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Finance Minister Bishnu Prasad Paudel is contributing to economic stagnancy. The price of this is being paid mostly by small and medium enterprises (SMEs). His focus is more on party politics rather than the economy, even though he has been successful in presenting himself as a private sector-friendly finance minister, at least when compared to his predecessor Yubraj Khatiwada. His political acumen perhaps helped him craft this image of an efficient finance minister, but that has hardly been the case. He has neglected the fact that government intervention and support in various sectors are most critical at this difficult time.

The government has reduced capital expenditure for fiscal 2020/21 by nine percent, the reduction attributed mostly to the Covid-19 pandemic-induced lockdown and restriction on businesses. Only 15 percent of total budget allocation for national pride projects has been spent in the fiscal’s first six months. These two examples indicate how little has been done so far and what a whole lot remains to be done in the current fiscal. But respective government agencies seem unconcerned, and this is where FM Poudel is missing the opportunity.

Poudel came to the position with no ambition for the economy. Probably, that is why less is expected of him. But history will not be kind to him when it assesses his contribution to steering the economy in these most challenging times. Since his appointment as finance minister in October 2020, he has been successful in boosting the capital market. As he completed his 100 days in the position, the share market soared, even as the productive sector struggled to recover from the pandemic.  

Unlike many of his predecessors, Paudel saw no value in presenting a complementary budget for the current fiscal. But that has led to confusion over possible government help for the hardest hit people and sectors. He has been saddled with a budget that was prepared by Khatiwada, who was not a favorite of the private sector during his stint as finance minister. The country is riveted on its uncertain political future and Paudel is thus being spared for not delivering on the economic front. This, in turn, will be in Paudel’s favor while his success as finance minister is assessed.

What he has achieved so far is negligible compared to the enormous task he has in his hands. For one, he needs to pump more money into productive sectors. But the budget’s mid-term review indicates public sector expenditure is going to remain dismal throughout the fiscal, hampering overall economic growth.

Poudel seems to be good at managing expectations of the private sector and development partners. But he has so far failed to come to the aid of job-seekers and businesses in need of easy access to finance in the pandemic-battered economy. Most of his time is going into managing the country’s political fiasco while his sole focus was supposed to be getting government agencies to maintain high public expenditure to keep the economy afloat in the midst of a looming crisis.

Although most of the economic indicators seem to be okay, there is a deep structural problem in our remittance-driven, consumption-led economy. This was the right time to address that problem in order to boost productive sectors and create more jobs. But as we head towards the end of this fiscal, the fear is that the economy could again re-enter the self-defeating remittance cycle.

Nirmala Sitharaman, India’s first full-time female finance minister, now also has the distinction of becoming the country’s first finance minister to unveil a union budget during the turbulent Covid-19 times. Sitharaman’s budget is thus sui generis in every sense. While listing out the country’s annual incomes and expenditures, she took refuge in the words of Rabindranath Tagore: “Faith is the bird that feels the light and sings when the dawn is still dark” (Fireflies, A Collection of Aphorisms).

In 2020, the Indian economy faltered more than other big economies, pushing poor farmers back into the poverty net. During the lockdown, the union government’s Pradhan Mantri Garib Kalyan Yojana (PMGKY) provided free food to 800 million people, cooking gas to 80 million families and direct cash to over 400 million people. But that was not enough to protect many from taking their own lives due to the unbearable pain of extreme, pandemic-induced poverty.

Sitharaman’s budget is also the first of the new, challenged-filled decade. Although there are more pressing issues of ensuring food, shelter and healthcare to pandemic-hit Indians, Sitharaman tried to sidestep these priorities by trying to play up the year 2021 as India’s 75^th year of Independence, Goa’s 60^th years of accession to India—to celebrate which Goa got InRs 300 crores—50^th year of the India-Pakistan war. She also said 2021 was the year of Chanrayaan-3 Mission and the Haridwar Maha Kumbha. These landmarks mean little to poor Indians who are looking to survive the covid crisis.

The budget that touches upon the lives of 1.3 billion Indians directly and millions more in the region indirectly is based on six major pillars: i) health and wellbeing, ii) physical and financial capital, and infrastructure, iii) inclusive development for aspirational India, iv) reinvigorating human capital, v) innovation and research and development, and vi) minimum government and maximum governance. All six pillars have been projected as foundations for AtmaNirbhar (Self-reliant) India. As Sitharaman rightly said in her budget speech, this is a continuity of the past. What she didn’t mention is that the same approach has been holding India back for decades.

