A different budget for 2020-21

I listened live, most expectantly, to the first two consecutive budgets presented by the present Finance Minister the Honorable Yuvaraj Khatiwada, I decided to sit out the third edition knowing that he would be delivering more of the same. I was not wrong! Then, the morning after, having read the salient features, and in a fit of frustration, I tweeted a criticism. A dear friend promptly asked me, "What would you have done differently?" Instead of a detailed reply, I put him off by telling him that, in the present context, that is information he would have to pay for. But, his question hung in the air. Begging an answer. After some days of his query bouncing around in my head,  I decided that I would put pen to paper, as it were and list the things I, a layman, would have attempted to do differently, given the same set of circumstances. 

Roughly two weeks have passed since the technocrat finance minister delivered his tome and on the face of it he has tried to address the following issues: 1) Health 2) Education) 3) Employment 4)  Infrastructure Development ) Agriculture and 6) Revenuemobilization

Let me address these separately, and in some cases collectively, as they sometimes tie into one another and stand up in argument much more clearly than when addressed in isolation. 

Health. The corona pandemic has only shown up what was already in tatters. Unequal access to medical facilities, government hospitals bursting at the seams, underpaid health care workers, quite a few private hospitals ready to fleece the dying and the dead to name a few issues. The budget makes provisions for some short term measures to deal with the pandemic but, stops short of attempting to bring any sort of structural or systemic changes to the health sector. The status quo is quite alright, thank you, it seems to say. For a government which was returned to Parliament with a nearly two-thirds majority, on the back of a promise of Healthcare for All, among others, this is pretty lack-luster. Especially, given that, this government is well past its mid-term mark, one would have expected a little more boldness on its part if, in fact, it wanted to make good on its promises, with an eye on the next general elections. 

What could have been done differently in addition to the short-term measures? It is a well-known fact that the Health Insurance Scheme proposed and propagated by the government has failed to take off. Mostly, because the insurance can only be cashed in at government-owned facilities which, in addition to being few and far between, also leave a lot to be desired in service delivery both in terms of speed and quality which are top-most in people's minds when it concerns their health. The government could have had all of the insurance companies get together to promote a separate, publicly held entity, floated as a very large IPO, and traded on the Nepal Stock Exchange, that would be tasked with delivering top-notch health services across the country. I propose insurance companies because they would be directly involved in selling health insurance, they are used to being heavily regulated, as must the health care system and the two working in tandem would bring synergies not otherwise possible. For one, hospitals wouldn't fleece insurance companies or patients for the matter, health care facilities would be up to scratch, health care workers would be paid good wages, and so on. True, there will be no immediate visible benefits while the nation battles the COVID19 pandemic but, in five years or ten years, people will be getting quality health-care at facilities owned by public shareholders in each Province and District level. Health care workers will be paid top salaries, backed by universal health insurance, freeing up the government to move onto other important things. Maybe, this would even stem the brain drain of medical professionals leaving the country to seek a return on their investments. And Dr. Khatiwada & Co. could have taken credit for delivering quality health-care across the board.

Education. The pandemic has seriously exposed the very soft underbelly of Nepal's education sector. While private schools and city dwellers who study in them have now switched to classes on Zoom, Google Meetings, and other fancy video conferencing software, the government and community schools, and their students outside of the cities and even within them are left shaking their heads. The academic year has been so seriously affected that everybody may as well just repeat the grade. Most government and community schools lack even the bare minimum basic infrastructure to qualify as schools, let alone great halls of learning.  

Educational sector reforms are not something that the population can wait for to happen in the next generation. The quality of education is seriously impacting every Nepali's competitiveness in the local and global market place. Government and community schools must be provided adequate funding to bring their facilities up to speed. Teachers must be well paid. In fact, the job of educators should be the best paid alongside health care workers. Curricula should be updated and upgraded. Those with no interest in pursuing formal education beyond the tenth grade should have the option of a Polytechnic education imparted via a Polytechnic University in every Province. Once again, the question of funding will come up. In addition to the funding mechanism suggested under the Revenue Collection head below, donor agencies can be mobilized for this effort. As it is, the dramatic rise in the average Nepali's literacy rate in the last so many decades is the direct result of USAID's tireless efforts in this sector and owes very little to the Government of Nepal's interventions. If that is not enough, go after the offerings at the temples, monasteries, churches, and madrasas within the communities. Maybe, even develop a sharing mechanism. There is no greater good than to improve the education of your children and their children. The offerings made at religious sites may even see a quantum increase! I, for one, would visit my neighborhood temple more often and drop that little bit extra in the box, every time, if I knew it was going to fund the local schools and pay the teachers. Also, those places of worship would find ingenious ways to make people part with more, no doubt!

