Nepali Times
Economic Sense
Why the euphoria?


The Beed has been asked by many readers to explain the euphoria-quite different from one's own reaction-in the business community regarding this year's budget. Our trade bodies are showering praise on the Finance Minister. Readers of last week's column will not be surprised that the Beed differs. At the risk of sounding like a repetitive naysayer, I offer a cautionary word to the wise.

One of the major items in the budget that has been commended is the government's interest in rehabilitating sick industries. Yes, the provision sounds good. And no, we cannot know that it is good until the process is set in motion. The form-ation of a committee will be the first of many formalities. Then we will have to set out what constitutes a sick industry, what criteria a company will have to meet, and what the screening process will entail.

The government says it will offer rehabilitation loans at a rather tempting 7.5 percent. As in the case of all subsidies, there will doubtless be a couple of percent that will have to be doled out to ensure the file-shifting mechanism works satisfactorily. And there will be many perfectly healthy industries and business people playing sick. The Beed fears this grand plan will be just another money-spinner for the insidious politican-bureaucrat-businessman nexus.

The government's record of creating funds is hardly encouraging. The Power Development Fund has not kicked in even five years after its ambitious conception; many labour-related welfare funds have not found administrators. Such examples abound.

Business is also feeling optimistic because the sanction limit for foreign investment per joint venture that the Director General of the Department of Industries (DOI) is allowed to approve has been raised. The new limit of Rs 1 billion-double the old amount-may seem exciting, but it is interesting to know how such moves play out in reality. Last year two multinational companies went berserk trying to get their joint ventures through. Though the formalities at the DOI were complete, the ministry withheld approval at the behest of a couple of domestic players. It took the companies a year to run around all possible government agencies and finally get their ventures approved.

Similarly, the hype about the technology park is old-five years old. I see no point applauding until it is completed. Handing out subsidies through the Agricultural Development Bank on interest rates for tea growers is great-so long as people who really need the subsidised loans get them.

Analysing the various trade bodies' reactions to the budget over the last five or six years, one trend is clear. We support any budget that cushions and protects domestic industries and touts the promise of subsidies. Our notion of doing business is latching on to profits and pushing losses back to the government. The Hotel Association of Nepal's request to the government to lower interest rates for the industry is a perfect example of this attitude.

This Beed wonders how trade bodies can push for subsidies and protectionism on the one hand and on the other ask the government to liberalise, liberalise, liberalise. What is the difference, ultimately, between State-Owned Enterprises and the private sector if the government is made to fund the losses of both?

I say again: the credibility of the government is at a low and most changes it promises have to be brought about through legislation. Just ask how many undisrupted sessions of parliament we have had recently, how many laws our representatives have enacted.

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(11 JAN 2013 - 17 JAN 2013)