By citing Thirukkural—Aphoristic teachings on virtue, wealth, and love in Tamil 17^th century text—on taxation, Sitharaman has positioned herself as a central BJP figure from the Tamil constituency. She mentioned: “A king/Ruler is the one who creates and acquires wealth, protects and distributes it for common good (Thirukkural 385).” But without the imagined wealth creation, it only indicates Indian people will have to struggle more to meet their basic needs while ruling party leaders keep delivering sanctimonious speeches filled with abstract couplets that do not rhyme with people’s daily challenges.

Some in Nepal have applauded India’s new budget as it marginally increases India’s allocation for Nepal and other neighboring countries. But that is a stunt in regional politics even as the budget disorients the Indian economy. Yes, Nepal may get more from the government of India this year. But a more prosperous India would have more to share with us than what we are getting from union government’s annual allocation.

There are many positive features of Sitharaman’s budget. She has put people’s health and wellbeing as her government’s number one priority, allocated money for affordable housing and elderly population, vowed to further digitize governance and public service delivery, emphasized connectivity, and most importantly, allocated enough for Covid-19 vaccination in the country. These positive aspects will add to Sitharaman’s credentials as a finance minister in these historically difficult times. But she too has been unable to depart from the conventional BJP style of playing up India’s self-imagined reliance, which is in fact impossible in the age of digital connectivity.

A former defense minister of India with a socialist bent, Sitharaman offered tremendous hope for her country. But her hopes and priorities for India already appear misplaced.

The Supreme Court has issued a stay order on the government decision to allow foreign investment in agriculture. This comes as no surprise as the entire business community is against it. What is surprising is that there is no voice of protest from farmers let alone researchers, practitioners, academicians and think-tanks. The only argument that the business community and different professional groups give is that there should be a comprehensive study before jumping into conclusions. Ironically, industrialists and business community have no interest in supporting studies that feed into policy decisions. Such a culture is non-existent in the country.

All the umbrella organizations of private sector protested. The Federation of Nepalese Chambers of Commerce and Industries (FNCCI), the Nepal Chamber of Commerce (NCC) and the Confederation of Nepalese Industries (CNI), they all said the decision to allow foreign investment should be taken after the private sector commissions a study and discusses its pros and cons. Similarly, the Dairy Industries Association Nepal (DIAN), the Nepal Dairy Association (NDA), the Central Dairy Cooperative Association (CDCA) and the Federation of Central Livestock Cooperative (FCLC) are also against the decision. They claim their investment worth around $850 million will be at risk if this decision is implemented.

The government decision could also be interpreted as going against the Foreign Investment and Technology Transfer Act (FITTA), 2019. But it is not against the act’s spirit. The decision is to allow foreign investment in sub-sectors such as fishery, beekeeping, dairy, livestock, fruits and vegetables and other primary areas. Foreign investment can bring new opportunities to farmers and allow them to get better prices for their products, both in short and long run.

Against this backdrop, we must consider issues related to seeds and ecology while allowing foreign investment in primary areas of agriculture. One major concern should be ensuring diversity and maintaining continuity of traditional seeds while the market could be flooded with patented seeds. Another aspect that we must pay attention to is ecological balance. But both issues remain in the backseat in an economy where a large number of people struggle for basic means of livelihood. Nepal’s per capita income of $1,074 matches those of the poorest countries in the world, and many Nepalis have to live in fear of food insecurity round the year.

An archaic dilemma arises: should we let people suffer from hunger and malnutrition to protect ecology and environment? Global experience shows us that once a certain income threshold is crossed, people start caring about the ecology they are part of and the climate they live in. But some countries prefer to remain perpetually poor in the name of protecting their domestic actors. India is an example of such willful poverty, as it hurts its farmers by embracing protectionism.

Opening foreign investment poses challenges no doubt. But the country can craft policies that ensure that the money coming in is going to right areas at right times. Static policy regimes do not work because there must be cost-benefit analysis of any policy that involves primary areas of agriculture. That is exactly where Nepal falls behind. Nepal’s policy-making is not dynamic enough to accommodate new challenges and opportunities. The private sector, which is supposed to make the market more competitive, is instead lobbying to maintain the status quo.

Industrialists and businesses could help domestic think tanks conduct studies and come up with policy recommendations. But they are spending their resources on lobbying and litigating against the decision, without any proof that such actions is in the country’s broader interest. This is largely because of their lack of interest in promoting the sector. It may not be right to question their intent. But it is for everyone to see that they have been clear beneficiaries of the status quo in agriculture. This must change and the only way to change it is to disrupt the system. Foreign investment in agriculture will bring about that disruption.

