Globalization-Free Trade- Globalization-Free Trade- WTO Policies and its WTO Policies and its

impact on Nepal impact on Nepal CI-Avaniendra Chakravartty

Nepal’s international relations Nepal’s international relations studied in 3 periodsstudied in 3 periods

First- time of unification in 1796 to 1846 First- time of unification in 1796 to 1846 (beginning of Rana rule)(beginning of Rana rule)

Second is the Rana rule to 1951. Second is the Rana rule to 1951. Third is 1951- 2007. ( In most literature Third is 1951- 2007. ( In most literature

this period is still continuing) I think a this period is still continuing) I think a Radical party (Radical party (at least in ideologyat least in ideology) ) coming in to power it self is the coming in to power it self is the beginning of a new era. beginning of a new era.

Reasons- Dynasty politics, End of Reasons- Dynasty politics, End of centralization. centralization.

The Genesis of the Gurkhas – Colonialism The Genesis of the Gurkhas – Colonialism affects the hillsaffects the hills

1772 when economically highly 1772 when economically highly prosperous but militarily weak sought prosperous but militarily weak sought help from the British when it was seized help from the British when it was seized by Gorkha. by Gorkha.

Blocked the Indo-Tibet trade. ( the british Blocked the Indo-Tibet trade. ( the british wanted a share)wanted a share)

The East Indian Company forces lost The East Indian Company forces lost badly.badly.

Permission for recruiting Nepalis in Permission for recruiting Nepalis in 1885 into the British army1885 into the British army

Three battalions of Nepal's recruit in 1816. Three battalions of Nepal's recruit in 1816. Between 1904-08 , 20 battalions. Between 1904-08 , 20 battalions.

(Approximately 27,000 soldiers)(Approximately 27,000 soldiers) During the 1During the 1stst and 2 and 2ndnd World War about World War about

200,000 roughly 20% of the population (male 200,000 roughly 20% of the population (male adult pop) engaged. adult pop) engaged.

It is the employers of the soldiers who sustain It is the employers of the soldiers who sustain the glorification of war and war heroes but the glorification of war and war heroes but never enter the fray. Development of never enter the fray. Development of capitalism has been sustained with the capitalism has been sustained with the militarization of men from the periphery to militarization of men from the periphery to defend the centredefend the centre

THE NEW PUSH FOR PRIVATIZATIONTHE NEW PUSH FOR PRIVATIZATION

The new push comes from The new push comes from Large business Large business houseshouses in Nepal and the in Nepal and the Global Capitalist Global Capitalist states and financial organizationsstates and financial organizations (W.B, ADB). (W.B, ADB).

Two successive finance ministers, Two successive finance ministers, (P.C.Lohani, (P.C.Lohani, B.B.Pradhan)B.B.Pradhan) made high pitched exhortations made high pitched exhortations in favour of privatization. in favour of privatization.

In spite of the role of the state as the final In spite of the role of the state as the final enforcer the state remains the weakest enforcer the state remains the weakest partner in the push for privatization. partner in the push for privatization.

(consult notes page)(consult notes page)

REVIIEW OFF LIITERATUR E ON THE PERFFORMANCE OFF REVIIEW OFF LIITERATUR E ON THE PERFFORMANCE OFF NEPPALESS E ECONOMYNEPPALESS E ECONOMY

Institutional studiesInstitutional studies1.1. Asian Development Bank studies.Asian Development Bank studies. Report identifies some Report identifies some positive aspectspositive aspects like like

rising GDP growth, increasing saving rate with rising GDP growth, increasing saving rate with manageable inflation rate during the yearmanageable inflation rate during the year 2001. 2001. But despite these positive signs, limited growth But despite these positive signs, limited growth in private sector investment, growing security in private sector investment, growing security expenditures and weak governance are expenditures and weak governance are identified as key issues to be addressed to identified as key issues to be addressed to accelerate economic growth.accelerate economic growth.

