Nepal and its Out-of-World Economy!

Few days back when the dollar rate was sky-rocketing, few interesting things happened which drew my attention as an economics student. We went to the local vegetable market there at New Baneshwar, of course to buy some fresh vegetables. The price of cauliflower had shown an increment of around 40 percent overnight and very interesting was the reason for that- look at the dollar rates that have gone up. Around those days only, we faced a similar story on the verge of buying cashew nut from a departmental store. These incidents kept me stunned till date but I believe there are few things within that the general public in our country should know. One would not be surprised if I say- we do not import cauliflower every morning but one has to accept the fact that our import-export data produced by Trade and Export Promotion Center (TEPC) did not show the import of cashew nut either. But we paid higher prices by choice- and the choice was there is no government to control these fantasized manipulations.

Nepali economy was having a tough time watching the dollar prices shoot up like nothing; there were various high level panel discussions going on talking and analyzing about the challenges it would threaten the economy with and the ways to minimize the effects – all happening in the echoing environment suggesting the government to revise the decision of currency-peg with the Indian Rupees. Many people along with a big bunch of youth believe that the pegging with the Indian currency is not beneficial for us but I am afraid how many of us know the realities behind. I am sorry to say this but one of the major reasons for this argument has been the Anti-India sentiment among us rather than some technical backup. This Anti-India sentiment sometimes overlap the nationalism too which was clearly seen in the football match between Nepal and India where there were rare sounds seeking the win of Nepal, it was rather the loss of India which was highly hooted for. Getting back to economics, we cannot forget the recent economic crisis when more than half of the world suffered but we did not suffer a lot- we like it or not, the reason was the strong Indian economy and the pegged Nepali Rupee to the Indian Rupee. Why did this peg happen? Our currency got pegged to the Indian currency in 1993 to counter the cartel of few major business houses. I don’t say that there was no vested interest of any party in this currency pegging but on the whole, this decision was taken to protect and stabilize the Nepali economy. And now we are facing an obvious challenge- Impossible Trinity. It suggests that it is impossible for a country to have a fixed exchange rate, free capital flows and an independent monetary policy simultaneously. Very often, we might feel that our monetary system is not delivering its best or is trying to counter the effects due to the fixed exchange rate. Still, I am not against the pegging because I believe it has protected us many times from crisis situations and in the scenario where we have more than 80 percent of the trade volume with India, it provides us with ample opportunities.

Trying to scan through the market, gold price faced a sharp fall during June/July in the international market but in Nepal – first, prices did not decrease as much as it had to and second, the shops remained closed saying they had no gold. Later, the shops opened with a sensational note- the thugs should not get punished. WOW the Nepali law and economy, isn’t it? Thugs cannot be punished. Here, the Nepali economy does not follow the international trend but what happens when the price rises? The response is a fast flick in the economy, for the price increment the international market is definitely followed. Gold had a golden period and is again in a decreasing mode now but the import duty has been increased so the gold prices cannot be expected to show significant change. Let’s move to yet another massive import commodity of the country- oil. Just a few days back, oil hit the two-year low price, as per international news agencies, owing to the failure of President Obama to convince the Senate for a proposed attack on Syria. Besides that, the veto members in the UN Security Council were also against the proposed attack. Well, history shows that USA attacked Iraq and Afghanistan even though Security Council opposed then too, spending almost a $1.3 trillion which also stood as one of the major reasons of the recent Financial Crisis but now, is it the unconvinced Senate which has postponed the threat of a possible war? In Nepal, we are facing a price hike in the petroleum products - an un-alignment to the international economy again.

As mentioned earlier, Nepal is one such country where the price of cauliflower hiked owing to the increased dollar exchange rate, now when the diesel prices are hiked we should be ready enough to see all other prices rising. In this fiscal year’s budget, there was a salary increment of the government employees which was supposed to be inflation-adjusted but only before the three months of that increment; this hike in the diesel price is again going to thrash all economic forecasts. Unless and until the governance mechanism of the country is efficient enough, we will keep on encountering more of the cauliflower and cashew nut like products in the future too. Implementation of the Consumer Protection Act 2054 seems the best possible option to tackle this manipulation but is the authority ready for it?