Consumption Problems Of Nepali Economy

Kiran Dahal

 

Proper diagnosis of economic problems is the prerequisite for making sound economic policy prescriptions for an economy. The consumption pattern and its recent trend in Nepal are often considered the least while formulating economic policies despite the fact that consumption problem of Nepali economy is unique and unparalleled with most developing economies in many aspects. Understanding of the true nature of consumption problem of Nepali economy would be a great help in making our economic policies vibrant and fully functioning. The purpose of this article is to assess five basic consumption problems and their consequent effect on the Nepali economy. They are: demonstration effect, consumption based on incomplete information, hefty spending in wedding ceremony, import based consumption and non-stimulating nature of consumption.
Demonstration effect is very high among the Nepali consumers. Normally consumption is based on purchasing power (income level) of the consumers. But once you consume looking at how people around you consume, it makes your consumption incompatible with your purchasing power. Also, it distorts our consumption needs: we trade-off consumption of necessary goods by luxury goods just for keeping up with the Jonses. Both of these incidents are making the Nepali consumers worse-off, rather than better-off, despite significant increase in our consumption expenditure these days. The point is that demonstration effect is not in favour of majority of Nepali consumers and it is not good, from any angle, for healthy growth of the economy as well.
The other serious problem facing the Nepali consumers today is consumption based on incomplete information. Nepali consumers are making consumption decisions relying on limited information. As a result, they are cheated every time from the sellers on price, quality and quantity of commodities they are purchasing. So, sellers are becoming better off day by day by making consumers worse-off every time. Also consumers are losing power in the so-called free market and are exploited by the sellers. Even the basic consumer rights are not guaranteed for the Nepali consumers. This is in no way good for the growing economy like Nepal both in the short term and the long term.
The system of performing wedding ceremony in Nepal is defective from economic point of view. During the wedding time, families of both sides - bride and groom - make hefty one-time spending. For instance, the total spending made by families of both bride and groom together accounts for around 1 million to 2 million. This is a very big amount for Nepali households as it takes years for families to save this amount of money. But the money saved from years of work is spent in the blink of an eye. During the wedding ceremony, generally big money is spent on party, jewelry and clothes. This spending does not make the families economically empowered. Rather it is unproductive and backfiring. And the respective families feel their purchasing power becoming feeble and some families even slide into severe debt. From macroeconomic perspective also, it is not good for the economy. It increases inequality of wealth and income in the society. Indeed, equal distribution of wealth and income is practically impossible in Nepal until and unless we break the habit of making hefty spending in the wedding ceremonies.
Import based consumption is another terrible problem for the Nepali economy. Most of our consumption needs are fulfilled by importing goods from abroad. All the luxury goods and even the basic necessity goods like food and clothes are imported from abroad. Our consumption is not stimulating domestic production and, hence, the growth of the economy. Rather our trade deficit is increasing at an alarming rate. So, among many alternative choices to reduce trade deficit, one major measure is to revisit/change our consumption pattern. The more we emphasize the consumption of domestically produced goods, the more resilient our economy would become. Also, the more we lower the consumption of import based unnecessary luxury goods, the more savings we would have in our pockets to make investment in productive sectors.
The generally accepted principle is that increase in consumption expenditure increases effective demand in the economy. This increase in effective demand increases private investment and, thus, output and employment increases by many folds due to the operation of multiplier effect in the economy. However, in Nepali economy, increasing consumption expenditure is not stimulating the associated macroeconomic variables and the whole economy at large. It means that our consumption is not well articulated and integrated with domestic economic system, mainly due to structural bottlenecks and rigidities, and market imperfections. So, if the economic system of Nepal is not restructured in the direction of channelizing consumption with domestic production and other macroeconomic variables of the nation, then it would be a big tragedy for the Nepali economy.
In conclusion, our domestic saving rate for 2017/18 is only 15% of the gross domestic product. For achieving higher economic growth rate, we have to increase our domestic savings first. One effective and quicker way to increase our domestic savings is to revisit and reorganize our consumption pattern and habit. Only then we can work out effectively for raising our economy to the desired level.

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