Pessimistic Growth

An unknown intellectual has rightly pointed out that Nepal’s subsistence economy largely depends upon two things: rain and aid, meaning that government policy has little impact on overall economic performance. This has been proved right once again. Despite having almost all the evils a bad economy can have, Nepal recorded positive but sluggish economic growth this year also, thanks to healthy growth in the agricultural sector, which contributed one-third to national output and is largely immune to bad politics and power shortage, among other things.



So, no one but nature should be thanked for the 3.47 percent growth that the lack-luster economy has achieved during fiscal year 2010/11. The logic is very simple: Nepal fortunately had a normal monsoon and favorable winter weather that together have boosted the production of both rice and the winter crops, thus resulting in over 4 percent growth in agricultural production. We are delighted with this healthy agro output, but the point we want to make here is that a dwindling growth rate in the non-agricultural sector along with its shrinking contribution to national output are worrisome hints that the process of modernizing the economy might have run into rough weather.



Moreover, these also hint that our whole policy of economic modernization has failed as the key sectors of a modern economy such as service-related businesses and industrial activity --the main job generating sectors -- have failed to flourish. Likewise, there has been a remarkable 12 percent-plus growth in per capita income, but with inflation hovering around the same level, there will be no rise in real income, and thus no additional demand for goods and services, which is bad news for business and industry. Similarly, national accounts data has revealed a worrisome rise in consumption and a subsequent decline in gross domestic savings, indications of a looming shortage in future investment capital.



What we want to underline is that this latest performance makes one pessimistic about an economy that is struggling hard to recuperate from long-running sluggishness. Moreover, when Nepal’s two immediate neighbors are competing to become the fastest growing economy in the world, it is saddening to note that Nepal has become the slowest growing economy in the south Asian region.



We have said many times that shortage of power is the main impediment to accelerating growth. It has affected every sector, ranging from manufacturing, services and agriculture to the performance of law enforcement agencies. We all know that launching a new hydropower project cannot be an immediate solution to the problem. So, why don´t we start thinking about hiring moveable diesel plants under dry-lease arrangements? Let’s discuss it.

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