The recent government decision to allow foreign direct investment in agriculture is a bold step. It will boost competition in otherwise moribund sector. Although the decision has been criticized in some quarters, as the inflow of foreign investment and technology will supposedly marginalize domestic investors, it was nonetheless essential in order to break the cycle of low investment and cultivation of sub-standard products in agriculture.

The business community has objected on the ground that the Foreign Investment and Technology Transfer Act (FITTA) 2019 bars foreign investment in agriculture. The council of ministers made the decision by going against the act. You could argue that this represents a massive breach of standard procedure in policy-adoption in a sector that touches the lives and livelihoods of nearly 70 percent of the national population. This may be true. But with the parliament under heavy influence of lobbyists and industrialists, there really seemed no other way out.

Foreign investment in agriculture will not negatively impact farmers. They will rather get better prices for their products in competitive markets. The hardship will rather be felt by the industrialists who have been exploiting both farmers and consumers without being accountable for their sub-standard products that are costly too. On one hand, farmers are not getting fair prices for their products with domestic industrialists forming cartels to buy farmers’ products. On the other, domestic industries do not produce quality products at competitive prices for consumers.

Nepal’s agriculture has always been stunted in the absence of outside disruption. The Agriculture Development Strategy (2015-2035) is being implemented after the completion of the implementation of the previous Agriculture Perspective Plan or APP (1995-2015). But there have been no meaningful changes in farmers’ lives or the way they do agriculture in all this time. The reason again is lack of innovation. The sector’s condition is not much different to what it was in 1995 when the government started implementing the APP. Farmers have not seen any meaningful changes in their lives in the past 25 years.  

Allowing foreign investment in agriculture was discussed during the formulation of the new FITTA in 2019. But a parliamentary committee directive ended that discussion. The directive was the direct result of the political economy of bill drafting and interest-groups’ access and influence in the process. The same group of traders and businessmen that blocked the FITTA is against welcoming foreign investment in agriculture.

The government decision applies only to export-oriented items. It will enhance the ability of our agri-based industry and support those willing to explore global markets and bring more investment. Consumers at home can enjoy export-quality products and farmers get better prices. The only group that will be hurt is a coterie of businesspersons who are holding the entire sector hostage by imposing a monopoly on prices and quality of agricultural products.

Again, the cabinet may not have gone by the book. But this decision made in public interest was both bold and right. We have to differentiate between real farmers and domestic industrialists while making policy decisions. The Federation of Nepalese Chambers of Commerce and Industries (FNCCI) and other associations have objected. But the FNCCI and likeminded associations do not necessarily speak in favor of common folks. Let’s not forget these are the same people who forced sugarcane farmers to beg for the payment of their dues.  

The ruling Nepal Communist Party (NCP) leaders have sabotaged this country’s future again. The new political turmoil will inflict a big economic cost and hold economic development back. The government had set a target of graduating from the list of least developed countries in 2022, and becoming a mid-income country by 2030. Both goals have become unachievable. The economy that was already suffering due to the pandemic has been pulled into further uncertainty with the parliament’s dissolution. We no longer have a conducive environment to be a vibrant economy by achieving double-digit growth over the course of the next decade.

The government formed on the back of a two-thirds parliamentary majority has failed to deliver on its electoral promises. People voted for prosperity and development that was projected as a byproduct of political stability. Although the link between political stability and economic development is unclear, people voted in the general elections to achieve both: or more specifically, to achieve prosperity by the way of political stability. This process has been halted and Nepal will now struggle to achieve economic sustainability and development.

The country has been trying to become a moderately developed country by following the prescription of development partners without working out whether the prescription actually made sense in our context. Even far-left political parties in Nepal seem willing to implement the Washington Consensus. Yet the country has been unable to make much progress in utilizing available resources. It is often forgotten that development is achieved based on effective implementation of policies and programs and not what model a country adopts.

One of the projections, especially after the promulgation of new constitution in 2015, was that Nepal would also join the league of Asian countries that have been progressing regardless of their political frameworks. But it is worth asking: In which area has Nepal progressed in the three years since the formation of the Oli government? As 2020 comes to a close and the world starts inoculating itself against Covid-19, Nepal has entered a new and needless political battle. No one is sure if federalism, considered a means for inclusive economic development, can be sustained. The new constitution that lays out the foundation for federal administrative system has been repeatedly undermined by the major political parties as well as the government. Against this backdrop, its institutionalization is up in the air.

The fundamental question is: Can Nepal overcome this chaos to continue on the path of economic development over the next one decade? Recent political mess complicates this journey. Even if the process continues, it will be tall order to achieve the anticipated double-digit growth that would have helped Nepal be a mid-income country by 2030. Setting up new goals will take time and by then it may be too late. The interest of our neighbors could shift elsewhere and Nepal could be left behind in the region.

