There is always a hype, an excitement surrounding the National budget. It was even more so this time, with our respected prime minister delivering punch line almost on daily basis prior to the D-day. The situation was ripe, the Government had the unprecedented opportunity to institutionalize the major political upheaval, start something afresh and set the ground running for period of sustained growth. Does the recently declared National Budget for fiscal year 2073/74 mirror the expectations, the opportunity and the necessity? It’s hard to tell.
National Budget has time and again proven to be a largely political rather than economic. Not just in Nepal but in developing country as a whole. Refer to the Indian Budget which critics says was made considering strategic UP elections next year.
The fact of political significance can also be gauged by the fact the critics (economists, former finance ministers) review the budget. Where it should have been an honest review one cannot deny the prejudice, the political vendetta. Roughly, how the budget depends upon which party are you affiliated with.
The big Budget
First and foremost this budget is huge. Larger by 27% than the budget of last year. Whilst it is a rule of thumb to contain the budget within the ceiling proposed by National planning commission, this budget is an exception. So what does big budget essentially do?
Ideally, the big budget would have been favorable had it been more capital intensive. Since, almost 60% of the allocations are made for revenue expenditure this budget does not necessarily fall into the category of path breaking one. However, in comparison to previous budget the revenue expenditure has increased by 27%, capital expenditure by 49% whereas the financial management has reduced by 5%.
The size of the budget has also been inflated by the hefty sum allocated for reconstruction.
The pros
1. The budget has introduced many initiatives which atleast on paper can be major factor for change. Like “ Ghar ghar ma bijuli jan jan ma share” is a workable initiative given how the expertise among Nepali developers have increased in Hydropower sector over the years. Another initiative “ Nepali ko Bank ma khata”has the potential to be a cornerstone of progress in financial inclusion.Another initiative of “Pradhanmantri krishi adhunikikaran yojana”was one of the most requisite and advocated policy for modernization of agriculture. The subsidies in machinery and agriculture infrastructure will surely lead to agriculture mordernization.
2. Commitment to transparency has at least been acknowledged with all the social benefits being linked to bank account.
3. Government has probably for the first time addressed the share market in the budget. With Nepse at strategic 1500 points, the budget aims to push that further with sops to Production Company going for public issue.
4. The budget has promised for much needed changes in companies act, liquidation act, FITTA etc which shall make doing business in Nepal much easier and potent.
5. Another pros comes in tax (both corporation and personal). The ceiling for corporation tax has been raised to 1 crore turnover whereas the ceiling for income tax has been raised by around 1 lacs each for married and unmarried.
6. If implemented properly all the budget allocated for various feasibility study could be a jumpboard for further infrastructural development of Nepal.
7. For all the people liking to join the alternate investment bandwagon, the budget has given plenty of room to move. The government has formally acknowledged Venture capital. Also, separate challenge fund has been established to encourage entrepreneurship amongst the local youth.
8. The mention for energy audit will go long way at least in for moving to rectify the distribution loss and leakage. Also, the mere mention of productivity of government employees is another striking point.
9. The provisions for smart city, again if implemented, will reduce the growing unmanaged urbanization and will reduce the population pressure on cities.
10. Land reforms is another key aspect of this budget, the penal provision for keeping the land barren will discourage rampant plotting and will increase production and food security.
11. The insurance scheme for each family will increase the living standard of all the families.
The cons
1. The major con of this budget is its continuity of traditional budget. Whilst we were not surprised by populist and distribution oriented budget, lower allocation for capital expenditure means we have to wait for another year to fully envision sustained economic growth. Also, higher budget this year means there will be latent pressure to increase the budget, which might not be feasible year after year without structural reforms.
2. There has been massive hike in government employee’s salary. This coupled with increased social security allowance will definitely invite both cost push and demand pulled inflation. Keeping inflation on track will be the key challenge in implementation. It is generally seen in world wide practice that salary is hiked when spending amongst the consumer is low. But, with majority of disposable income going to consumer spending inflation is surely going to head northwards. If this hike was followed by special provision to boost production this would have been a bingo combination.
3. The increased spending bag to Constituent assembly members and increased allowance is definitely the move to make political allies and enemy happy. Without setting proper guidelines and parameters on such spending, the allocated amount is more likely to be used for political agendas and would be eaten up on allocation.
4. The government expectations from foreign loans and grants are hard to meet.
5. The major priority of this budget was to implement the constitution and institutionalize the
political change. However, any plans to study the taxation polity amongst the federation were not discussed.
Ideally, these should have been
Since all of us acknowledge the way our economy is moving is not satisfactory at the least. The situation demands for some bold decisions and not repeated promises. All the distribution schemes have been conceived for political longevity and not economic vibrancy. From someone who is interested in politics and economics I would have suggested following:
1. The government should have prioritize one sector which has the potential to increase the face of the nation. For eg: The total expenditure requirement for BuddhiGandaki hydropower is 255 arab for 5 years. The allocation for this year is 12arab only. This 1200 MW project and other strategic capital investment should have been prioritized. (Sadly, this long term potential has been given up for short term political gain)
2. This should have been a performance oriented budget. Project wise budget allocation and project wise spending transparency would have been ideal.
3. There should have been concrete plans to decrease alarming consumer spending pattern. This could have been done through policies to increase production in Nepal but the budget is mostly silent in those issues.
4. The budget should have ideally increased the tax base and rate in favor of better business environment. But tax rate has remained same and no special measures have come about on increasing the business environment. This will further increase the “you shut up, I shut up” phenomenon.
5. Ideally there should have been policies to curb youth drain and to bring back skills from abroad but the budget is mum on those issues.
6. The time was ripe for asking the citizens to curb spending in unproductive sector, inspiring to think ahead, and inspiring to change economic behavior. Sadly, these all have not been dealt with.
Summary
The budget is mixed bag, as always, which is its major flaws. Many opportunity have been left untapped and many bold decision left pending for the future. At best, this budget and PM has glamourized the importance of national budget, which in itself is not bad. But, this budget leaves many things wanting.
Implementation is as always the key. Hope, all the feasibility study does result in something tangible, with something to build on.
