My latest piece is based on a simple set of essential reforms that are had a need to kick-start Nepal’s jammed development engine. These reforms can be launched or in virtually any other form considered appropriate and politically feasible simultaneously. If someone asked you to enumerate five reform agendas that will kick-start Nepal’s jammed growth engine and sustain five percent plus annual growth rate, what would be your response? Recently, I had been asked this question. Before explaining the explanation behind this hierarchy of policy reforms, I want to be clear about two key assumptions. First, it postulates that the political situation will eventually be stable. Second, as is the full case with the emerging economies, an increase in financial growth rate shall lead to poverty reduction.
When macroeconomic situation is in a mess, we have to first ensure that fundamental variables are taken care of promptly. We have to identify the most binding constraints on financial growth to tackle the most troubling aspect of the economy. Studies have shown that the most binding constraint right is too little infrastructure now, roads, and electricity mainly.
With the way to obtain electricity about five times less than the demand, it is not only problematic for entrepreneurs to begin a new business but is hard for the existing firms to keep their machines running equally. Remember that Nepal gets the highest electricity tariff (dollar per KWh) and lowest energy consumption (KWh per capita) in South Asia.
An inadequate transportation infrastructure increases in transport and transaction costs, leading to a lack of competitiveness. Nepal gets the highest transportation costs and lowest road density in South Asia. The provision of good infrastructure facilities incentivizes home entrepreneurs, both non-agricultural and agricultural. It facilitates the rise of small and medium enterprises (SMEs), the main source of employment for income and people for entrepreneurs. It kick-starts the growth engine but won’t guarantee speeding up of the engine fast enough.
- Applications/ROI (OEM’s fit here)
- Czech Republic
- 8 years ago from North York, Canada
- Walk on well-lighted, busy streets. Stay from vacant a lot away, alleys, or building sites
- Sales Rep
For this to occur we need to prop up firms that can exploit economies of level and expand markets abroad. A modern industrial plan (IP) that can ‘lead the market’ and ‘follow the market’ is required to speed up the growth rate. South Korea followed ‘lead the market’ basic principle, where it selected potential winners and promoted ‘earning’ industries. Meanwhile, Taiwan used ‘follow the market’ concept, where the condition ‘nudged’ firms to upgrade their technologies through appropriate incentives, performance requirements, and facilitation of transfer of specialized know how and capital. Any such promotion of domestic industries should have industry-specific sunset clauses to eschew misallocation of resources, price distortion, and repression of incentives.
The state has to play a vital role in propping up marketplaces when there is certainly considerable underinvestment in appealing sectors. Just establishing ‘allowing’ environment is insufficient amidst information asymmetries and coordination failures on the market. A good commercial policy helps to stimulate the economy and speed up industrialization, leading to absorption of surplus agricultural labor in the commercial sector. For a captivating market and a lasting growth rate, it is equally important to ensure simple supply of quality individual capital.
To make the previous two reform agendas sustainable, it’s important to reform the prevailing Nepali health insurance and education industries. An education sector that is geared towards the need of the domestic and international markets is vital to satisfy the demand for recruiting in rapidly growing sectors. The bank sector is suffocating from a short supply of qualified human resources already.
Given the immature state of our financial markets, there is a huge demand for informed, well-trained young specialists who are capable of examining market fluctuations and investments. Along with the scholarly education sector, we have to improve on the provision of health services, especially in rural areas. It will ensure a continuous supply of healthy, competent human capital to the commercial sector. With booming economic activity also comes complexity. Some agents throughout the market want to earn more profits than others always, by heading roundabout set up rules often. To keep unhealthy competition and risky investment activities away, it is necessary to have good governance and regulations.