What can we do to help the economy recover from the pandemic’s impact and the political chaos? The least Nepal can do at this time is to let the bureaucracy work unhindered to take forward the country’s economic agendas. Yet that too is unlikely as our bureaucracy and state apparatus are thoroughly politicized.

When Nepal emerges from this chaos, the dynamics of economic development would have vastly evolved in the post-covid world. One could argue that there would still a government in place to carry forward economic agendas. But then this government would be consumed by petty politics and have no time for vital economic issues and delivery. This missing focus on economic development in turn will imperil the country’s future.

“Who should get more support from the state and who less?” is a classic conundrum generations of public policy scholars have contemplated. Nepal government’s Covid-19 emergency response in the form of relief and stimulus packages has been channelled through different state entities, adding another layer of confusion at the recipients’ side. The Nepal Rastra Bank (NRB) has allotted NPR 200 billion in refinancing facility for this fiscal. Most of the allotted resources is to be distributed as per the recommendations of commercial banks and less on case-by-case basis. Only 10 percent of the total allocation is being distributed through microfinances as refinance facility. This makes us question the policy choices about the utilization of financial resources in the pandemic that has hit the poor people the hardest.

Most financial resources that were supposed to be distributed through microfinances are for micro and small enterprises (MSEs). These enterprises are at the bottom of the country’s business pyramid and they need support in these tough times. All the losses of the micro and small industry are directly slapped on low-income people who are without other financial cushions. As it is, the NRB has allocated 70 percent of the total refinancing amount to be distributed as per loan requests through commercial banks and another 20 percent on a case-by-case basis.

There are significantly more Nepali borrowers reliant on microfinances rather than on commercial banks for loans. If we look at the nature of the loans, most loans from microfinances are for subsistence whereas loans from commercial banks are for various higher-end purposes. Businesses running with loans from commercial banks certainly contribute more to the GDP. But should the NRB prioritize high-revenue businesses when millions of lives at the bottom of the economic ladder have been devastated? Take for instance the case of the struggling dairy industry. Around 500,000 households are engaged in the sector, investing around Rs 25 billion.

Micro and small enterprises play a critical role in creating job opportunities and are considered an effective vehicle for economic empowerment at the grassroots level. But government efforts are not focused on advancing the micro and small industry. But more support to this industry could save thousands of micro and small enterprises across the sub-sectors, particularly in agriculture. The sector alone employs around 70 percent of the country’s folks, and most of their jobs are linked to micro and small enterprises one way or the other.

Globally, the role of MSEs in the economy is increasing and they now represent about 90 percent of businesses and more than 50 percent of all employment. The importance of MSEs is much higher in developing countries like Nepal where one major hurdle they face is access to finance. Against this backdrop, the government decision to allocate only minimal amounts in their support in this crisis suggests the insensitivity of policymakers to the poorest and most vulnerable sections of the society.

This is just an example of how policies hurt poor people, those who do not have resources or capacity to lobby. Presumably, the central bank works more in favour of commercial banks as they are easier to control and bargain with. But it must revisit its modus operandi and listen to voices and concerns of small businesses and microfinances as well. Or it will be forfeiting its obligation to the poorest sections of the society towards which it should be the most responsible.

With growing numbers of urbanizing corridors in all seven provinces, urbanization has become an unstoppable force in the country’s development. This, coupled with booming e-commerce, is a major driver of growth, in what is a tested route to high economic growth for developing countries. Countries in South East Asia and Africa have taken these paths to developing vibrant economies. But we in Nepal also lack a coherent approach to developing large-scale connectivity projects that facilitate both urbanization and e-commerce.

Underpinning the importance of urban development, the government adopted the National Urban Development Strategy (NUDS) 2017. Going beyond, the government, with technical support of the Asian Development Bank, started a separate unit of Urban Planning and Development Center (UPDC) under Department of Urban Development and Building Construction (DUDBC). The center has been conducting research and building a knowledge pool required to advance sustainable urban development. Under UPDC and with the ADB’s financial support, a multi-disciplinary Urban Corridor Development study was completed in 2019, both in the east and west, laying a foundation for economic corridors in both areas. The government has already initiated the process of implementing corridor development in Province 1 and Lumbini Province, again with ADB support.

