Alarming Scenario Of Trade Deficit
It is indeed alarming that Nepal’s trade deficit has increased by 22.72 per cent in the last ten months (starting from mid-July to mid-April) of the current fiscal year compared to the same period in the previous fiscal year. Of the total foreign trade of Rs. 1.049 trillion, the deficit amount is Rs. 915.900 billion. On average, monthly trade deficit equals to about 91 billion, and if this trend continues for the remaining two months, Nepal’s total trade deficit will be about 1.097 trillion rupees. Imports are most likely to rise in the remaining one month to avoid additional taxes on some items as mentioned in the annual budget, presented on May 29, for the upcoming fiscal year.
Nepal’s export has increased meagerly by 9.34 per cent in the same period amounting to Rs. 66.615 billion. Imports/exports ratio has been 14.7. In the period, Nepal’s foreign trade went up by 20.84 per cent with increase in imports by 21.71 per cent. Although these data presented by the Department of Customs require immediate action from the government to control ever widening trade deficit, there has not been much discussions about this. This is sheer negligence. Maybe, those in power are happy with the fact that the country got Rs. 244 billion as import/export taxes from the trade.
The way trade deficit has widened and posed a critical challenge for the country’s economy demands an urgent policy and action plan for import substitution, particularly at this time when the balance of payment has become negative with the decrease in remittance inflow. When Finance Minister Dr. Yuba Raj Khatiwada presented the White Paper on March 30 about country’s overall economic status, he pointed that trade deficit has increased by 42 folds in the last 25 years. Because of the way he highlighted the increase in trade deficit, it was expected the government would take some specific measures to control it in its policy and programmes and the annual budget. The government did hint to this when it said in its policy and programmes presented by President Bidya Devi Bhandari on May 21 in the federal parliament that the government would adopt ‘policy to not import goods and services that make adverse impact on people’s health, promote unnecessary consumption and damage domestic industries’.
However, in the annual budget, no programmes have been included to support this policy. Given the fact that in the last 10 months, Nepal imported food grains or cereals worth Rs. 36 billion, there should have been specific plans and programmes to increase food production so that the money being spent on food import could be saved. But, nothing of the sort has been introduced as such. If we calculate the amount spent for importing agriculture related items such as cereal, vegetables, oil, coffee and tea, meat and dairy products, it amounts to over 100 billion rupees. For sure, if concrete steps are taken to modernise agriculture sector, this amount can easily be slashed. But, alas, in the annual budget presented recently, a meager 26 billion rupees including 10 billion rupees for irrigation sector has been allocated for agriculture.
It is despairing to see swathes of arable land in the fertile area of Terai depend on rains for cultivation due to lack of irrigation facility and the government allocates even less than 10 a third of the budget allocated for urban development as if this area is more important than irrigation sector. If a two-thirds of population is still engaged in agriculture, allocation of development budget should be in the same proportion. There should be no excuse in this including that contribution of agriculture to GDP is only a third. For sure, contribution of agriculture has been so little simply because the government has not paid due attention to this sector.
Import substitution industrialisation is another way to narrow the trade gap. For instance, Nepal imports clocks and related items worth a billion rupees, cotton amounting to Rs. 4 billion, footwear and related articles of Rs. 3 billion in a year. Can’t the country save money if the government takes initiatives to promote production of such minor things? What about imposing heavy taxes on imports of such things so that domestic shoe factories are promoted? The country may not be able to control fuel import which amounts to over Rs. 180 billion in a year but it can control imports of vehicles which amounts approximately to Rs. 80 billion a year.
Export promotion is direly needed to control trade deficit. Of Nepal’s total imports, China’s share is 13 per cent whereas China’s share is only 4 per cent in Nepal’s total exports. This means Nepal should work out ways to promote Nepal’s export to China. Similarly, Nepal has a huge trade deficit with India, and there is no way but trade negotiation with India so that Nepal’s export to India is promoted.
The most important thing is boosting production sector in the country and promoting consumption of domestic products. This can happen if people know about alarming trade deficit and its impact on their life. Use of domestic products will rise only when the products meet the national as well as international standard.
For this, authorities to measure the standard should be more active so that people are confident that national products are as standard in quality as in other countries. There has been much talk about political nationalism, now is the time to also focus on economic nationalism. Without economic nationalism, no stone to build foundation for prosperity can be laid.