If observers have been concerned about the squabbling parties and the resultant political downturn in Nepal, take a look at its economy. With the financial year coming to a close on 15 July, and the yearly ritual of the budget presentation during the upcoming monsoon session of Parliament, it is time to take stock. And the news is that the economy is in deep crisis. As far as the monetary and fiscal situation is concerned, there are three things to be worried about. One, the budget deficit has been contained by reducing expenditure rather than by increasing revenue. Two, inflation has been ´contained´, not through the implementation of sound policies, but by creative accounting. Lastly, with the Indian Rupee moving robustly towards convertibility, the Nepali Rupee is all set to be "found out" and ratcheted down a notch or two.
But more on that later. The economic downturn is all around for Nepali citizens to see, and no expert analyst is required to point it out. All along the Tarai, the industries are closed or functioning at extreme undercapacity, hit by low demand (people do not have money to buy). This is across the board, for rice and flour mills, textile factories and breweries. In fact, one reason the country as a whole is not facing grievous power outages despite the closure of the Kulekhani power project, which supplies nearly half of the country´s electricity, is because the mothballed factories are not making demands on the national grid.
In Kathmandu Valley, whose real estate market till a couple of years ago reminded one of boomtime Manhattan, even speculators are not buying property, construction has come to a halt, and to-let signs abound in every lane and neighbourhood. Foreign aid receipts, on which the Finance Ministry as well as Kathmandu´s rentier classes have long relied, are down drastically.
The budget deficit for the last nine months was NPR 3.5 billion against the year´s projected deficit of NPR 17 billion, which in itself does not look bad and the year should end with a deficit of NPR 5-6 billion. Unfortunately, this has not been achieved due to any great show of fiscal discipline on the part of the previous and present governments, but it merely reflects lower spending. Revenues have been low at NPR 20 billion in the last nine months, which is only half the year´s target set for the year.