Progressive Regression in Nepal

Pratyush Chandra

Only one aspect of Nepal's Finance Minister Ram Sharan Mahat's budgetary speech delivered on July 12, 2006 is stunningly consistent: its ceremonial mentioning of people's movement, their aspirations and their martyrdom. Along with references to “rural empowerment”, “peace” and “sharp cuts in royal palace allocations”, these incantations are intended to provide new discursive “instruments of legitimation” for the Nepali state, or as the World Bank Country Director for Nepal, Ken Ohashi, says, all these are necessary for "establishing the credibility of the state" (“Seizing the open moment”, Nepali Times, 7-13 July 2006). Only time will tell if radical forces are able to expose the new regime's opportunism under cute baubles: the progression of regression in Nepal.

Let us first ponder briefly over the present state of Nepal's economy to understand the full meaning and implications of the budget. In 2004, Nepal’s population was around 25.2 millions, of which around 85% resided in the rural areas, suggesting their dependence on agriculture. The per capita income in 2004 was US$260, which is far below the average per capita income in low-income countries ($510) and in South Asia ($590). Particularly revealing is the structure of the economy according to the sectoral shares in the Gross Domestic Product (GDP):


Source: World Bank (2006), "Nepal at a glance".


Source: World Bank (2006), "Nepal at a glance".

As Table 1 shows, there has been a continuous decline in the share of agriculture in the GDP. The industrial sector's share definitely did expand from 1984 to 1994. However, since 1994, at least, its share has been stagnant, while the manufacturing industries' share is on the decline. It seems that the non-manufacturing industries and services sector have been compensating the decreasing share of agriculture in the GDP, but as evident from Table 2, none of these sectors have been promising in their self-expansion. In fact, the average annual growth rate in the industrial sector has drastically reduced in the period 1994-2004.

Even though the increasing share of non-agricultural sectors in the GDP is a universal trend, in Nepal, like in other South Asian countries, this has not been accompanied by a proportionate shift in the labour force from agriculture to the other two sectors. According to the estimates of the Food and Agriculture Organisation (FAO) of the UN, the percentage of agricultural labour force in total labour force in Nepal remains almost unchanged since 1979 - it was 94% during 1979-91, while for several years now it is stuck to 93%.

All these indicate a huge rural/urban divide – an immense sea of rural poverty encircling a few islands of urban affluence. Taking into consideration the inequitable distribution of land holdings (Table 3) and semi-feudal forms of exploitation in an increasingly monetised rural setting, one can only imagine the state of the poor peasantry, semi-proletarians and the landless.


Source: Devendra Chhetry, "Understanding Rural Poverty in Nepal", in Christopher Edmonds and Sara Medina (ed.), Defining an Agenda for Poverty Reduction (Vol. 1), Asian Development Bank (Manila, 2002). The figures are drawn from National Sample Census of Agriculture Nepal, 1991/92, Analysis of Results, Central Bureau of Statistics (Kathmandu, 1994). Ha= hectares

Even the World Bank admits (Economic Update 2002) that poverty could not be reduced in Nepal since “growth has been concentrated primarily in the urban areas and particularly in Kathmandu valley, largely excluding 86 percent of the population who live in rural areas, where per capita agricultural production has grown minimally and the overall level of economic activity has been sluggish”.

The disproportion between the share of the non-agricultural sectors in the GDP and the amount of employment generated in these sectors indicates that whatever growth we find in these sectors are either in capital-intensive industries controlled by foreign capital collaborating with a handful of Nepali mercantilist corporates, or in the informal economy where the circulatory migrants from rural Nepal toil with no job security and very low wages.

Moreover, impoverishment in rural (also in urban areas) has resulted in sluggishness in domestic demand for industrial goods, which has further eroded the possibility of an increased industrial growth in Nepal. This fact coupled with the backlash of liberalisation (export-oriented production) has made the industries in Nepal increasingly dependent on external markets – depleting internal resources to feed external demand. This further perpetuates the need for capital-intensity and an import of technologies to compete globally, thus making the dependency total, and the goal of employment-generating industrialisation a chimera.

In this situation, it is expected from any post-April 2006 government, which draws its power from popular radicalism that has enwrapped Nepal today, that it will represent the aspirations of the masses and address their basic problems - rural poverty, inequitable land distribution, unbridled commercialisation, profit-motivated industrialisation, lack of economic activities induced by popular needs, etc. The figures in Tables 1-2 testify the reality of neoliberalism as practiced in the Nepali setting.

