The budget for FY 2014/15 is grossly disappointing not because it is not better than those of past several fiscals, but it stands far short of expectations from Dr. Ram Saran Mahat, a self-proclaimed reformist and ardent advocate of the free-market economy, at the helm of the FinanceMinistry. There are at least half a dozen problems of grave nature in the economy that are caused mainly due to gradually receding role of the private sector. These six problems could be listed as low rate of economic growth for decades now, ballooning trade deficit year-after-year, diversion of public funds to protect ailing public enterprises, ever-increasing number of outbound migrant workers causing labour market distortions back at home, unproductive use of inflow of these workers' remittances and, continuity of archaic practice of development that is heavily dependent on supply-driven central planning.
Without creating a proper business environment for the private sector to function, all these trends are rapidly pushing the economy to the verge of collapse. The growth rate is low because the contribution of manufacturing to GDP has reduced close to five percent, which at one point of time was estimated to have in the double digit. This is caused largely due to closure or down-scaling of many private manufacturing units over the last one decade, the period of worsening industrial relations. Due to lack of investment in commercial agriculture, both agricultural productivity and modernization of this sector, lagged behind. It is also one of the major reasons for huge gap in our exports and imports value, the deficit now crossing six billion rupees mark in a single FY that just ended. We also failed to identify and update the products of our comparative as well as competitive advantages, particularly in the neighbouring markets (for perishable agro-products) and the third country niche market (for high value products like pashmina and woollen carpets). This failure comes as the result of not including the representative private sector in exercises like trade policy formulation.
One of the clear departures expected from Mahat was government’s decisive withdrawal from the trading and manufacturing business by ways of privatization and divestment. He has made some proposals like unbundling of Nepal Electricity Authority, divestment from Agricultural Development Bank and Nepal Bank Ltd and liquidationof some of already non-existent entities like Orind Magnesite Ltd. These efforts were needed. But more urgent were the privatization of the public companies like Nepal Oil Corporation which is putting heavy burden on country's exchequer just to fuel the luxury of a few hundred thousand rich populace. The budget failed to strike a right chord on it.
The most crucial departure expected from Mahat, for his philosophical leanings as an open-market economist, was to stop 'merciful allocation' from centre to the villages and districts without identifying the projects and their viabilities. To add to it, he also succumbed to the demand of the members of parliament by allocating a purse of eleven and half million rupees per head for the programmes and projects that are not yet identified. These pork barrel disbursements neither serve the development objectives nor channel the funds to the private sector as these small funds are spent sparsely, without proper adherence to the public procurement process.
By putting the private sector to the back-burner, the economy can never come back on the prosperity track. Finance Minister Mahat did not present 'the Mahat budget' this time.