Employment and Infrastructure Development. Employment prospects in Nepal have always been an 'iffy' proposition. Now, with the pandemic decimating the local and global economies this problem has just been magnified many times over. Too many aspirants chasing too few local jobs and subsequent governments unable and unwilling to acknowledge the issue has meant that more Nepali people probably work outside of Nepal than inside its formal sector. The pandemic has just brought this to the fore just like the Maoist movement did some time back. Mass unemployment or unemployability breeds social unrest.  People who do not have the wherewithal to sustain themselves have nothing to lose and are easily attracted by empty promises of communist glory and tinsel town lights. 

The migrant labor possibilities in Southeast Asia and the middle east had long provided a safety valve to Nepal's chronic employment generation woes. Perhaps, even so much so, as to take the air out of the Maoist movement by denying its slow-burning embers its much-needed fodder -young impressionable youth, with nothing else to lose and therefore, ready to go die for somebody's revolution. With millions of these migrant workers, who shouldered the Nepali economy on their bent backs and watered its growth with their sweat, due to return home, there is an urgent need to create jobs right here in Nepal. Every Nepali political party of every hue has promised that they were working on programs so that no Nepali would ever have to go slave in the heat of the Arabian desert. Well, here was a chance to change that but, that bus seems to have left already, and comrade Netra Bikram Chand must be salivating at his renewed prospects. 

Infrastructure Development has lagged behind in Nepal. So much so that a relatively straight-forward project like the Melamchi Water Supply project is behind by a quarter of a century. A whole generation has lived and died without tasting Melamchi's sweet waters. No wonder there is so much derision whenever the government blows its trumpet about the proposed railway to China and the waterway connecting the Kosi or the Narayani to the Ganges and eventually, the Bay of Bengal. 

To tie the twin problems of employment and infrastructure development together we need a New Deal, much like the New Deal offered by President Roosevelt to the American people between 1933 and 1939. A program to build highways, bridges, hydroelectric dams, airports, and railways and even that infernal waterway, to name a few; coupled with financial sector reforms and regulations so that Nepalis who have been rendered unemployed by the pandemic in Nepal as well as in far off lands will have jobs and dignity. Nepali welders can be as effective in welding the necessary frames for a bridge or dam in Nepal as they were in welding the FIFA World Cup stadiums of Doha. Tied in with the graduates of the proposed Polytechnic institutes mentioned above, in the section on education, we should be running to the banks in a few short years!

Obviously, the issue of resources again raises its head. I propose setting up a professionally managed Joint Stock company which for the sake of expedience we shall call Nepal Infrastructure Development Company Limited or NIDCL for short. NIDCL would be floated to the public on the Nepal Stock Exchange in staggered calls. The shares in NIDCL would be a very large IPO and wholly underwritten by the government of Nepal. Any short subscription, which I doubt would be the case, on the issue would be covered by the government. The people should be afforded the chance to participate in and fund their countries development. To begin with, the completion of the Kathmandu-Nijgadh Expressway, the construction of the east-west, Kathmandu-Raxaul, and Kathmandu-Pokhara-Lumbini railways, the expansion of the east-west highway, the Kathmandu-Kerung Expressway and Kathmandu Mass Rapid Transit and their operation could be given to NIDCL to be run on a 'user pays' model. Further Public offerings of NIDCL could be made as and when required, to raise more capital for additional infrastructure projects. 

Agriculture. Every government as far back as I can remember has paid lip-service to agriculture. At the same time, each successive government has been complicit in fragmenting land holdings, not designing and implementing land-use policies, not encouraging the mechanization of farming, not developing a network of irrigation canals and allowing those that exist to deteriorate till they are useless, and the list can go on. Suffice it to say that when all is said and done, more has been said than done by the government of Nepal thus far, where agriculture is concerned. 

Given Nepal's topography, it is entirely possible to grow a huge variety of high-value agricultural produce in different parts of Nepal at different times of the year and export a substantial amount of those products world-wide. Introduction of high-yield varieties, modern farming techniques that meet plant quarantine requirements in target export markets, setting up storage, processing, and value addition facilities for agricultural produce, meat, and dairy products would be given top priority. Each village, each district, and each Province must develop its plans based on its competitive and comparative advantages. A farm-to-market strategy covering both domestic as well as international market should be designed. A land-use policy, set in stone must be developed so that agrarian land remains agrarian and is not plotted out to slick builders. City, town, and village limits must be set and these units should be encouraged to grow skywards not, onto once-fertile farmland. Fallow agricultural land should be cultivated by the local level governments with a portion of the proceeds going to the owner and a portion to the community, maybe to fund education again. Agricultural research to be seriously pursued to ensure that our products are competitive at both the home and international market-places.

