Development Perspective: Changing Paradigm of the Development and Priorities

1. Development Perspective: Changing Paradigm of the Development  and Priorities Pushpa Lal Shakya

2. Presentation Flow • Background • Development: Meaning • Main Objectives of Development • Changing Paradigm of Development • Basic Requirements for Development • Actors of Development and Pillars of Nepalese Economy: Public, Private and Co-operatives • The Current Plan, National Development Priorities and Development Scenario • Development Issues and Challenges in Nepal • Suggestions and Way Forward

3. 1. Background • The ultimate aim of development is to help address the challenges of development in the country to improve the living standard of the people. • Every country wants to increase the living standard of their people and to be called developed. • However, development can not be achieve in a short span of time and it is multi-dimensional issue. • There are certain number of indicators to categories a country as a developed or underdeveloped.

4. Traditionally, development meant the capacity of a national economy to achieve high growth rate in GDP or per capita income. • Development was also viewed as change in the structure of production i.e. decline in the share of agriculture in the GDP. • Before the World War II most of the developing countries of the world were colonized by the western colonial powers. • After the World War II most of the developing countries of the world were decolonized. Then they (the Third World) began to adopt new strategy for the development of their economies. As a result, a new development approaches has began to emerge.

5. However, especially after 1970’s development was redefined in terms of reduction in poverty, inequality and unemployment and began to get focus. • Actually, there is a big difference between economic growth and development concepts. • Initially, some problems were seen in the definition, approach and criteria of economic growth and development. • In this regard, various experts of this field have tried to define it.

6. Generally speaking,economic growth means increase in gross domestic product (GDP) and/ or GDP per capita of the country. • Some economists define 'Economic growth is a process whereby an economy's real national income increases over a long period of time‘ which is measured by the GDP. • In sum, economic growth refers to increase in production or income. • However, economic growth sees only ‘value add’ in the economy but not the ‘quality of life and inequality’.

7. 2. Development: Meaning • In general terms, development means economic growth plus positive changes in the country or economy. • Development refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards. • Michael P. Todaro says that development must be conceived of as a multi-dimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as the acceleration of economic growth, the reduction in inequality, and the eradication of poverty.

8. Therefore, development is a multi-dimensional phenomena. • Amartya Sen says ”Economic growth cannot sensibly treated as an end itself. Development has to be more concerned with enhancing the lives we lead and the freedom we enjoy”. • Therefore ‘capability to function’ is what really matters for status as a poor or non-poor person. • The above definitions indicate that it is difficult to measure the development. • However, it is necessary to make a workable formula by which we could measure the development.

9. For example, we can say development means to move from the low level of development to high level for which we can say 'betterment of economic life of the people'. • But the living standard of the people does not increase automatically or spontaneously. • For this to happened we need appropriate planning and policy measures. • In sum, to measure development we need to measure the following indicators besides measuring the economic growth and per capita income. • Now, sustainable development is the key agenda of any country. So we are focusing more on attaining Sustainable Development Goals (SDGs)

10. Some Important Development Indicators Economic Indicators: • GDP/GNP, per capita income, Inflation rate, Savings, Govt. revenue, Government Expenditure, Per capita real consumption, Unemployment rate, Distribution of income. Social Indicators(Demography, Socio-political variables): • Poverty Rate, Human development, Infant Mortality Rate, Maternal Mortality rate, Adult Literacy Rate, Life Expectancy, Gender parity, gender empowerment, Degree of decentralization, and Level of people’s participation in the government etc.

11. 3. Main Objectives of Development • To raise levels of living including, in addition to higher incomes, more employment opportunities, better education and greater attention to cultural and human values. • To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health and protection. • To expand the range of economic and social choices available to individuals and nations by freeing them from dependence, ignorance and human misery.

12. 4. Changing Paradigm of Development • Before 1930 laissez-faire Policy was adopted for economic growth. (Free Market Economy, Less Government Intervention, Less Tax, Private sector led growth.) • After Great Economic Depression, 1930s Government intervention was encouraged. (Deficit finance, demand management policy,) • After WW II -1970: After WW II - adoption of planned economic development approach by the developing world. (Mixed economy- Public enterprises, private sector, market, Economic Development Planning) )

13. Economic Growth was focused- ‘trickle down mechanism’ for development. • Inward looking approach • Protectionism • government intervention, and • Import substituting Industrialisation • Nepal’s Plan of that period also focus on economic growth like doubling of national income by 15 years time period, establishment of various PEs, quota and license system, control regime was adopted.

