Industries headed toward bankruptcy: Muraraka

Economists say blockade is going to hit economy in long run

KATHMANDU, NOV 17: The economic embargo imposed by India and the unrest in Madhes are pushing industrialists toward bankruptcy, according to private sector leaders. Speaking at an interaction organized by Nepal Republic Media on Tuesday, Federation of Nepalese Chambers of Commerce and Industry (FNCCI) President Pashupati Muraraka said that the industrial sector is on the verge of collapse due to the prolonged unrest.

The protracted strikes have badly affected the private sector as industrialists have lost their ability to even pay bank interest, he said adding that this will hit the banking system also. “Though Nepal Rastra Bank has extended the timeframe for payment of interest and rescheduled loans, industrialists have stopped opening LCs as they cannot carry out import activities and they need to pay hefty demurrage and detention charges.”
Despite a popular assumption that the country will move along the path of economic prosperity after the promulgation of the constitution, the southern plains are in turmoil. Some 2,200 industrial entities located there are closed due to the Madhes unrest backed by the Indian blockade. The unemployment created by the industrial closures is causing distortions in the economy.
The supply disruption since the last three months has given rise to a blackmarket or parallel economy, he said. It will take another six months for things to return to normal even if the blockade is lifted today, he pointed out.
The industrial sector has been hit the worst by the Madhes unrest backed by the Indian blockade. Industries are dependent on imported diesel as the government is unable to supply electricity. The blockade is going to hit the economy in the long run and not just in the current fiscal year, according to economists.
Former member of the National Planning Commission (NPC), Posh Raj Pandey, said the current environment of uncertainty will discourage domestic and foreign investors. Investors will lose confidence in Nepal, which means there will be low investment and the country will be pushed back four to five years, he said.
“In the short term, GDP will decline in the current fiscal year and in the longer run this will hit development efforts and the future prosperity of the country as the unrest has already bled the economy white.”
The unrest has crippled the government’s capacity to spend on development works, agriculture output is going to be low due to a weak monsoon, and the protracted unrest in the Tarai rice bowl will impact agricultural output, while tourism, wholesale and retail trade, industry and the financial sector - key drivers of the economy -- are going to post negative growth. “The economy is heading toward a recession,” Pandey added. The government has been unable to meet its revenue target and inflation is going to be double digit - due to scarcities and also the increasing role of the blackmarket, he observed. He also opined that the economy was slipping out of the government’s hands.
Suggesting the need for trade and economic diversification, he said the current crisis has been aggravated by over-dependency on the fuel import. “In the last fiscal year, Nepal imported Rs 110 billion worth of petroleum products from India,” Pandey said and advised the need for developing enough hydropower to reduce this dependency.
Likewise, former vice-chairman of the NPC, Shanker Sharma, said that the low supply of fuel is going to hit the transport sector, which is yet another key driver of the economy. “Generating more hydropower is the only option,” he said. “Apart from fuel imports, the country has to diversify its trade in general,” Sharma suggested.
The devastating earthquake of April 25 has pushed some 700,000 Nepalis below the poverty line and the current crisis has also pushed an equal number below that line. “Some 2.5 million Nepalis are going to be pushed below the poverty line if the crisis continues.”
Likewise, the current crisis has created a humanitarian crisis. “Nepalis are dying due to lack of medicine,” Sharma added, suggesting that the government immediately bring in a rescue package for health, education and the private sector.