World Bank’s StudiesWorld Bank’s Studiesa) Economic Update 2002a) Economic Update 2002

Growth of the non-agricultural sectorGrowth of the non-agricultural sector accelerated remarkably during 1990s due accelerated remarkably during 1990s due to the economic liberalization and to the economic liberalization and stability. stability. Economic liberalization in early Economic liberalization in early 1990s and successful stabilization of the 1990s and successful stabilization of the economy in mid 1990s helped to create a economy in mid 1990s helped to create a favourable environment in the Nepalese favourable environment in the Nepalese economy. economy.

World Bank’s StudiesWorld Bank’s Studiesa) Economic Update 2002a) Economic Update 2002

The The private response in the non-private response in the non-agriculture sector was widespread;agriculture sector was widespread; industry grew by 8% per year, the industry grew by 8% per year, the manufacturing sector over by 10% and manufacturing sector over by 10% and service sector by over 7%. The rapid service sector by over 7%. The rapid manufacturing growth was manufacturing growth was primarily primarily exportableexportable, but , but supplemented by growth supplemented by growth in utility sector as new power sources like in utility sector as new power sources like Khimti and PuwakholaKhimti and Puwakhola increased power increased power production capacity by 25% towards the production capacity by 25% towards the end of the decade.end of the decade.

UNDP’s Report on Nepal Human UNDP’s Report on Nepal Human Development 2001Development 2001

Over the last 20 years, Nepal’s annual economic Over the last 20 years, Nepal’s annual economic growth rate has averaged about 5%. Although this growth rate has averaged about 5%. Although this is not spectacular, especially in comparison to the is not spectacular, especially in comparison to the growth of East Asian countries, it is not very low growth of East Asian countries, it is not very low either. either.

A close look into the components of economic A close look into the components of economic growth reveals that growth reveals that Nepal’s overall growth has Nepal’s overall growth has derived largely from the growth of the non-derived largely from the growth of the non-agricultural sector which now contributes about agricultural sector which now contributes about 60% of GDP.60% of GDP. This has transformed the economy’s This has transformed the economy’s structure However, the structure However, the structure of employment structure of employment has not changed accordinglyhas not changed accordingly..

About About 78.1% of the Nepalese 78.1% of the Nepalese workforce still work in the workforce still work in the agricultural sectoragricultural sector. Consequently, . Consequently, the the income distribution has become far income distribution has become far more uneven, with severe impacts more uneven, with severe impacts on those whose livelihood depends on those whose livelihood depends on the land, rivers and forestson the land, rivers and forests. .

The poverty is endemic in the rural The poverty is endemic in the rural areas, which raises the question of areas, which raises the question of how pro-poor the country’s economic how pro-poor the country’s economic policies and growth have been?policies and growth have been?

Individual Studies ssIndividual Studies ssStudy done by Prenushi for the World Bank (1998) Study done by Prenushi for the World Bank (1998)

has shown that significant gains in poverty has shown that significant gains in poverty reduction by 20% of poor people over the next reduction by 20% of poor people over the next ten years are achievable.ten years are achievable.

Priority to invest on irrigation, rural electrification, Priority to invest on irrigation, rural electrification, rural roads, increased supply ofrural roads, increased supply of fertilizers fertilizers and and strengthened agricultural research geared to strengthened agricultural research geared to generate appropriate technologies, generate appropriate technologies, promotion of promotion of high value crops,high value crops, livestock development, livestock development, improvement of agro-business and forestry. improvement of agro-business and forestry.

The government has removed subsidy in The government has removed subsidy in fertilizers, and the private sector has been given fertilizers, and the private sector has been given permission to import and distribute fertilizer.permission to import and distribute fertilizer.

The report shows that the The report shows that the poor have poor have lower agricultural productivity lower agricultural productivity because they have marginal farm because they have marginal farm land, have limited access to modern land, have limited access to modern inputs and technology, and are inputs and technology, and are illiterate.illiterate.

