So, the million dollar question facing the country is what is the cure for this widening trade deficit? Classroom theories say boosting exports and curbing imports is the most effective cure. But Nepal’s experience has proven it is easier said than done. Checking imports can be easier, but cannot be a choice for a country with low growth. Programs adopted to substitute imports, understandably, are painfully slow in delivering desired results. And the idea of increasing exports is proving a daunting task.
Nepal’s outbound trade has ever suffered from problems like high dependency on few exportable products and supply constraints. On top of that, toxic combination of poor industrial infrastructure and militant labor unions has turned Nepal into an unsavory place for doing business. Messy politics, policy inconsistencies and a fragile law and order situation in recent years have vitiated the industrial environment, eroding investor confidence.
The state has simply failed to create environment conducive for doing business or boosting investor confidence. In 2010/11, exports grew by almost six percent to Rs 64.59 billion in 2010/11, which can be tagged as an encouraging sign. But major commodities like woolen carpet and readymade garment continue to limp with low competitiveness and weak confidence of consumers in developed markets.
Not that the government made no attempts to revive exports. Export duties were lowered and low-interest financing was arranged for the sector. Even cash subsidy was announced for exports based on the extent of their value addition. But programs like soft loans and cash subsidy have not reached the exporters yet.
The outcome of other efforts also continues to remain pessimistic. Such a situation prevails because most of these efforts were launched without diagnosing the crux of the problem. Consistent drop in the share of manufacturing sector in the country’s total output is a glaring example of this mismatch.
Hence, we urge the government to pay urgent attention to improve the environment for doing business, a most crucial condition for reviving investor confidence. The government must provide necessary security, end militant labor union and enhance workers’ productivity to regain investor confidence. It must strongly implement promises like soft-loans and cash subsidy.
The government must also create trade-friendly environment beyond the border. For instance, it must assure that India, the largest trading partner and market in the south, sincerely provides duty-free and non-tariff barrier free market access, as it is has committed in bilateral trade treaty. Fundamentally, the problem demands more innovative and committed efforts from the government. It must fulfill this need for the sake of creating more employment and ensuring economic stability of the country.
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