By P.R. Pradhan
The era of the free-market economy is gradually coming to an end. Both developed and developing nations have increasingly adopted protectionist policies to safeguard their economic interests. The United Kingdom left the European Union in part to protect its economic sovereignty, while the United States under President Donald Trump launched the “Make America Great Again (MAGA)” campaign with a strong emphasis on economic nationalism. Likewise, our southern neighbor India has promoted the slogan “India First.” Industrial nations around the world are protecting their domestic industries in response to the rapid rise of China as the world’s second-largest economy and India’s emergence as the fourth-largest economy.
Nepal is under growing pressure to strengthen its economy, and the present Rastriya Swatantra Party (RSP)-led government, which commands a near two-thirds majority, has pledged to pursue an economic revolution and revive domestic industries.
Much of the credit for Nepal’s modernization goes to King Mahendra. He adopted the Panchayat system, which combined elements of capitalism and socialism. Since Nepal lacked sufficient private-sector investors capable of establishing large industries, the King focused on creating state-owned enterprises. He also encouraged friendly countries to establish industries in Nepal as gifts. These industries performed remarkably well until 1990.
However, Western donor countries strongly advocated the free-market model and pressured the government to withdraw from direct involvement in industrial operations. Following the political change of 1990, successive governments began disposing of state-owned industries one after another in the name of economic liberalization. The Adam Smith Institute was brought in to advise and encourage the privatization of government-owned enterprises. Political leaders, particularly Mahesh Acharya and Dr. Ram Sharan Mahat of the Nepali Congress, spearheaded the privatization drive. Unfortunately, many of these industries either collapsed or ceased operations after privatization due to misguided policies and poor management.
At the same time, excessive political interference, the use of industries as recruitment centres for party cadres, and the exploitation of state enterprises for personal and partisan interests led to the decline of many otherwise viable industries.
Since coming to power, the RSP government has expressed its commitment to reviving employment-generating industries. However, we must not overlook the challenges Nepal faces as a landlocked country. One of the major mistakes made by successive governments since 1990 has been their excessive dependence on India in several strategic sectors.
For example, Nepal remains entirely dependent on India for the supply of petroleum products. More recently, around 100 tea factories have been forced to shut down after India imposed restrictions on Nepali tea exports. Although Nepali tea enjoys strong international demand because of its taste, flavor, and quality, Nepali entrepreneurs often lack direct access to foreign importers and international markets. Had the government assisted domestic producers in developing markets in third countries, the tea industry would not have faced its current crisis.
The same challenge will confront any new industries established in Nepal if the country continues to rely excessively on the Indian market. Therefore, Nepal must first focus on import substitution. Second, it should fully utilize the opportunities and facilities offered by its other neighbor, China. Third, the government should move forward with the construction of the proposed Nijgadh International Airport, capable of handling large cargo aircraft, so that Nepali products can be exported directly to third-country markets at competitive costs.
When it comes to establishing large-scale industries, the private sector may hesitate due to various structural and logistical challenges. Therefore, the government should take the lead in making the initial investments. A public-private partnership model could provide the most practical path toward industrialization.
In a purely free-market economy, the government’s role is generally limited to policymaking and regulatory oversight. In a mixed economy, however, government investment and participation also play an important role. Nevertheless, the state’s involvement should remain limited, and it should avoid unnecessary interference in the day-to-day management of enterprises.
Although the RSP appears committed to transforming Nepal into an industrialized nation, the present political system does not adequately support such a mission. We therefore advocate reconsidering the current system and exploring alternatives that reduce non-productive expenditures while increasing resources available for development.
In this regard, we favor the restoration of the 1990 Constitution, which was once endorsed by major political parties as one of the finest constitutional frameworks for Nepal. Such a system could also provide a more stable and investment-friendly environment conducive to economic growth and industrial development.
Login to add a comment