It was in 1984 when the Nepali State accepted the IMF/WB liberalisation package, and never deterred from the neoliberal course despite the so-called 1990 democratic achievements. The Maoist revolt was a challenge to this path, and it was obviously expected that a post-April 2006 government would rethink the model of economic management that the Nepali State has been pursuing till now. But this was not to be, at least if we go by Mahat's budgetary exercise.

In the introductory paragraphs of the speech, the Finance Minister talks about the need to "form a common vision of socio-economic development through dialogue among political and social forces active in the country" and asserts that "the dialogue between Government of Nepal and Nepal Communist Party (Maoist)" is most certainly a formidable step in this regard. In his zeal to make this point, he goes to the extent of visualising the fantastic possibility "to end all forms of conflict prevalent in the country". However, the revolutionaries would never claim to negotiate for such a utopia, not with the democrats who are still uncomfortable with the possibility of sweeping away the most blatant point of contention: the burden of royalty.

But the Finance Minister himself betrays his and his colleagues' conscious design of which all this wordiness is an important characteristic. This blueprint becomes clear in the following sentences: "The national debate today has surely centered on determining the future political system and process to achieve sustainable peace. This does not mean that the issue of economic development should be pushed to back burner. Democracy cannot flourish on the foundation of a weak economy. The economy is in crisis for over half a decade. It is looking for a new momentum."

This statement contains all the essential ideological elements that characterise global neoliberalism, the weaning diet of the leadership of developing countries. First and foremost, the will to separate the economic from the political, that is, to ensure the complete depoliticisation of the former, is expressed in clear terms. To present that the "national debate" is only about politics is not only a gross misrepresentation of Nepali politics, but more importantly, it is a ploy to ensure that "the issue of economic development" does not become part of this "national debate". Of course, economic development should not "be pushed to back burner"; rather with Mahat it must compete with political development more vigorously. But what will be the course of this economic development? The immediate answer that we seem to get is: No politics, please.

Economic development, for Mahat and his ilk, is unilinear along a neoliberal trajectory, or whichever one set by the global and regional masters. And the fundamental duty of any "national" leadership under the global neoliberal regime today is to police this unilinearity so that politics does not contaminate economics. This is the redefinition of the cherished "rule of law" today. If all conflicts in the politics of economic development are systematically ruled out, then, of course, the fantastic vision that Mahat has about ending "all forms of conflict prevalent in the country" will become real and there will be everlasting "sustainable peace".

Consider provisions of the budget. As usual, there is an overabundance of promises, allocations and words as proof of the government's commitment to the people in Mahat's budgetary speech. All these are duly balanced by its fidelity to "investment-friendly atmosphere" for agro-businesses and "commercial farming", "to encourage private investment" in every sector and, of course, faithfulness to its donors.

In the name of the pro-poor programme, the government will formulate an agriculture business promotion policy for "enhancing private sector participation in agriculture, market infrastructure development and agro-industries". "As per the concept of public-private partnership, a policy will be adopted to encourage private sector in the expansion of technology and seeds under agriculture extension programme". Then, there will be interest subsidy in tea farming, floriculture and milk chilling centres. The "One-Village-One-Product" programme "under public-private partnership will be initiated to increase production of commodities, which have adequate export potentials in foreign countries". "Assistance will be provided for improved seeds, fertilisers and technology to jute producing farmers". And the clincher - "concessional credit facility will be provided to the landless people for the purchase of land".

Thus, the government will alleviate rural poverty, to ensure food security and implement land reforms. Market is the magic wand. What if there is no food, no land? Market will resolve everything.

Is it too demanding to realise the implications of these budgetary provisions? Where do they locate rural Nepal and its toiling masses in the global agro-industrial complex by excessive commodification of their lives? They are milled into "a new division of labour in agriculture", where "the centre has specialised in capital-intensive production of grains and dumped them in the periphery, while peripheral states have battled for saturated markets for traditional exports, or have discovered 'comparative advantage' in various 'non-traditional' goods and land uses, namely 'exotic' fruits, cut flowers and vegetable, as well as ostrich husbandry and 'wildlife' management (ecotourism). In turn, all of these have been biased towards large-scale landholding, controlled by corporate capital, and destined for luxury peripheral and metropolitan consumption."(Sam Moyo and Paris Yeros (ed), Reclaiming the Land: The Resurgence of Rural Movements in Africa, Asia and Latin America, Zed Books, London, 2005, p.18)

In the industrial sector too, Mahat has all his recipes ready for resolving industrial difficulties. He dips straight into undergrad textbooks on Economics to derive his recipes. For private sector there is a development and rehabilitation programme. "An Industrial Rehabilitation Fund will be established with the participation of the government, central bank, financial institutions and interested industrialists and entrepreneurs in order to rehabilitate the conflict-affected sick industries". There will be a new labour law too, amenable to the needs of new industries, special economic zones and export processing zones.

