| October 25, 2020

Price of inaction

Uncontrolled inflation

It was a surprise. Nepal Rastra Bank on Sunday said that inflation in the first half of the current fiscal year (2015/16) had climbed to a worrying 12.1 percent, in comparison to 6.8 percent in the corresponding period last year. The country that was under a crippling economic embargo for over four months was bound to see prices rise. What is surprising is that the level inflation was not higher. At the height of the crisis petrol and diesel were being sold in the black market at four to five times the official rate; the same with cooking gas, all of which is imported from India. Edibles like rice, lentil, salt, sugar and other daily necessities also became many times more expensive almost overnight. So how can inflation be only 12.1 percent, people are asking? Since the central bank relies on a narrow band of goods to come up with its Consumer Price Index (CPI), on the basis of which overall inflation is calculated, and given the government's need to keep a lid on public panic, we wouldn't be surprised if the central bank's latest figures are gross underestimates.
Yet they do hint at the headwinds that our national economy is facing. Two months ago, the bank had warned that the prolonged political crisis could lead to stagflation (the double-whammy of slow economic growth and rising prices). Thankfully, the blockade has now been lifted and the country, according to the bank, can expect "economic activities to rebound," "industrial production to pick up" and "the tourism sector to rise slowly." It expects normalization of trade with India and with it reduction in inflationary pressures on the Nepali economy. Alas, we cannot be as optimistic. It is true that India inflicted great hardship on Nepali people. Since vital goods were not coming, there were severe shortages in Nepali markets, which in turn contributed to runaway inflation. But at least part of this pain was self-inflicted as our own government could not control open smuggling and black marketing of fuel. It was also far too tardy in asking China for help. Most depressing was to see the government—first under Sushil Koirala and then under KP Sharma Oli—totally unconcerned about the increasing hardships of common folks.

Now the blockade has been lifted, our political leadership would have us believe that everything will again be hunky-dory. But how can restoring the state of Nepal's near total dependency on India be something to celebrate? Why have there been no initiatives over the past five months to diversify Nepal's trade away from India? Alternately, what has the Oli government done to take the protesting Madheshi parties into confidence and to ensure that India in the future does not find another excuse to impose such a blockade? It's not a question of Nepal acting out of spite against India; it's a matter of our national interest. Now that we have a constitution, time has come for the country to embark on the path of sustained economic growth, which is not possible unless Nepal can leverage its geopolitics—the country placed just so between two of the biggest and fastest growing economies in the world—to its benefit. This will be astute diplomacy; it will be sound economics, too.

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