The budget has reintroduced an import substitution policy after many decades and also pledged a direct cash subsidy in the range of 2-4 percent to exporters, a move aimed at fighting the balance of payments (BoP) deficit that is threatening economic stability.[break]
“Under export subsidy, exporters of commodities generating value addition of above 80 percent will enjoy 4 percent cash incentive on their total export income,” said Pandey, presenting the budget Saturday afternoon.
Likewise, those generating value additions in a range of 50 to 80 percent will enjoy 3 percent cash incentive, while exports with less than 50 percent value addition will get 2 percent cash incentive.
Given the existing volume of exports, the budget anticipates the export subsidy to range around Rs 1.5 billion. In addition, the budget has offered income tax exemption of 25 percent to all exporters.
The budget has promised all-season roads, power lines and water supply right up to the manufacturing establishments if they employ more than 100 people and a police post with five armed personnel within the premises of all manufacturing industries employing more than 500 Nepalis.
“We will also set up a sub-health post at any factory that employs more than 500 Nepali workers,” said Pandey.
- Total expenditure up by 30.4% to Rs 337.9b
- Recurrent expenditure up by 25.8%
- Capital expenditure swells by whopping 45%
- External sources to finance 26% of the budget
- With Rs 57.83b, education largest absorber of budget
- Health budget increased to Rs 23.81b from Rs 15.84 b
- Police budget up by 9.16% to Rs 19.42b
- Defense budget up by 2.7% to Rs 18.29 b
- Four wheelers to be costlier by around 20%
- Two wheelers´ price goes up by around 16%
- Liquor and cigarette to be costlier
- No change in income tax structure
- Reintroduction of cash subsidy to exporters
- 5-men police post for larger factories
- Low-interest loan for promoting livestock
- Fund to study underground railway in Kathmandu
Likewise, the budget also promises to introduce lay-off benefits and health and accident insurance for workers and other staff who have paid the one percent social security tax introduced last year. The government anticipates that these facilities will improve industrial relations.
On import substitution policy, the budget is mainly focused on development of livestock farming, and it has promised low-interest loans to farmers and allocated Rs 1 billion for the purpose. It has also announced 50 percent subsidy on insurance premiums covering livestock.
With such programs, the government aims to replace livestock and meat imports, which touched as much as Rs 15 billion last fiscal year and aggravated the BoP deficit.
The new budget has also sharply jacked up allocations for national-level infrastructure projects.
For instance, allocation for the Mid-hill Highway has been increased to Rs 1.21 billion and the Kathmandu-Tarai fasttrack road has received Rs 680 million. Rs 580 million has been earmarked for the Sikta irrigation project and Rs 1.27 billion set aside for different north-south highways.
“I have also set aside funds for conducting a study for developing underground metro train services in Kathmandu Valley,” said Pandey, who also promised adequate funds for implementing power projects like Upper Tamakoshi and Trishuli.
The budget has allocated Rs 3.04 billion for implementing targeted poverty reduction programs under the Poverty Alleviation Fund, earmarked Rs 25 million for the Karnali Employment Program and Rs 8.54 billion for social security packages like old-age allowances.
The caretaker government has sharply jacked up spending on crucial social sectors like education and health. “I have earmarked Rs 57.65 billion for education,” said Pandey, adding that the figure is up by around 25 percent over last year´s allocation.
Likewise, the budget has allocated Rs 24.51 billion for health, under which it is committed to implementing free basic health services for all. It has also promised to study the possibility of introducing free health insurance for people below the poverty line.
Social security schemes like old-age allowance have been left untouched. It has continued relief programs for conflict-affected persons and communities and allocated Rs. 1.88 billion for monthly allowances and upkeep of combatants and the management of temporary camps.
In total, the government has earmarked Rs 129.53 billion for capital expenditure. “The allocation is some 44.8 percent higher than the revised estimate of last fiscal year´s capital expenditure,” said Pandey.
It has set aside Rs 190.31 billion to finance recurrent expenditures. The figure is about 26 percent higher than what the government spent under the same head last year. It has also set aside Rs 18.04 billion for principal repayment.
The clear goal of the sharp rise in development budget is to spur growth, which has been targeted at 4.5 percent. But experts caution that the volume of money flow in the market the budget envisages will also push up inflation, something which could make life difficult for low income groups.
It will mainly increase challenges for the central bank, which targets containing inflation at 7.5 percent for this fiscal year.
As for resources, the government has set a target to mobilize Rs 216.64 billion in revenue.
To finance the deficit amount, which stands well over 110 billion, it plans to mobilize Rs 65 billion in foreign grants, Rs 22.23 billion in foreign loans and the remaining Rs 33.68 billion from domestic borrowing.
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