Acharya (1999)Acharya (1999)

Globalization in Nepal has disrupted traditional Globalization in Nepal has disrupted traditional livelihoodlivelihood

patterns of rural poor in Nepal. patterns of rural poor in Nepal. She emphasis that “The globalization process in Nepal She emphasis that “The globalization process in Nepal

is rather a process of deeper and still deeper is rather a process of deeper and still deeper penetration of the Nepalese market by the Indian penetration of the Nepalese market by the Indian capital and labourcapital and labour with very little gains for the mass with very little gains for the mass of the population.of the population.

A minority has benefited and income inequalities have A minority has benefited and income inequalities have increased, tearing the existing social fabric, which increased, tearing the existing social fabric, which may lead to explosive political situation. may lead to explosive political situation.

One indicator of such ferment is the Maoist problem One indicator of such ferment is the Maoist problem spiralling into higher and higher levels of violence, spiralling into higher and higher levels of violence, both from the government and insurgents’ sides”.both from the government and insurgents’ sides”.

Sapkota (2002)Sapkota (2002) His study on His study on Trade Liberalization and Trade Liberalization and

Poverty in Nepal:Poverty in Nepal:AnAn Applied General Applied General Equilibrium AnalysisEquilibrium Analysis has used the has used the computable general equilibrium computable general equilibrium modeling system to understand modeling system to understand functioning of market economy in a functioning of market economy in a deep manner and present the facts deep manner and present the facts of the policy outcome. The of the policy outcome. The findings findings show that urban households have show that urban households have more benefited from the liberal more benefited from the liberal market economy than the rural one.market economy than the rural one.

Understanding of the Concept of Understanding of the Concept of Globalization in NepalGlobalization in Nepal

In Nepal, the policy makers, academia and other people In Nepal, the policy makers, academia and other people from different walks of life have understood the from different walks of life have understood the globalization as a means of bringing changes in the globalization as a means of bringing changes in the national economic activities through the adoption of national economic activities through the adoption of liberal economic policyliberal economic policy. .

Globalization is the process through which national Globalization is the process through which national economies in different part of the world are integrated. economies in different part of the world are integrated.

In fact, the In fact, the globalization process was initiated by the globalization process was initiated by the developed world with the support of multinational developed world with the support of multinational organizations The multinational organizations are organizations The multinational organizations are motivated to promote the globalization process because motivated to promote the globalization process because of technological developments, wider trade and of technological developments, wider trade and investment, and the changing production, organizational investment, and the changing production, organizational and marketing strategies promoted by them.and marketing strategies promoted by them.

The pace and depth of globalizationThe pace and depth of globalizationdiffer across countries and regions, but the main economic differ across countries and regions, but the main economic

aspects of the process are essentiallyaspects of the process are essentiallythe same. It takes into account the following elements:the same. It takes into account the following elements:

Free movements of goods and servicesFree movements of goods and services

· Free movement of capital· Free movement of capital

Subcontracting of activities by Subcontracting of activities by companies, greater specialization and new companies, greater specialization and new forms of work organization.forms of work organization.

Increase in the degree of opennessIncrease in the degree of openness

Its supporters advocate that it Its supporters advocate that it will bring the following resultswill bring the following results::

Openness will create Openness will create opportunities for opportunities for jobsjobs. Jobs are being created as . Jobs are being created as business business opportunity increases with the reduction of opportunity increases with the reduction of trade barrierstrade barriers and the decentralization of and the decentralization of production to take advantage of benefits production to take advantage of benefits specific to the location of their facilities.specific to the location of their facilities.

Promotes Promotes efficient allocation of resourcesefficient allocation of resources Promotes Promotes equitable distribution of incomeequitable distribution of income Promotes Promotes macroeconomic stability in the macroeconomic stability in the

developing countriesdeveloping countries

Views of the Critics:Views of the Critics:

Globalization will not create Globalization will not create opportunities, rather it will limit the opportunities, rather it will limit the possibilities for the weakpossibilities for the weak

Large scale business houses influence Large scale business houses influence the use of resourcesthe use of resources

Inequality in the distribution of income Inequality in the distribution of income and wealth; rich getting richer and the and wealth; rich getting richer and the poor not improving themselvespoor not improving themselves

On the whole, job opportunities for On the whole, job opportunities for women in high-growth sectors women in high-growth sectors remain limited, mainly because of remain limited, mainly because of the lack of their required skills.the lack of their required skills.

