Introduction
Nepal is one of the poorest countries in the world, and its economic growth performance in the last half a century has been disappointing. Not only does it lag behind the global, and fastest-growing, economies of its neighbours India and China, it lags behind many other countries in the world. There are actually very few developing countries that are growing at a slower pace than Nepal in this period. Equally appalling is the fact that the economic opportunities in the country are asymmetrically distributed across regions and ethnic, language and caste (ELC) groups. The wrong economic and social (e.g. education) policies of the past have locked the country into perpetual poverty and economic stagnation. In order for Nepal to be a peaceful, stable, and prosperous society it is essential for there to be economic policies that unleash the forces of growth and uplift the poor.
Although though there has been much talk of political restructuring, there is no discussion of whether different economic and social policies are needed for a federal Nepal, let alone how they should be packaged. Thus, it seems likely that most of these policies will continue. Considering the piteous state of the economy today, it is obvious that no matter what political restructuring takes place, past policies neither can maintain peace in Nepal nor unleash the forces of growth. Continuing past economic policies is a recipe for furthering the socio-economic disparities among people in different regions and ELC groups.
Nepal is currently at the crossroads political restructuring. Conducive political restructuring is necessary for economic growth and equitable opportunity, but that alone is not sufficient. There must be a set of complementary economic policies to go along with political restructuring. There economic policies should address the root causes of poverty and stagnation. Thus, we need to understand the state of the economy at the national and regional levels. Since there are large differences in the economic standing of various ELC groups, which are the vital forces behind political restructuring, we must understand this dimension as well. There are no papers on this topic as far as we know. Thus, the objective of this paper is to fill in the gaps and provide an overview of the state of stagnation, poverty, and economic disparity across regions, ethnic groups, and gender in economic possession and education attainment. Although the paper stops short of outlining the economic and social policies needed to break the poverty perpetuation and stagnation, it will provide a vital and novel analysis that will be necessary for successful economic and social policies in a federal Nepal. The specific objectives of this paper are to answer to the following questions:
1. What has been Nepal’s developmental trajectory in the last three decades
2. How does Nepal lag in comparison to its neighbours India and China in terms of economic growth, education attainment, and fiscal prudence
3. How equitable is Nepalese society How deep and widespread is poverty in Nepal
4. How great are the regional, ethnic, and gender disparities in Nepal
5. What is the root cause of the current state of the nation Is it due to regional, ethnic, and gender disparities, or to the poverty across the board
6. What will it take to turn the nation from a state of gloom to a state of bloom
We have used the data from the Population Census of 2001 and Nepal Living Standard Survey II of 2003/2004 to answer these questions (for survey details see the Central Bureau of Statistics, 2004). The regions and ELC groups considered in the paper are the same 12 regions and groups that are identified as building blocks for a federal Nepal (Acharya, 2007). The main findings of the paper are as follows.
Nepal’s productivity is stagnated and the level of poverty is alarming. It will take 49 years or one generation, for per capita income double in Nepal compared to only eight and half years in China and 14 years in India. Nepal’s per capita gross domestic product (GDP) is at 20% of China and 41% of India. In 2006, Nepal’s per capita GDP of US$ 234 was only 36% of India’s per capita GDP and 15% of Chinese per capita GDP. Poverty has penetrated all regions and ELC groups. About 31% of people live below the poverty line as conservatively defined at 7,696 Nepalese Rupee (NR) per person.
There are large disparities in economic plight both by region and ELC group. The wealthiest region and group is approximately four-times richer than its poorest counterparts. However, these disparities come from the income differences of people at the higher strata of the income distribution – the poor are equally poor across all regions and ELC groups. This fact makes poverty mostly a national, and to a limited extent, a regional and group issue. There are intra-region and -group income disparities, wider in richer regions and richer groups. Nowhere in the country is the rate of illiteracy less than 46% (in some cases it is up to 59%), indicating that basic education is also mostly an outcome of economic disparity rather than of regional and ELC group division. However, there are wide regional and group disparities at the higher levels of education attainment. For example, about one-quarter of highly educated people live in a region with only 7% of the nation’s population. Furthermore, the female illiteracy rate is at least 20% more than that of males in all regions and ELC groups. Taken together it appears that while poverty, illiteracy, and gender inequality have certainly been influenced by regional and ELC group disparities, they penetrate across all regions and groups in Nepal. One of the causes of these problems is the alarming amount of intra-region and -group income disparities, especially in the wealthier regions and groups. The current state of the Nepalese economy indicates that there is a failure of past economic and social policies. This failure warrants an immediate and new national strategy with appropriate regional and group dimensions in order to address these problems.
The rest of the paper is organized as follows. In the following section, we describe the data used in this paper. We then compare Nepal’s achievement with that of India and China. We will describe how the regions used for this study are formed and which ethnic, language, and cultural groups are considered for comparison. We will analyse poverty by region and group, with the educational situation of those regions and groups is provided later. Finally, we will conclude the paper by providing policy suggestions.
