If FM’s job is to prioritize investments, as economics is all about making choices from among unlimited needs and demands, because of the scarcity of resources, he has failed in his job. Tempted to include each and every program, he reduced the budget speech into a manifesto. Instead of focusing on capital formation and allocating them on needy areas, Mr Adhikari as in the past has made luring promises, coined catchy slogans, introduced populist programs and made provisions for distributive dole outs, all aimed at short-term partisan gains. His distributive, populist and expansionary prescriptions may bring short-term gains to his party and his coalition partner but they will only derail the economy.
If the excessive rise in recurrent expenditure and the recent inflationary trend is anything to go by, inflation is certain to reach new heights in the days ahead, far exceeding his forecast of 7 percent. Resource targets, whether mobilization of internal revenue or absorption of external aid, are near impossible to meet. On expenditure front, of the 3.85 trillion rupees of the total budget, 70 percent has been allocated for recurrent expenses only, which are 14 percent higher than pre-last year’s actual expenditure and 26 percent higher than last year’s revised estimate. However big, the current expenses will be spent anyway; it is the development expenses that are bound to suffer; whatever little earmarked as plan outlay too will in one way or other be diverted to meet the recurrent expenses because of the inevitable income-expenditure gap.
Besides precision, the budget lacks prudence, focus and direction. It is not serious on the pressing problems our economy has been facing such as double-digit inflation, liquidity crunch and lack of good corporate governance in financial sector, capital flight, sluggish growth, trade and BoP deficit (especially with India), shrinking manufacturing sector, unemployment, crash of capital market, etc. Instead, the budget prescribes cooperatives as panacea to most of our ills.
Today’s world is the world of private sector. Despite the communist domination of the political landscape, larger private sector, with its contribution of around 70 percent, control the economy. Be it contribution to GDP or employment or revenue or export, share of cooperatives stand at less than 0.3 percent. And anyway, cooperative is not a separate sector in itself the way private and public sectors are; it is one of the multiple and small forms of private sector. In fact, there are only two sectors in political economy—private and public—as far as ownership is concerned. When governments invest money and do business it is public sector, and when private individuals do the same it is private.
The finance minister´s overemphasis on cooperatives and resentment of the private sector is grossly unjustified. Owing to its agro-oriented nature and limited scope, cooperatives cannot be substitutes to the larger private sector, much less a threat to it.
And cooperatives are joint ventures of private individuals, where investment from the members is small but uniform but the numbers of shareholders are massive. Members jointly manage the entity; they are owners, managers and clients (producers, sellers) at the same time. It is only this modus operandi of a cooperative that makes it different from other forms of private businesses such as joint stock companies, partnership or sole proprietorship; but they are private sector all the same. Cooperatives are not necessarily charitable entities, as some people seem to have understood. The only difference is that in cooperatives the profit mainly goes directly to the producer as there are few or no middle men involved in the process from production to sales.
Owing to the mass ownership and collective management of small scale producers/entrepreneurs, cooperatives are best fit in areas like agriculture and cottage industries. Cooperatives started in Europe; many of the developed countries of today successfully practiced cooperatives during the 19th century. With commercialization of agriculture, Europe has long passed this phase. Yet, here in our country where the holding is extremely dismal and subsistence-oriented, both in farmland and livestock, cooperatives can be useful to attain economies of scale in farming and agro-based cottage industries. In areas such as cow rearing, milk collection and operating chilling centers, cooperatives have already proved useful as in our context individual dairy farming is hardly cost-effective.
In fact, the FM’s overemphasis on cooperatives and resentment of the private sector is grossly unjustified. Owing to its agro-oriented nature and limited scope, cooperatives cannot be substitutes to the larger private sector, much less a threat to it. Undertakings that require huge investments or managerial and technical know-how such as mammoth infrastructure projects, large factories, big service-chains or transnational companies can never be owned or run by cooperatives.
Because of the existing political climate, worries that the grants, subsidies, confessional loans and tax incentives cooperatives will enjoy are likely to be abusive and counter-productive are not unfounded. Given our history and trend of corruption and politicization, there is every possibility that the cooperatives will be used as tools to serve personal and partisan interests of politicians at local level. Misuse of facilities, such as grants, soft loans and seed money to be provided from a ‘cooperative fund’, and exemption of duties and taxes, will be commonplace causing extra burden on the exchequer. Similarly, unless the syndicate system in public transport is totally crushed, providing more incentives for the cartel-ridden transport entrepreneurs and workers in the name of cooperatives as proposed in the budget will only nourish the menace.
Since the past several years, unscrupulous financial intermediaries have mushroomed in urban and suburban areas in the guise of Savings and Loan Cooperatives. Taking advantage of the statutory and institutional shortcomings, they act with virtual impunity as rivals of banks and financial institutions (BFIs). With their exposure in the troubled and notorious real estate sector standing at around 93 percent, these “cooperatives” have been one of the forces to have caused dislocation in the economy. Capitalizing on loopholes in the system, these so-called cooperatives receive deposits from and disperse loans to all and sundry on exorbitant rates and questionable transactions.
As a consequence, some of them have become insolvent, some have silently closed following a run down; tomorrow when most of them will crash not only the savings of a great number of small depositors will collapse, it will send shock waves to the whole economy. The FM has come up with no effective remedy to address these problems; his brief prognosis in this regard is to empower Nepal Rastra Bank (NRB) with regulatory powers. How can NRB, which is hardly able to effectively regulate and govern 230 or so BFIs, do so in the case of 23,000 or more Savings and Loan Cooperatives?
jeevan1952@hotmail.com
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