· Greater specialization and · Greater specialization and widespread application of advanced widespread application of advanced technologies havetechnologies have

stimulated a rise in demand for stimulated a rise in demand for skilled labour in fields, like skilled labour in fields, like information technology (IT),information technology (IT),

specialized financial and other specialized financial and other business services etc.business services etc.

Technological change and specialized Technological change and specialized production strategies tend to production strategies tend to favor skilled and favor skilled and well educated workers – a category in which well educated workers – a category in which women are severely under-representedwomen are severely under-represented. In . In Nepal, this is more prominent. Nepal, this is more prominent. Women are in Women are in jobs which are more likely to be jobs which are more likely to be subcontracted, relocated abroad or eliminated subcontracted, relocated abroad or eliminated by labour-saving technologiesby labour-saving technologies

The The traditional gender disparities in wages traditional gender disparities in wages appear to be wideningappear to be widening. The cumulative effects . The cumulative effects of persistent discriminatory practices may of persistent discriminatory practices may explain this, explain this, a deepening polarization of a deepening polarization of skilled and unskilled labour with women being skilled and unskilled labour with women being caught in a “low-skilled/low-paid job trap”.caught in a “low-skilled/low-paid job trap”.

Macroeconomic TrendsMacroeconomic Trends Analysis of the GDP growth trend during 1980s Analysis of the GDP growth trend during 1980s

and 1990s indicates and 1990s indicates that real GDP growth during that real GDP growth during 1990s was little bit higher than during 1980s1990s was little bit higher than during 1980s. . After liberalization, the GDP growth rate has After liberalization, the GDP growth rate has averaged around averaged around 4.4% per annum as compared 4.4% per annum as compared to 4.2% per annum before liberalization.to 4.2% per annum before liberalization.

The GDP growth in the pre-liberalization period The GDP growth in the pre-liberalization period was erratic. Negative growth was observed in was erratic. Negative growth was observed in 1982/83 and1982/83 and

low growth was observed in 1986/87. low growth was observed in 1986/87. The GDP The GDP growth in the first half of the post liberalization growth in the first half of the post liberalization period was much higher at around 4.86%.period was much higher at around 4.86%.

The The agriculture sector recorded negative growth agriculture sector recorded negative growth in 1991/92, 1992/93 and 1994/95 but the overall in 1991/92, 1992/93 and 1994/95 but the overall growth remained positivegrowth remained positive due to high growth in due to high growth in the non-agriculture sector.the non-agriculture sector.

Public ExpenditurePublic Expenditure There has been a There has been a relative decline in the relative decline in the

growth rate of public expenditure during growth rate of public expenditure during the liberalization period as compared to the liberalization period as compared to the pre-liberalization period.the pre-liberalization period. Public Public expenditure grew up at an average expenditure grew up at an average rate rate of 18.2 %of 18.2 % during the pre-liberalization during the pre-liberalization period.period.

During the liberalization period, public During the liberalization period, public expenditure grew up by 13.3% per-expenditure grew up by 13.3% per-annum on an average. annum on an average.

Trends of Public Expenditure (in percent)Trends of Public Expenditure (in percent)

Agriculture Sector ReformAgriculture Sector Reform

Adoption of a 20 year Agriculture Perspective Adoption of a 20 year Agriculture Perspective Plan (APP) in FY 1997/98 as a long-term Plan (APP) in FY 1997/98 as a long-term approach to accelerate agricultural growth approach to accelerate agricultural growth and reduce poverty. and reduce poverty. APP has given priority to APP has given priority to invest on irrigation, rural electrification, rural invest on irrigation, rural electrification, rural roads, increased supply of fertilizers and roads, increased supply of fertilizers and strengthened agricultural research geared to strengthened agricultural research geared to generate appropriate technologies, promotion generate appropriate technologies, promotion of high value crops, livestock development, of high value crops, livestock development, improvement of agro-business and forestryimprovement of agro-business and forestry. . The government has removed subsidy in The government has removed subsidy in fertilizers, and the private sector has been fertilizers, and the private sector has been given permission to import and distribute given permission to import and distribute fertilizer.fertilizer.