14. 5. 1970s: - Basic Needs Approach • To reduce poverty basic human needs like food, clothing and shelter needs to be provided. • Nepal’s Six and Seventh Plan’s objectives were also based on this approach. • In 1985 (B.S. 2042) Nepalese living standard will achieve the Asian Standard by 2000 • Six basic needs were identified. 6. 1980s:- Structural Adjustment Program • (SAP in 1986, Economic Liberalisation, privatisation, globalisation) • Outward looking approach • Export led growth, Trade as a engine of growth e.g NIE, Asian Tigers (Hong Kong, Singapore, Taiwan and South Korea development) • Role of government limited as a facilitator.

15. Economic Liberalisation in Nepal • 1986: Structural Adjustment Program (SAP) • 1992: Enhanced Structural Adjustment Program (ESAP) • Economic reforms • Devaluation • Privatisation • Deregulation of interest rates • Tax reduction • Tariff reduction • Reduction in deficit financing • Reduction in recurrent expenditure

16. 7.1990s: - Human Development Approach • In 1990, MahbubulHaqlaunched the first Human Development Report. The objective was: ‘‘to shift the focus of development economics from national income accounting to people centered policies’’. • Moreover, its objective was to set out a comprehensive approach to development, including an agenda of policy priorities, tools of analysis and measurement, and a coherent conceptual framework. • Strategies for human development initially emphasized the three dimensions of the HDI- investing in education and health, and promoting equitable economic growth

17. MahbubulHaq: Human Development is important for poverty reduction or human aspect of poverty needs to be look at. • Social capital generation • AmartyaSen defined human development as the process of enlarging a person’s ‘functionings and capabilities to function, the range of things that a person could do and be in her life’’. • Sustainable Development (Bruntland Commission Report Our Common Future), Rio Conference 1992 (Earth Summit). • One of the objective of the Eight Plan was sustainable development.

18. 8. 2000s:- Growth with Equity, Pro-poor/ Inclusive Development Approach, MDGs (PRSP/Tenth Plan, Three Year Interim Plan, Three Year Plan, 13th Plan) 9. Since 2016:- Sustainable Development Goals (SDGs) 17 Goals, 169 Targets and 230 indicators ( 14th Plan and Forthcoming Plans), • Today, the world community is concerned more about . There are three pillars of sustainable development identified in Rio Conference, They are: • Economic aspect • Social aspect, and • Environment aspect • These three aspects are interrelated and interlocking.

19. Sustainable Development

20. Economic Aspect • Initially, development was used to taken as economic growth. • Now the dimension of development has been widened and covers other aspects such as poverty reduction, reduction in income inequality and unemployment, human development, technological change. • Economic growth is only means of development the end is development. • Economic growth and increase in per capita income is essential for development but it is not sufficient to sustain the development and prosperity.

21. 2. Social Aspect • Development should address the social aspects such as education, health, water supply, sanitation facility, gender empowerment, social evils and equality. • Social indicators such as school enrollment, adult literacy rate, maternal, infant and child mortality rate, life expectancy, water supply and sanitation facilities, social justice, inclusion etc are also important to measure the development. • Moreover, situation of social and geographic discriminations, change in outdated traditional values and traditions are also important aspects and indicators of development.

22. 3. Environment aspect • Development has also environmental aspect. • The climate change, global warming has negatively impacted the development gains. • During the infrastructure building we need to consider the environment protection aspect. • While working for development we need to sustainably manage all types of forests, halt and reverse land degradation. • We need to ensure the conservation, restoration and sustainable use of inland freshwater ecosystems and their services, in particular forests, wetlands, mountains and dry lands. • We need to ensure the conservation of mountain ecosystems, including their biodiversity, in order to enhance their capacity to provide benefits that are essential for sustainable development.

23. In conclusion, broadly we can see that there are three phases after 2nd world war development policy: 1. Post- WW II to late 1970s period there was more consensus on economic growth focus with adoption of state intervention; 2. During 1980s focus on neo-classical or liberal policies such as reducing subsidies, reducing inflation and private sector led growth or market or liberalising economy; and 3. After 2000 focus on market-led with inclusive and pro-poor, sustainable economic development • The changing global development paradigm clearly shows that there is a great debate in the world among the economists and political thinkers about the proper role of the state in promoting economic development. • At the theoretical level, the neo-classical economist or the liberalist argued for the least intervention of the state, letting freely functioning markets to achieve Pareto optimality or efficiency in general equilibrium.

