Strengths
The budget in general has proposed many social welfare and relief schemes to address issues related to the sufferings of the poor, socially discriminated, marginalized, senior citizens, farmers, women, youth, vulnerable and excluded people. An example of such welfare schemes is the increase in existing allowances given to different strata of people: Rs. 100,000 to the marrying couple representing Dalit and non-Dalit communities; Rs. 50,000 to those marrying widows; an allowance of Rs. 3,000 to women volunteers and Rs. 1,000 to ‘Rautes’(eroding ethnic group); subsidies on agriculture inputs; and free medical treatment to children and senior citizens. Taking into account the worsening social security condition, some other social measures have been proposed. They are: Establishment of a separate bureau to look after serious and organized crimes; prescribed locations for banks, hotels, lodges and restaurants; a separate identity card for poor people who qualify to access state subsidies; national identity card for multiple purposes, etc.
By increasing the limit of the income tax to Rs. 200,000 for married and Rs. 160,000 for the unmarried, the government has conveyed a positive message to the middle-class families as well. The reduction of the custom tax from 40 percent to 30 percent on many household items and of agriculture development levy from 8 percent to 5 percent on items of regular use has conveyed another good message to the lower- and middle-income families who are compelled to spend more than two-thirds of their income on food items only. The increase in the salary allowance of the civil service employees is another positive aspect of the budget. Allocation of about Rs. 49 billion to programs that directly benefit women and an attempt to make the budget gender responsive is praiseworthy. Overall, the budget has prescribed many popular schemes.
Weaknesses
In the proposed budget, while the total economic expenditure is higher by nearly 34 percent than the revised estimate of the last FY, the recurrent expenditure (Rs. 160.632 billion i.e. 56 percent), capital expenditure (Rs.106.284 billion i.e. 37 percent), and principal repayment (Rs.19.12 billion 7 percent) are higher by nearly 32 percent, 45 percent and 5 percent respectively. In view of regular strikes, ‘bandas’, and ‘chakkajams’ by one group or another, lack of political commitment, absence of political structures at the local level and no improvements on these aspects as yet, on the one hand, and the lack of strategic coping mechanisms to encounter such problems, on the other hand, one can safely argue that the proposed budget is unnecessarily huge and thus difficult to achieve. Despite the extremely impressive revenue generation made last year, the Maoist-led coalition government was unable to make the best use of the collected revenue for the same reasons. The proposed budget has ignored the lessons coming from the previous years.
Of the total expenditure, Rs. 135.582 billion (47.42 percent) has been proposed for general administration while Rs. 150.347 billion (52.58 percent) is for development. Since general administration basically refers to administrative, indirect and overhead expenses, it is important that this expense keeps reducing over the years with a proportionate increase in the development budget at the same time. However, this government like others in the past also seems to have ignored that ‘the higher the development budget the faster the positive changes’ in the lives of poor people, especially those living in remote areas such as Karnali region.
In terms of financing of the expenditure, Rs. 161.73 billion is expected through internal revenue and Rs. 78.516 billion through foreign assistance (Rs. 56.955 billion will be borne by foreign grants and Rs.21.560 billion by foreign loans). There is a deficit of Rs. 46.340 billion in the budget. Despite exploring all possible internal and external sources of revenue, it has been a culture for most governments to propose a high-deficit budget. Since this government is made up of 22 political parties, it is unlikely that they would be able to perform well due to the lack of trust between them, deficiency of political will and commitment and inter- and intra-party conflicts for power and authority. As a result, they will face difficulties in convincing the international donor community for continued assistance and the national and international investors for mega projects. Apparently, development works will seriously suffer since all cuts will come from this sector only; the expenses related to general administration are mostly used up long before the end of the fiscal year. The tendency of proposing a high deficit budget continues until a culture of accountability, where governments are questioned for their inability to actualize their plans and budgets, is introduced. Otherwise, neither poverty nor conflicts will ever disappear!
Despite many good concepts and well-understood challenges, the budget fails in the ‘how’ part. The lack of the ‘how’ part was precisely the reason why many good concepts could not yield positive results in the past. For instance, the government has not articulated how it will create an investment-friendly environment if one of its strategies is to attract investors on big projects. Another example can be from the agriculture sector where the government by realizing the longer-term negative effects of the use of chemical fertilizers has suggested some policies and infrastructure for the promotion of organic fertilizers. However, the ‘how’ part is again not clear although the use of organic fertilizers is the only solution to address many of the problems related to the use of chemical fertilizers such as loss of soil fertility, low land productivity and unavailability (when needed) since it is not produced in Nepal. There are many national and international organizations, which have proven experience in organic farming to change the living standards of poor Nepali farmers. Hence, the government needs to be politically and economically savvy so as to make the best use of the provision they have made about organic fertilizers in the budget or else it becomes rhetoric only.
One would not get a message from the present budget that this government is different from what we previously had in terms of smartness, vision, taking lessons from the past, openness, etc. The government’s failure to deal with the demands of the civil service employees for salary increase is an example. As in many other demands of various agitating parties that were fulfilled after being violent and using muscle power, this government also changed its decision about the salary increase when the employees used their muscle power since the government had not done proper home work. This action of the government has been weak in that i) it confirmed that the use of muscle power and violent behavior is the only way out in the Nepali context to get any demand – legitimate/illegitimate – fulfilled; ii) it unnecessarily increased the sufferings of the Nepali people, more so the poor and excluded, since all the works to be done by the employees were in a standstill for almost a week; iii) the country lost huge revenues during this period, which the government could ill-afford at this point of time of financial crisis. The point here is not to argue whether the employees’ demands and the way they put them were correct or not.
The point is whether the Nepali people could expect to benefit from a long list of welfare schemes proposed in the budget if this is how the government is going to make its decisions.
In view of the various schemes and provisions, the budget could be described as a populist budget. To change this perception, the government has to come up with achievable strategies, realistic action plans and effective deliverables at the earliest possible. The sooner the government is able to resolve the problems related to anarchy, lawlessness and insecurity, the quicker it can earn respect and support from all corners.
(Author is the South Asia Area Representative of World Neighbors)
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