Nepal Living Standard Survey

The Central Bureau of Statistics had conducted the Nepal Living Standard Survey (NLSS) in 1995/96 and in 2003/04 to examine the dimensions of poverty in Nepal. According to the surveys, poverty in Nepal fell from 38 per cent to 32 per cent over the 1995/96-2003/04 period. NLSS II has attributed farm income, non-farm income and remittances for the rapid poverty reduction even in a situation of widespread conflict and poor business environment.

During that period, the average economic growth rate per year was 4 per cent. The agricultural sector grew only by 3.4 per cent, and utilities, transport and communication, and manufacturing sectors—which sustained the growth during that period—registered an average growth of 9 per cent, 6 per cent and 4 per cent respectively. But if this is examined from the income perspective, growth was urban-centred and confined to a limited area. So its trickle down effect was weaker as it ought to be. The share of compensation to the employees (called wage/salary income) in the GDP was low and moving downward. It is still below 30 per cent. Private capital formation—the indicator of private investment—has increased slightly, while revenue generation in real terms was gloomy. That is why, it is questioned how poverty could have reduced tremendously during the above-mentioned period.

NLSS had adopted the Cost of Basic Need Method to measure poverty; and it had set the benchmark in such a way that one needs a minimum of Rs. 7,696 to finance his/her minimum food and non-food necessities in a year. That is, anyone who cannot spend Rs. 7,696 in a year for his/her need is considered poor. Based on this criterion, NLSS II has concluded that 32 per cent of the total population, and 35 per cent and 10 per cent of the rural and urban people are poor in Nepal.

According to NLSS II, average real per capita expenditure reached at Rs. 10,318 in 2003/04 as compared to Rs. 7,235 in 1995/96. This sharp increase in expenditure is due to an increase in per capita non-agricultural wage, non-agricultural enterprise income and remittances. But only a skilled labour force and few entrepreneurs from the urban and market centres have benefited from that change. Still, 54 per cent of agricultural wage earners, 45 per cent of Dalits, 41 per cent of Muslims and 43 per cent of people living in the eastern rural hills are below the standard poverty line. They are far from opportunities of foreign employment, benefit of urbanization and growth of non-agricultural sector.

The impact of the decade-long conflict has begun to show. Since 2000, economic growth has been very low. Still, performance of agriculture sector depends upon monsoon; it is inelastic to policy reforms. Manufacturing and exports have plunged, trade and tourism have shrunk. Government investment in the social overhead capital has fallen. The private sector has contracted. Delivery of public goods is irregular, inefficient and unjust. Against this backdrop, no positive signals have been observed indicating any upward movement of the economy in the near future.

At present, Nepal's topmost exportable items like ready-made garments and hand-woven carpets are at risk. The potential for high value added exportable items and their market is yet to be explored and promoted. Agricultural produces are unable to compete with subsidised Indian produces. Poor infrastructures within the country and lack of an efficient transit service have stood up as barriers to trade expansion. And ever-increasing fuel prices, the Terai unrest, frequent bandhs and chakkajams are causing to cost push inflation and so reducing competitiveness and discouraging Foreign Direct Investment (FDI).

The Nepalese economy has been excessively affected by non-economic factors for a long time. Its cost to the future generation would be very high. So an economic agenda should be put at the top of our politics. If a proper economic agenda is not prepared—at this stage of state restructuring—to build a strong nation state, there will be no way except foreign employment in the future. And, over emphasis on foreign employment even in low paid jobs will generate a human resource crisis within the country in the long run (keeping socio demographic effect unchanged).

However, for specific time period, the Dalit and Muslim communities, youths from the hills, Terai, mid-west and far-west regions should be encouraged in foreign employment, and remittances sent by them should be channeled into small-scale agro-based and handicraft enterprises in order to reduce poverty and inequality. Attempts should be made to bring purposive funds such as aid for trade, aid from the SAARC development fund to invest in improving the supply side capacities like infrastructures and transit system. Trade concentration into limited products and markets constitutes a high risk. So, enhancing the negotiation skills of the government officials and demand side analysis are urgent needs.

Technical assistance

We can lobby for technical assistance from the World Trade Organisation (WTO) to finance software programmes. Agriculture commercialisation combined with land reform—keeping the South Asian market into consideration—will make growth inclusive and check inequality. Expansion of the tax base on a progressive basis is necessary to finance development programmes to sustain them and to reduce necessary of conditional aid. Capitalising fair trade and promoting our niche products will be advantageous. Finally, poverty reduction through broad-based economic growth is sustainable. Remittance-led poverty reduction may create demographic, cultural and social imbalances in the future that we have never talked before.

(Published in The Rising Nepal on 30 January 2008)