Revenue mobilization. The issue of the VAT threshold has plagued the tax regime and the business community since the introduction of VAT in Nepal. It created a less than level playing field for two retailers of the same product only probably because one does less business than the other (maybe through inefficiency). VAT would be made universal, covering even businesses not reaching the VAT threshold. The central government would continue to receive VAT for those above the threshold as usual, while local, ward level offices would collect VAT from those units below the threshold on a 50-50 sharing basis with the central government. The money, thus collected by the local units, will be used to fund community schools, polytechnic colleges, adult literacy programs, primary health care facilities, fire fighting and rescue services, ambulances, etc. It would also serve to cement the whole concept of Federalism by sharing resources and responsibilities.  

There is a fair amount of criticism of the Finance Minister for increasing the tax on electric vehicles and decreasing the tax on imported chocolates. The tax increase on the EV's was justified by him as a tax on a luxury item while his silence on the decrease in tax on chocolates, to supposedly benefit one business house, has been deafening. 

The duties on EV's would have been left alone, if not decreased. After all, it is part of the GON's policy to encourage their use to lower the import bill of petroleum products, save the environment, and encourage the use of domestically produced electricity. This really should have been a no-brainer. EV's should have been promoted in keeping in line with the GON's stated policy. Road tax (currently zero for EV's), would have been introduced because they would be expected to use the road network as well and road users should not expect free rides. The import of vehicles could have been discouraged by calling a global RFP for setting up an EV vehicle plant in Nepal itself to produce bikes, cars, buses, and trucks with the successful company being assured of a five or seven-year monopoly and tax holiday. Imports would be reduced, manufacturing jobs created, hydroelectricity used, jobs and attendant income tax generated, VAT on vehicle sales collected and so much more.  Local-level governments would be required to build community parking spaces for EV's for those who do not have the required parking spaces at home thus, generating more revenues at the local level. Fossil fuel stations would be moved out of the cities. All vehicles would be equipped with an electronic payment system to enable the collection of tolls on highways, crowded city centers, during peak hour traffic, etc., again propping up the environment and mobilizing resources at the local level. 

Businessmen will jockey and lobby to get a favorable position for their products from governments. That is what businessmen do. But, to blatantly decrease the duties on a clearly luxury item for most Nepalis, lends a whole new meaning to the term 'crony capitalism'. It not have been more serving of the country's interest if the Finance Minister had persuaded his friend to instead set up a manufacturing unit for chocolates in Nepal itself. Jobs would have been created, electricity would have been consumed and his friend could still have made a tidy profit. Hell, he could have even arranged for him an income tax holiday for five years and no one would have batted an eyelid. The jobs would have generated income tax, sales of chocolates would have generated VAT, and so forth.

For decades we were told that we are too small a market to have an industrial base. Our consumption was too low, people were too poor, our distribution network was underdeveloped, etc. etc. So, we were doomed to be an import-based economy with consumption concentrated in urban centers. That was just how things were. Too bad. However, that argument is now out-dated. Nepal imported 4,146 products from 147 countries worth a CIF value of USD 10 Billion in 2017. Nepalis' Per Capita Income which was USD 592 in 2010 is expected to almost double in 2020 to USD 1176, if the pandemic does not put a serious dent into it. By 2015 there were 80,078 km of roads of which 26,935 km were maintained by the Roads Department and almost double that figure was built and maintained by local bodies. In the early nineties, the road network was just over 6,000 km. Clearly, Nepalis have become richer, consume much, much more, have developed a sizable road network and these parameters will keep improving. Plus, we now produce surplus electricity. Nepal can now seriously consider and support a consumption plus export-oriented economy with a little help from the friendly Finance Minister for whom the most pressing question should have been, "If not now, when?", to effect a strategic shift in Nepal's economic direction. 

The doors would be thrown open to potential Foreign Direct Investment by lowering the threshold. Especially, in the manufacturing and services sectors. Urgently needed financial sector reforms would be carried out. The ease of doing business would be actively improved to a level where a new business would be guaranteed the necessary approvals within a month, at the most. Exit facilities for failed businesses would be simplified. Any business that proposed bolstering Nepal's strategic interests, in terms of energy and financial security, import-substitution, and export growth would be given incentives like tax holidays, etc., bringing in FDI, creating jobs, bolstering exports, increasing energy consumption, growing direct and indirect tax revenues, and so forth.

In closing a quote from Dr. Martin Luther King, Jr. "The soft-minded man always fears change. He feels security in the status quo, and he has an almost morbid fear of the new. For him, the greatest pain is the pain of a new idea." Obviously, Dr. King was alluding to higher moral principles but, for an economy on the brink and leaders who have their heads in the sand, it is equally apt.