On/Off the Record

By P.R. Pradhan     Some European economic observers have predicted that petroleum prices may incline by four times more than the present price in the European market. What happens in Nepal if it happens, the concerned authorities have not done the necessary homework. The Nepal Oil Corporation (NOC) has already announced that it has gone bankrupt as the government has instructed it to sell petroleum products at the compensated price but the government is unable to compensate the NOC for the loss faced by it. Prime Minister Sher Bahadur Deuba instructed the Finance Ministry to slash down some taxes raised from petroleum products. The cabinet meeting also decided to slash down the price of petroleum products but until now the Finance Ministry has not given instruction to the customs offices for slashing down the taxes. As a result, the NOC has gone bankrupt. It has no reserve fund to pay the dues at the Indian Oil Corporation (IOC). We understand the limitations of the Finance Ministry. The Ministry is under pressure to collect revenue to meet the increased general expenditure of the government since the nation adopted expensive federalism by introducing seven provinces, 753 local governments and also the district coordination committees. Already, we have explained how the foreign debt is increasing at an alarming level, how the government is facing a negative balance of payments and now decreasing foreign currency reserves at an alarming level. The other indicators too are negative. The international trade deficit gap is widening and we don’t have anything to export from which we could narrow the trade deficit gap. There left very limited options for the government to save the economy. The Nepal Rastra Bank has tried to curtail imports of luxury goods but the Finance Ministry is under compulsion to encourage imports for meeting the revenue target. In such a contradiction, neither the Finance Ministry is able to curtail imports of luxury goods nor it has other measures to improve the national economy. The government has already fallen under the economic trap and it is difficult for the government to rescue it. The only option left for the government is to cut down the general sector expenditure. It means scrapping the federal structures as soon as possible. According to economist and human rights activist Sriram Adhikari, who has closely observed the political turmoil in Sudan, federalism in a country with a very weak economy will destroy the nation. The Sudan case can be repeated in Nepal, he has warned. Explaining the Nepali federalism, which has attempted to create a division of the people on language, religion and caste, which is a copy of Sudan, said Acharya. Sudan faced civil war and finally, the nation was split. The same scenario has been seen in Nepal, Adhikari explained in an interview. The provincial governments have not been able to justify their presence except by fighting for power and personal gains. The provincial governments, as well as the local governments, have become the venue for recruiting those party workers and also they have become the venue for corruption. Finally, Adhikari has suggested scrapping the existing federal structure if the political leaders and the Nepali nationals are really worried about the bleak economic scenario. The present government's job is to immediately reduce government expenditure. A big portion of the government expenditure can be controlled if we abandon the present federal structure. The second move of the government should be to stop imports of luxury goods and invest the national revenue in the development sector. Thirdly, introducing the practice of using local products and encouraging local industries with the aim of substituting imports. In the meantime, as we claim for an agricultural nation, the government should develop a policy for providing subsidies and other scientific equipment and fertilizer to the farmers with topmost priority along with restricting imports of agricultural products from abroad. The government should give licenses for establishing assembling industries and ensuring facilities for a minimum of ten years to those who are in the trading business and import business of luxury products. The Make in Nepal campaign should be introduced in an effective manner along with the policy of procuring only local products by all the government and semi-government organs. The revenue structure should be based on the excise duty revenue on local products instead of the customs duty on imports. More importantly, without scrapping the existing federal structure, or say, without scrapping the 2015 constitution, we cannot save our national economy. First of all, this system must be abandoned.