Data
The paper uses macro level data compiled by the World Bank (the database called World Development Index) using different sources, data from 2001 Nepal’s Population Census and Nepal’s Living Standards Survey (NLSS II), conducted in 2003/2004. The Population survey data are used to identify the regional blocks and ethnic, language and cultural groups that we want to study as regional and group economies. Once the regions and groups have been identified, we use the individual level data from NLSS (II).[1] The survey used a two-stage stratified sampling approach: a nationally representative cross-section survey to estimate trends and levels of socio-economic indicators in the country and its different geographic regions; and the second component was a panel survey to track exact changes experienced by those previously enumerated households during last eight years. In the paper, we will use the data based on cross-section survey only. A brief discussion of how the survey was designed in provided in Appendix A.
We use NLSS II extensively because this is the only survey that provides information on consumption, incomes, assets, housing, education, health, fertility, migration, employment, and child labour by different ELS groups in Nepal. This survey can be used not only to assemble information based on the regions but also based on different ethnic, language and caste groups.
Nepal and Its Neighbours
In 2006 Nepal was an economy of 583 billions NR, which converted at the official exchange rate of NR 73 per US$, is an economy of US$ 8 billion. With purchasing power parity (PPP) conversion factor to NR vis-à-vis US$ official exchange rate of 0.182, Nepal’s GDP in 2006 was US$ 44 billion in PPP.[2] In terms of US$, Nepal’s GDP is about one-fifth of the province of Manitoba. And in terms of PPP, Nepal’s GDP is 10% higher than that of Manitoba or Saskatchewan. However, in terms of population, Nepal’s 28 million populations is 24 times the population of Manitoba and 28 times of Saskatchewan.[3]Nepal, which is bordered with India and China, has been a lost case in terms of both economic growth and equity. For the last 40 years, Nepal’s GDP per capita increased only by 1 percent annually whereas that of India and China increased by 3% and 6.8% respectively. Taking decade as a sub-period, as the Chart 1 shows, Nepal’s average annual growth rate has been substantially lower than those of two neighbours in each decade Chart 1). For example, in the last decade (1996-2006), Nepal’s per capita income increased only by 1.4%, whereas that of India increased by 5% and that of China by 8.4%. In this rate, it will take 49 years, a generation, to double the per capita income of a Nepali, whereas for an Indian it will take 14 years and for a Chinese it will take less than nine years. By the time the per capita income of a Nepalese doubles it will increase by 4-folds for an Indian and by 6-folds for a Chinese.
As a result of growth stagnation, per capita income of a Nepalese lags far behind that of its neighbours. Nepal is one of the poorest countries in the world with per capita GDP of US$
234 (at constant 2000 US$), ranking at 163 out of 179 countries in the world, all 16 countries with less than Nepal’s GDP are sub-Saharan countries. As shown in chart 2, in 2006 Nepal’s per capita GDP of US$234 was only 36% of India’s per capita GDP of US$ 634 and 15% of Chinese per capita GDP of US$ 1,595. In terms of PPP, Nepal’s per capita GDP of US$ 1,397 is 41% of India and 20% of China. In other words, income of a Chinese is equal to that of five Nepalese and income of an Indian is equal to two and half Nepalese.
That is the story of overall growth. What about the social development in terms of education and health Nepal’s record in terms of its neighbours is at least as bad as its record in economic growth. For example, in education, still more than half of Nepalese are completely illiterate compared to 40% in India and 9% in China (Chart 3).
In terms of gender equality, even though in primary and secondary education, female to male enrolment ratio in Nepal is about 90%, the situation in tertiary education is alarming. Female which slightly out number male in total number represents only 40% of tertiary education. Both India and China fair far better than Nepal in female enrolment ratio. This is just the macro national picture; we will have much more on education while we discuss regional, group and gender inequalities in education attainment in the coming section.
There has been no structural change in Nepal from agriculture to other sectors of the economy; it still remains predominantly an agrarian economy. However, India is emerging as a global service centre, whereas China is transformed into a global manufacturing powerhouse. With such emerging economies in its doorstep, a tremendous opportunity for Nepal’s prosperity is missed because of Nepal’s wrong economic and social policies.
One could argue that the fiscal structure of Nepal perpetuates poverty and discourages growth. The data on Table 1 shows the following. First, share of taxes on income, profits and capital gains in total government revenue is very low (11.4%) in Nepal compared to 35.4% in India. This means that there are basically no taxes on income and other property. Second, taxes on international trade are very high (21.9%) and that comes mainly from taxes on customs and other import duties. As most of the necessities are imported, the incidence of tax on trade falls on ordinary people. Third, one third of Nepal’s revenue is contributed by grants and other revenue (which is mainly grants as the aid to central government budget is 40%) from outside. This should have reflected at lower tax to GDP ratio, but that is not the case. This ratio of 9.7% in Nepal is comparable to 10.2% in India which does not have any aid money at all. Fourth, despite this heavy grants, the debt to GDP ratio in Nepal is not low, it is as high as in India.
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