Recently, the World Bank also provided $150 million to improve urban governance and infrastructure projects in municipalities of two strategic urban clusters: eastern-Tarai region (Province 1 and 2) and western region (Gandaki and Lumbini Provinces), complementing government efforts to expedite Nepal’s urbanization. The World Bank’s support in urban development has come at the right time: there is a critical need to help municipalities enhance their urban governance and develop cross-municipalities infrastructures such as road, solid waste management, drinking water as well as education and health services. Nepal is at a crossroad of transforming urban governance by empowering local governments in the new federal set-up. The support of both the World Bank and the ADB in this needs to be in line with the spirit of constitution for there to be meaningful cooperation among local, provincial, and federal governments. The support for municipalities should also be done in close coordination with provincial governments.

One big challenge identified by scholars with Nepal’s three-tier federal model is ensuring seamless communication and cooperation among different tiers. It is vital that federal government agencies and our development partners accommodate all stakeholders, from top to bottom, for the institutionalization of federalism and achievement of the goal of prosperous Nepal. We need to keep emphasizing this, as we are yet to fully emerge from our unitary mindset.

Urbanization is also linked to rural-urban linkages and correlates with migration. People’s movement in search of jobs and better health and education services also call for robust and sustainable urban infrastructures. Environment-friendly urban cores attract upwardly mobile people. The coronavirus pandemic has reminded us of the importance of a balance with the larger eco-system; it is critical we do not blindly follow traditional growth models.

Our local and provincial governments desperately need to ensure better infrastructure and public service delivery. And this is exactly where the development partners come in—not just to fund old-style projects but also to invest in preserving our heritages and natural resources. The whole process of development and prosperity should thus be revisited. Doing so starts with the development of our urban cores the right way.

Directly, Nepal may stand to benefit little economically from the victory of Joe Biden, the US President-Elect. But a reassurance from him that multilateralism, globalization, and liberal trade policies are the fundamentals of our time and will thus be protected will have far-reaching consequences in the shaping of Nepal’s economy.

In more concrete terms, countries like Nepal need strong multilateral organizations that provide financial and technical support for economic development, especially to those at the bottom of the socio-economic pyramid. There will be both direct and indirect benefits as multilateralism and globalization will be stronger in the Biden era. More specifically, America’s role in international development will be reshaped as Biden will try to restore his country’s international image by helping developing countries come out of poverty, if only to better protect liberal values and democracy.

Nepal has been hesitant to approve the Millennium Challenge Corporation (MCC) compact due to its connection with the US Indo-Pacific Strategy (IPS), even though the MCC was thought of much before the IPS emerged as an idea. I believe, under Biden, American foreign policy will be more in favor of supporting other countries’ economic growth in good faith than by forcing them to choose between extremes. This new narrative emerging from Washington will help Nepal approve MCC projects that have direct impact on Nepal’s long-term development. With the MCC’s parliamentary approval, Nepal will not only have access to US$ 500 million for critical infrastructure development but also cement the foundation for cross-border electricity trade with India. If the winter session of the parliament makes a headway on the MCC, projects under it will be completed by the time Biden completes his first stint at the Oval Office.

Another area Nepal will benefit in is mitigating the risk of climate change and its impact in agriculture in hilly and mountain regions. Globally, environmentally-vulnerable countries like Nepal will benefit from better international cooperation on climate change as Biden has vowed to implement the Paris climate accord. Having a global leadership working to achieve climate change targets will help Nepal be more effective in safeguarding its own interests in climate change. Nepal suffers high economic cost of climate vulnerabilities and extremes. An estimated direct cost of these impacts is equivalent to 1.5 to two percent of current GDP, rising to five or more percent in more extreme years.

Trade will be another area where Nepal can benefit from the trade-friendly American leadership. The US is third biggest export destination for Nepal after India and the EU. Similarly, the US is the fifth most attractive markets for 12 key goods and services with potential from Nepal, as identified in the Nepal Trade Integration Strategy (NTIS). With Biden, the international trade will be reshaped with more access to American markets for Nepal. Biden’s liberal trade policies will be highly beneficial—if Nepal also works sincerely to optimize its market conditions.

Above all, young Nepalis aspiring to pursue higher education will have greater access to world-class academic institutions as they will get more financial support. Biden as president will certainly increase the size of the pie of the research and development fund. Modern Nepal has benefitted immensely from the American education system with more people being trained in these institutions. That is critical for Nepal, which has been unable to establish even a single quality academic institution.

A fairer and orderly global system with a moderate and centrist leadership is in everyone’s interest. But the challenge is to create opportunities for everyone in a more democratic set up. Although democracy gives us more choices and more ways to work and live, it is also vulnerable to populists and authoritarians. The only way to protect democracy is through economic development that creates opportunities for each citizen to have a diploma. The Biden era could help Nepal in this crucial aspect as well.