope in our capability to make Nepal a food sovereign nation. Extension of hydropower in local level consumption, including domestic use and transportation, as well as powering agro-industries, would not only help bring down the trade deficit through reduced fuel imports but also help add value to the exports.

Nepal's economy relies heavily on remittances sent by youth working in countries such as India, Malaysia, and the Middle East. A major chunk of remittance money goes out of the country to purchase food items from India and fuel to transport them throughout the country. Despite efforts in national economic policy to increase annual growth, the country remains intrinsically dependent on India's budget and policies for essential commodities. National pride projects in hydropower and irrigation are crucial, as they are based on calculated economic benefits from in-depth studies of present and future market prices and sensitivity factors related to international price index variations.

In the current geopolitical scenario, it is essential for small countries like Nepal, sandwiched between two nuclear powers, to pursue self-sufficiency in power and agricultural commodities to exist as a sovereign nation and be unaffected by adverse economic situations in neighbouring countries.

(Adhikari is an engineer and served Nepal government in various high level capacities.)

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