This means the institutionalisation of the already informal labour market with no security for the workers. And, if these workers organise themselves and agitate, they will be accused of serving "the narrow interests of a small group", as World Bank Country Director Ken Ohashi (“Seizing the open moment”, Nepali Times, 7-13 July 2006, p. 4) puts in an article published on the eve of the budget submission, since "peace, social and political inclusiveness, and economic growth" can be attained only if energy is directed "away from self interests to a collective purpose". Strikingly, it seems either Mahat has literally lifted phrases from this article, or else the budget was drafted in the WB's office. He too pleads for "a balance between the collective wishes and collective means".

It is not very hard to identify the nature of this collectivity. In a class-divided society, the hegemonic collectivity is that of the ruling class, and the State is a definite instrument to serve its purpose. Hence, to meet this 'collective purpose', the Koirala government has everything to offer to their rich protégé-protectors, even a complete tax holiday for the newly-established industries in 22 remote districts for ten years. But for the same 'collective purpose', the workers and poor peasantry must understand that all "goals cannot possibly be met by this budget" (Ohashi) and that "the state does not have adequate resources to immediately fulfill unlimited needs of the people" (Mahat).

All this should definitely encourage foreign investors and their local agencies, but Mahat draws something more from the free market of ideas. This time around he desires to satiate the swadeshi and patriotic spirit. For this, he has a Swadeshi Jutta (national shoe) formula: "In order to promote the domestic production, the existing legal provision to purchase the domestic products by the government agencies even in cases where such goods are costlier by 10 percent than the foreign products will be implemented strictly. It is believed that the use of indigenous shoes and clothes by agencies like Nepal Army, Armed Police and Nepal Police under this program will encourage the domestic industries to a great extent."

While all these development and rehabilitation programmes will be implemented to boost the private sector, the classical medicine is in store for "public enterprises": Liquidation. It is not very difficult for even a newspaper-reading or TV-watching layperson to decipher the neoliberal ideological character of these budgetary measures, squeezed between the wordy paragraphs on "inclusive society and economy" and poverty-alleviation rhetoric.

The Nepali leadership, which has been historically compliant to the needs of the global masters, literally as their security guards, has never found neoliberal lessons very difficult to learn. Like in other countries, Nepal's balance of payments crisis in 1982-85 gave the country's leadership the classical rationale to ride the IMF/WB led neoliberal wave. Thus, they negotiated "a standby credit arrangement with the IMF. Accordingly, Nepal implemented an economic stabilisation programme in 1984/85. This was followed by the Structural Adjustment programme of IMF and the World Bank in 1986/87". ("Understanding Reforms in Nepal", Institute for Policy Research and Development, 2005). The political economy of Nepal, which had been a guinea pig in the hands of international finance capital for testing strategic panaceas, was once again brought to the operating table for yet another surgery. When the side effects started showing up in the shape of the democratic uprising, a patchwork was arranged in 1990.

The 1990 political arrangement broadened the experience and reach of this leadership in renting out the local natural and human resources for the benefits of the global machinery of capitalism. The localised elements of the ruling class that were nurtured by the aid regime and extensive commercialisation of the economy were brought into the fold of the State power. The limited democratic "political competition" established in 1990 provided a mechanism to attune the composition of the State to the changes in the ruling class composition. It was visualised that formal democracy would reduce all inter- and intra-class conflicts to competition between lobbies and dissipate any fundamental challenge to the economic structure, while the process of neoliberalism intensified.

The standard remedy in neo-classical bourgeois economics for any crisis due to marketisation is more marketisation with peripheral superstructural arrangements. Thus in Nepal too, "Economic liberalisation and privatisation policies were intensified from 1992 onward with the implementation of the Enhanced Structural Adjustment Facility (ESAF) programme. Given the open border and special trade relations with the southern neighbour, the speed and direction of reforms were also affected by the reform drive pursued in India. Since then reforms have either been continued or deepened in the modern economic sphere of trade, industry, finance, exchange rate, and monetary and fiscal policies. As a result, Nepal now stands as one of the most liberalised and open economies in the South Asian region" (ibid). A least developed country has been blessed by the most liberalised economy in the region; such is the endowment of neoliberalism.

