RAJESH GAUTAM

The government is busy formulating new budget for fiscal 2014/15. The budget is taken as a tool to implement government policies so as to meet its development targets and direct overall national activities for pursuing such policies.

Today the major challenge is minimizing the portion of national income going to consumption and maximizing investment in productive sectors. There is a great inflow of money in the form of remittance but most of it is spent in consumption. This hinders capital formation which channelizes the income earned by Nepalis working abroad into investment sector. The result is high inflation, increasing trade deficit and economic dependence on external factors.

The economy requires a big push in development of physical infrastructure which creates not only employment opportunities but also a foundation for increment in overall national production and social change. Nepali private business sector is not willing to invest in such areas. However, there is great probability of government-people partnership for the development of physical infrastructures. The government may initiate a partnership with the people working abroad and sending money. Such partnerships can be made fruitful through greater investment in productive areas like hydropower.

More than two million Nepalis work abroad. If we can accumulate their one month’s salary, the investment fund will be Rs. 40,000 million-strong at the end of the year. This fund can easily construct a mega hydro project creating more than 5,000 direct and plenty of indirect jobs. It also helps reassure investors that their investment is secure and returns confirmed.

But how do we institutionalize mechanisms for the accumulation of such funds? There are various options. First, the government can collect the amount from Nepali migrants during their departure. Second, the shares for such projects can be issued to migrant workers and their families in the country. The first option may be unpleasant as it may be taken as a burden or an extra cost for foreign employment. The latter seems a better option. Thus the accumulation of the fund should be institutionalized through the Nepali Embassy and by setting an agency for the issuance of the shares of the project.

Similarly a channel can be established through which migrant workers may directly invest on national projects from abroad. For this purpose, the agencies involved in remittance transfer can be channelized. The government should encourage workers outside the country to invest in such projects through different programs and policies.

Appropriate policies and mechanisms for the channelization of remittance income in investment are essential. We need to discourage consumption which stops investment in production sector. There is also a need of effective fiscal and monetary measures that contribute to appropriate balanced of investment and consumption. Tax facilities should be provided in such investment and transfer of currency from abroad should be made easier and simpler.

Nepal lacks extensive banking services and it is hampering the conversion of saving into investment. The banking and non-banking financial institutions should play a vital role in capital formation; these institutions should be stakeholders of government-people partnership. For this, appropriate policies, programs and tools will have to be formulated and effective structures and mechanisms built through the upcoming budget.

Government-people partnership is not a philosophy developed by a western philosopher or organization. It is the need of Nepali economy. This is not only a good way of creating an investment fund but also a foundation of social security for those working without any reserve for the future. It is also a way for people to access the government. But for this there has to be a high level of trust between government and people. The budget should establish a mechanism to earn that trust.

Remittance can never be a sustainable source. So there should be employment generation inside the country. The youths working abroad cannot build their nation. They have to be given jobs here. Gulf countries are building themselves using our laborers. So the state should formulate policies of generating employment and using human resources inside the country. To accomplish this, the remittance has to go into investment sector, which will ultimately break the remittance trap.

When we look at the nations that are achieving breakneck development, they have a strong capital formation process. Here, we don’t lack money, but mechanisms to channelize money on development projects. The upcoming budget should recognize and address this. Only then can it contribute to the achievement of set development targets.

Published on: 27 May 2014 | Nagarik