EXTERNAL AID AND DONORSSEXTERNAL AID AND DONORSS Foreign assistance in both bilateral and Foreign assistance in both bilateral and

multilateral forms represents the major multilateral forms represents the major chunk of fund for the developmental chunk of fund for the developmental activities in Nepal. There are activities in Nepal. There are three kinds of three kinds of donors who are contributing for the donors who are contributing for the development of Nepaldevelopment of Nepal during last 50 during last 50 years.years.

a. Bilateral Donorsa. Bilateral Donorsb. Multilateral Donors (interest charged)b. Multilateral Donors (interest charged)c. International Non-Governmental c. International Non-Governmental

Organization (INGOs)Organization (INGOs) Consult notesConsult notes

According to UNDP, the technical assistance was about 40% of the total foreign aid inAccording to UNDP, the technical assistance was about 40% of the total foreign aid in1999 (UNDP, 2000). The 1999 (UNDP, 2000). The Table Table the trend of foreign aid in Nepal during last 10 years.the trend of foreign aid in Nepal during last 10 years.

Source: Economic Survey, 2002/03, HMG, NepalSource: Economic Survey, 2002/03, HMG, Nepal

The systematic figure of foreign aid is The systematic figure of foreign aid is not available in Nepal.not available in Nepal.

There are two main sources ofThere are two main sources offoreign aid data Ministry of Finance and foreign aid data Ministry of Finance and

UNDPUNDP..However, the data from these two sources areHowever, the data from these two sources arenot comparable since the methodology is not comparable since the methodology is

different. UNDP collects the data directly different. UNDP collects the data directly from the donors, while GOVT/NEPAL publishes from the donors, while GOVT/NEPAL publishes the aid data available from its official records. the aid data available from its official records. The aid from INGO and technical assistance The aid from INGO and technical assistance from the donor is not available in official from the donor is not available in official record of GOVT/NEPAL. Since UNDP collects record of GOVT/NEPAL. Since UNDP collects data directly from donor, it includes the aid data directly from donor, it includes the aid figure of INGO and technical assistance.figure of INGO and technical assistance.

THE EXTERNAL DEB TTHE EXTERNAL DEB T The debt is important component in The debt is important component in

Nepalese economy. It helps to cover Nepalese economy. It helps to cover nearly one third of the total nearly one third of the total government budget. It is seen government budget. It is seen growing every year.growing every year.

The debt is growing in Nepal. The share of The debt is growing in Nepal. The share of government borrowing is most dominating government borrowing is most dominating one with very tiny share of private one with very tiny share of private borrowing. There was a rapid rise in share borrowing. There was a rapid rise in share of debt to GDP during the post liberalization of debt to GDP during the post liberalization period. It constituted about 44% of the GDP period. It constituted about 44% of the GDP in 1999/2000, while in 1988/89, it was only in 1999/2000, while in 1988/89, it was only 24.8% of GDP. Due to rising debt service, 24.8% of GDP. Due to rising debt service, about one third of regular budget was about one third of regular budget was utilized for debt servicingutilized for debt servicing

In conlusionIn conlusion What do you all think is the WB and WTO What do you all think is the WB and WTO

prescription right?prescription right? Are we really towards free and fair trade?Are we really towards free and fair trade? Why cash crops for export when people Why cash crops for export when people

here don’t have enough to eat?here don’t have enough to eat? Why debt servicing is not being cancelled?Why debt servicing is not being cancelled? Who had taken the debt? Where has it Who had taken the debt? Where has it

gone?gone?