This reckless and continuous compliance to the needs of global capitalist accumulation and its political regime nurtured radicalism in the consciousness of the Nepali downtrodden. Before 1984, this was spontaneous and sporadic. Under neoliberalism, it became general and organised, reaching its zenith in the form of Nepali Maoism. In 1990, it was thought that electoral games and formal democracy will keep this radicalism at bay and the Nepali downtrodden playful. On the contrary, it helped in rooting out the local elements of the Nepali ruling classes and neo-rich, revelling in their newfound proximity to Kathmandu and royal institutions. Thus the prism of caste, ethnic and local consciousness that inverted the reality and united the downtrodden with their oppressors was shattered.

As wealth and growth concentrated in few urban areas in a few hands close to power, close to local political linkages of international investment and finance, the rural-urban divide sharpened. There was an unprecedented intensification in vertical and horizontal inequalities leading to the unity of class war and autonomous identity movements under People's War. The rural poor and migrant workers united with all the other marginalised forces to challenge the basic structure.

The alternative that emerged in the Maoist practice sought for "land to the tillers", endogenous development geared towards the popular need and political institutions best suited to facilitate such development. The energy that this practice unleashed rocked the fragile 1990 arrangement despite the consistent neoliberal pursuit by all the governments that were formed thereafter. However, there could never be a clear unity within the political elite due to increased competition for commissions in administering the aid regime and proximity to global and regional players. At the wake of the parallel governments under the Maoists, this competition was further accentuated as the formal structure's reach of influence narrowed spatially. This overcrowding wrecked the political arrangement that was inaugurated with so much fanfare with the blessings of the global powers. This led to the royal regression, while the democrats for the first time had the time to listen to the radical voices outside the parliament, and thereby allied with the Maoists.

The Koirala government formed after the reinstatement of Parliament in Nepal was, however, quick to realise the significance of the depoliticisation of the economic in order to sustain the Nepali State's role as the local agency for global and regional capital. Negotiations with the Maoists are making the international forces, especially India and the US, increasingly nervous. The rushed visit to India and Mahat's presentation before Indian capitalists was to assure Indian and other 'donors' that they have not deviated from the neoliberal path. The act of presenting the budget without consulting the Maoists is part of this design. What else could be the reason to overload any future regime with so many prior obligations, but to reassure the supremacy of global capitalist interests after the post-April fluidity?

This brings us to another neoliberal ideological element, which is subtly evident in Mahat's statement quoted in the first section, where he seeks to pose democracy as the end not the means to attain economic development. This is intrinsically part of the same project of depoliticisation of the economic. If democracy is the end, you do not need to practise democracy in deciding and pursuing the course of economic development. On the contrary, the elite push for liberalisation will itself engender democracy. So wait and suffer!

Of course, this is the ideal of bourgeois democracy: a system of elite decision and public ratification, as Chomsky defines it. But did Nepali people really come on the streets and suffer bullets for this brand of democracy? Royal regression can go, but the Nepali leadership continues to serve the neo-liberal counter-revolution, that leaves the lives of the labouring majority at the mercy of the ups and downs of the globalising market.

Under the neoliberal regime, capital effectively dodges every regulation and controls politics by threatening to fly away in the wake of any uncomfortable circumstances, while the political elite rationalises its anti-labour policies in the name of making the environment investment-friendly. In the name of removing market imperfections caused by "extra-economic" factors, a new authoritarianism is perpetuated, which Venezuelan Vice-President Jose Vicente Rangel calls, "economic authoritarianism". This renders the democratic control over human and natural resources impossible, while it instrumentalises the state in favour of the hegemonic market interests. As Rangel further says in his address to the 13th Meeting of the Latin American Economic System (SELA) Council in 2003, "Authoritarianism that is dressed in democratic forms is difficult to fight. The neoliberal model and economic decisions, which sustain and reproduce it, need a democratic façade to feign legitimacy." Hence, the fetish of elections, as "the beginning and the end of democracy", while economic authoritarianism continues.

(This is a slightly modified version of the article originally published in Combat Law, September-October, 2006)