24. However, in contrast to these theories, a number of emerging economies have been adopting more state-interventionist approaches and also been successful in achieving development. • The history of many developing economies during the 1970s reminds us – when state-led or intervention development approach reached its greater height - interventionist policies may create great risks, and can increase of rent-seeking behaviour and failure of state situation. On the other hand there is also market failure situation of Great Economic Depression of 1930. • Therefore, after the world economic crisis of 2007-08 there is a more or less consensus on the role of the state or government in regulating the economy. • Moreover, in order to reduce poverty and to achieve the SDGs, and also to develop the infrastructure, to improve water supply, health and education facilities and to facilitate export-led growth, a re-expansion of the role of the state seems vital.

25. 5. Basic Requirements for Development • Capital Formation: • Increase in savings • Development of financial institutions to mobilise savings • Use of savings for investment 2. Structural change ( industrialisation) 3. Technological development and innovation 4. Infrastructural development 5. Human capital development 6. Change in social-cultural attitude (mind set) 7. Good governance

26. To achieve development we need: • Achieve high, inclusive and broad-based economic growth • Macroeconomic Stability • Control inflation • Reduction in poverty • Reduction in unemployment • Capital formation • Transformation in socio-economic structure • Reduction in income inequalities • Development of socio-economic infrastructures • Development of human resources

27. Maintain political stability • Adoption of decentralized governance system • Ensure good governance • Development of technology • Industrial development • Human development • Social justice and equity • Regional balance • Environment protection • Removal of social superstations • Uplift the living standard of the people

28. 6. Actors of Development and Pillars of Nepalese Economy: Public, Private and Cooperative Sector Followings are the main actors in the development of Nepal. • State (Government/public sector) • Central/provincial /local government • Private sector • Cooperative sector • NGOs/ INGOs • Civil society • Community organisations/user groups

29. The overall development of the country is primarily the responsibility of the government, • However, the government, with its limited resources cannot adequately address the ever rising aspirations of the people. • To ensure maximum development and to involve all people, it is necessary to clarify the roles, functions and duties of each sector and to develop its capacity. • People do not feel a sense of ownership in any development endeavor unless they participate in it; • Therefore, their spontaneous involvement is imperative and indispensable.

30. Importance and Inter-linkages Between the Three Pillars of the Economy • All the three sectors of the economy are equally important in development because of their features and role. • The public sector is important because it plays a lead and “crowding in” role for the private and the cooperative sector • Moreover, public sector formulate the policy for all the sectors. So the size and role of the private and public sector in the economy depends on the policy and initiatives of the public sector.

31. With out the support of the private and cooperative sector government can not increase its revenue and the service delivery capacity. • Moreover, the trade, employment and inflation rate all depends upon the role played by the private and cooperative sector. • More significantly the poverty reduction, infrastructure development, PPP all depends upon the private sector supports. • So, there is interlink between all the three sectors of the economy in the development process.

32. 7. The Fourteenth Plan (2016/17-2018/19) Vision • Self- reliant, prosperous and socialism oriented national economy and affluent Nepalese people. Goal • To reach the level of meddle income country through welfare state with social justice. Objective • To achieve economic and social transformation by rapid poverty reduction through high economic growth rate along with employment oriented and just distribution. Strategy • Following five key strategies have been set to achieve the above vision, goal and objectives:

33. To increase production by transformation of the agriculture sector and expansion of tourism, industrial and small and medium enterprises. • To build infrastructure for energy, road and air transport, information and communication and rural-urban and development of trilateral connectivity. • To achieve high and sustainable reform in human development by emphasizing on social development, and social security as well as social protection. • To promote overall good governance by economic, social and governance reform, efficient and accountable public finance, clean, transparent and people friendly public service as well as protecting and promoting human rights. • To enhance institutional capacity along with gender equality, inclusion, environment protection and maximum use of science and technology.

34. Economic Growth Rate and Investment Requirement in the Fourteenth Plan • Annual economic growth rate in the 14th Plan period will be 7.2 percent, with growth rates in the agricultural and non-agricultural sectors maintained at 4.7 and 8.4 percent respectively. • The incremental capital output ratio (ICOR) is estimated to be 5.2:1. • Gross fixed capital formation at the constant prices of FY 2015/16 will be Rs.2424.96 billion, Rs. 954 billion (39.4%) will be invested by the public sector, Rs. 1327.30 billion (54.7%) by the private sector and Rs. 143.24 billion (5.9%) by the co-operative sector.

35. Nepal’s Development Practices and Priorities • Issue: Market Vs Planning • Nepal adopted Planned Development Approach since 1956 • Since the First Plan to Seventh Plan it has adopted Mixed Economy. • However since the early 1990s it has been adopting Liberal market economy. • After the early 1990s the role of private sector has been increased. • People centered development is focus of the government.

