Inclusive Growth and Sustainable Development: Nepal’s Difficult Transformations

1. Inclusive Growth and Sustainable Development: Nepal’s Difficult Transformations Mahesh Banskota**Currently Dean, School of Arts, Kathmandu University Opinions expressed are solely those of the author.

2. Optimism was high for the country to move quickly to a peaceful development after the Comprehensive Peace Accord (2006) and the historic CA elections (2007). • Instead of being a mandate for peaceful , Inclusive and sustainable development, this is looking like a recipe for deadlock, insecurity, and political and economic uncertainty – eventually further turmoil ???

3. Threat of all previous gains quickly dissipating down the drain • A disturbing reality - inability to not only form a government but also to make it functioning- not even able to have a proper budget • Daily load shedding of 14 hours and increasing , exports have stagnated, real estate bubble has cooled, interest rates have gone up, inflation is an all time high ,many private sector industries closing

4. Migration has become the only alternative for most young people • remittances - 20 % of GDP • Villages left to women and elders and children – managing agriculture in most parts of the hills in rural Nepal • Labor shortage slowly emerging as a major issue • Business confidence -never been so low • Militant worker unions of most political parties, insecurity, kidnapping and killing of business people

5. Lack of consensus among the key political players • Integrating the two armies –Nepal government’s and the Maoist’s • deciding on a federal structure in a manner acceptable to most. • Debate between Presidential and Parliamentary forms • Displaced people, Returning property seized by Maoists • Rapid erosion of trust between political players

6. Longer the delay in the resolution of the contentious issues and finalization of the constitution, the greater is the likelihood that radical opinions will succeed in further polarizing the parties and silencing the peaceful voices in the respective parties.

7. Exclusion in Nepal: Constraints for Inclusive Growth • three main dimensions of exclusion in Nepal are gender, ethnic and regional • According to the Human Development Report 2009, overall GDI (499) was lower than overall HDI (509). GDI is as low as 0.423 for mountain ecological belt and 0.441 for the Mid Western Mountains. Although gender inequality has decreased in all the regions between 2001 and 2006, the gap between GDI and HDI has remained

18. Poverty as a barrier to Inclusion • HPI was higher for rural than in urban areas. It was also higher for mountains as compared with the hills and the Terai. HPI was 1.6 times higher for Far West Mountains than for the Central Hills where it was the lowest. • By ethnic groups HPI was the highest for Dalits and Janajatis – almost 40 % higher than for the Newars and Brahman and Chhetri groups.

19. Policies Aggravating Exclusion • Many past policies have aggravated exclusion and inequality • Only 37 % of the households were 30 minutes away from a road. • total road network and density of roads is very low in Nepal compared to other South Asian countries. • 43 % of the population has access to all weather roads and 60 % of this is in the lowlands • highest quintile groups were relatively closer to road than the lower quintile which suggests their influence in road location.

20. 76 % of the highest quintiles had access to electricity while it was only 10 % for the lowest quintiles • Access to loans from Banks has decreased after the conflict as most banks relocated to urban areas. Because of this, 54 % of the households say that they have to borrow from family and friends

21. 54 % of all household reported using some irrigation in 1995/96 and this increased to 67 % in 2003/04. However the disparities between large and small farmers were significant. In 2003/04 80 % of the large farmers said they had irrigation while for the small farmers it was 65 %.

22. In 2003/04 77% of the population owned land. Between 1995 /96 and 2003/04 average land holdings dropped from 1.04ha to 0.79 ha. • reduction was the highest for the poorest expenditure quintiles. • Land owned by the poorest is only half as much as that owned by the richest groups. • Poor own poorer quality land

23. Participation • 1990 Changes did not go far enough • 10 years of armed conflict 2006 Peace Accord open the door for many changes • With 33 % representation of women, it also has participation of most of the leading ethnic and indigenous groups as well as the minorities. • Removal of only Nepali language inside the Assembly has also helped in greater ownership of the political forum as well as in articulation of positions of different groups

24. Debate on the Federal Structure • alternative models - ethnic, geographical, linguistic or some combined considerations • 81 % of the revenue is currently coming from four districts only and 94 % of the revenue is accessed from only 12 districts. • VAT, customs and income tax and the base for generating these resources is very limited to a few key locations in the country

25. Slow Growth • Nepal has the slowest growing economy in South Asia. • At a time, when all other S. Asian countries were experiencing unprecedented high economic growth rates, Nepal barely crawled ahead. • The current forecast for Nepal and other countries is not different from the past. Even after the crises, most South Asian countries have growth rates that are almost double that of Nepal

26. Agriculture growth jumped from 1% in between 2005/06 and 2006/07 to 5.7 percent from 2006/07 to 2007/08. The latest growth estimate for agriculture sector shows an increase of 2.2 percent for 2008/09, • The Non-agricultural sector grew at 4.8 percent during 2008/09. The low growth has been attributed to the acute shortage of energy in the country as well as to frequent closures and disruptions of industries, transport and services in the country on account of frequent labor strikes, protests and closures.

27. Impact Global Warming ? • Water related excesses and stresses have become the new reality • Farmers especially in the hills are beginning to voice serious concerns - Temperature changes is perpetuating droughts , shifting cropping patterns and creating new challenges of pests and diseases • New challenges for any government and must be part of any Inclusive Development Agenda

28. Inclusive Growth Agenda • Governance Factor -----Restoration of Trust, Peace , law and order ,boost the levels and quality of investments in physical and social infrastructures • People Factor -----fundamental human rights, social justice , business confidence, economic growth , access to gainful employment, opportunities , services and infrastructures, • Planet factor – shared responsibility to do more and especially for - small countries like Nepal for no fault of theirs are disproportionately impacted-