36. As it is considered that the public sector alone can not fulfill the development requirement of the country, the federal democratic constitution of Nepal has mentioned about adoption of Three Pillar Economy: Public, Private and Cooperative sectors. • Therefore, state and other actors of development should play an active role to achieve development targets such as LDC graduation by 2022, SDGs, and reaching middle income country by 2030 set by the government. • Public Private Partnership (PPP) approach is also emerging in recent years.

37. Priorities of Development • Participative Development (Top down and Bottom up) Approach • Market based Indicative Planning for development • Result Based (RBP)/ Strategic Planning • Sustainable and inclusive development • Good governance • Growth with equity (High, Inclusive and sustainable growth • Poverty reduction • Reduction In unemployment • Infrastructure Creation and Energy Generation

38. Development Scenario of Nepal • Nepal is among the poorest and least developed countries in the world, with per capita GNI of US $ 1004. The average GDP growth rate is low compared to its neighboring countries. • 21.6 % of its population living below the poverty line. • The HDI is low (0.54). • Nepal is heavily dependent on remittances, which amount to as much as 24.3% of GDP. • Agriculture is the mainstay of the economy, providing a livelihood for almost 64% of the population and accounting for about 28.2% of GDP.

39. 6. Industrial activities are limited to few products mostly processing of agricultural products, including pulses, jute, sugarcane, tobacco, and grain. 7. Nepal’s economy lacks the entrepreneurial dynamism needed for stronger economic growth and long-term development. 8. Political instability and a poor investment business climate have hampered domestic as well as foreign investment. 9. Moreover, it has weakened the capacity to implement economic reform or create a stable development environment. 10. The private sector is not well developed.

40. 10. Nepal has considerable scope for exploiting its potential in hydropower, with an estimated 42,000 MW of commercially feasible capacity. But only about 2% of its total potential has been exploited. 11. However, gradual structural change has been seen in the economy. The share of service sector is gradually increasing and that of agriculture share is decreasing. • The share of agriculture in the GDP is reduced to about 28.2%, that of industrial sector 14.2% and service sector 57.6% in 2074/75. .

41. Major Development indicators

42. 8. Development Issues and Challengesin Nepal Issues: • Low economic growth rate • Poverty and backwardness • High inequality • Inclusive and high economic growth • High unemployment and underemployment • High dependency on agriculture • Low level of industrial development • Socio- economic transformation of the economy • Increasing Urbanization

43. High Migration • Regional, Gender Imbalance and Exclusion: • Under utilization of human resources: • Large trade gap • Centralized governance system and lack of good governance: • Resource mobilization and its efficient and effective Use • Population growth • Balanced growth • Gender mainstreaming

44. Low level of technological development • Lack of skilled human resources • Low capital formation • Poor socio-economic infrastructures • Overall, the static approach to economic management and development has been a serious drag on business activity. • Lack of transparency, corruption, and a burdensome approval process impede much-needed expansion of private investment and production. • Inefficient judicial system, which is subject to substantial corruption and political influence.

45. Challenges: • Reducing poverty • Reducing income inequality • Increasing employment opportunities and reducing the problem of unemployment and underemployment • Attaining inclusive high growth and development • Increasing resource mobilization and its utilization • Reducing external dependency for development • Attaining SDGs • Controlling inflation • Gender mainstreaming • Managing the increasing population appropriately. • Mitigating the impact and potential impacts from the global economic recession. • Improving human development index

46. Improving human resource management • Increasing export trade and reducing trade deficit • Effective and efficient utilization of remittances in productive sector. • Improving service delivery system • Protecting environment and addressing climate change issue • Providing sufficient and reliable energy supply • Availing local cooperation in infrastructure development. • Ensuring the returns of development to the regions, communities and groups those are left behind in the process of development. • Managing disaster • Improving the living standard of the people. • Improving governance and strengthening and implementing federal democratic and planning system

47. 9. Suggestions and Way Forward • There is urgent need to address the development challenges faced by the developing economies like Nepal. • More participatory development approach is required. • Political stability is essential for achieving high inclusive growth and development. • Political commitment should be ensured for effective implementation of development plan • Implementation capacity need to be enhanced. • Proper coordination between development actors needs to be strengthened • Linkage between federal, provincial and local level development planning mechanism needs to be established. • Reduction in unnecessary expenditures

48. Increase in government revenue, • Effective mobilisation and utilisation of foreign aid • Increase allocative efficiency • Prioritizing development projects/programs • Allocation in productive sectors • Develop project bank • M & E should be strengthened and quality of supervision should be improved. • Development cooperation from the developed world and neighboring countries is necessary for development. • However, socio-economic and political reforms and improvement in the governance system is very crucial in the developing countries like Nepal to improve the living standard of the Nepalese people..

49. Thank You