FB   
 
Powered bysps
        Society for Policy Studies
 
 

 
Building blocks
Posted:Jan 3, 2018
 
Print
Share
  
increase Font size decrease Font size
 
Nepali economy has entered 2018 in better health. Nepal’s economic growth rate topped a 23-year high of 6.9 percent in the fiscal year 2017, inflation stood at 3.9 percent in November (the latest data available), and foreign exchange reserves have adequate funds to finance merchandise imports of up to 13.5 months.
 
The challenge now is to build on these achievements. This can, however, be difficult in 2018 as the country has just started experimenting with fiscal federalism.
 
With the implementation of fiscal federalism, the central government must share a certain portion of income generated from value added tax (VAT), excise duty levied on domestic products and royalties generated from the use of natural resources with the newly-formed provinces, and local bodies. In the federal set-up, the central government will also be barred from collecting land registration and vehicle taxes.
 
The reduction in revenue source, coupled with sharing of income generated from VAT, excise duties and royalties, is likely to reduce the central government’s revenue growth rate to 3.7 percent in the next fiscal year from annual average growth rate of 22 percent in the last one decade. This is expected to create a shortage of funds for the central government, hitting the construction of big-ticket infrastructure projects, the higher education sector and the delivery of other services.
 
This calls for the need to: expand the tax net, especially that of VAT, which has not been implemented properly; curb smuggling and under-invoicing so as to maximise revenue collection; and find alternative income sources. In other words, the government must focus on increasing revenue collection to sustain fiscal federalism, under which the central government will not only be obliged to share its income with sub-national governments but extend grants to them as well.
 
One precondition to high public revenue is high economic growth. Once growth picks up revenue generation will automatically go up in Nepal because tax buoyancy in the country is quite high. The buoyancy of taxes collected by the central government jumped from 1.3 in fiscal year 2013-14 to around 2.2 in 2016-17. This means 1 percent nominal GDP growth led to 1.3 percent hike in revenue collection in 2013-14 and 2.2 percent hike in revenue collection in 2017-18.
 
To grease the wheels of economic development, the government, in the initial phase, must focus on completing all national pride projects—an inventory of 21 projects, which includes mega schemes on highway, railway, irrigation, hydroelectricity, airport and drinking water. Completion of these projects would narrow down the infrastructure gap, which is one of the biggest binding constraints for Nepal’s rapid growth. Also, introduction of Foreign Investment and Technology Transfer Bill, Commercial Agriculture Bill and Public Private Partnership Bill—drafts of which have been prepared—can help a lot in making structural reforms. If the new government focuses on these areas in 2018, a solid groundwork can be laid for rapid economic growth in the coming years.
 
 
 
 
 
Print
Share
  
increase Font size decrease Font size
 

Disclaimer: South Asia Monitor does not accept responsibility for the views or ideology expressed in any article, signed or unsigned, which appears on its site. What it does accept is responsibility for giving it a chance to appear and enter the public discourse.
Comments (Total Comments 0) Post Comments Post Comment
Review
 
 
 
 
spotlight image Thailand will be the coordinating country for India within ASEAN from July. In an exclusive interview with INDIA REVIEW & ANALYSIS, the fortnightly journal of the Society for Policy Studies (SPS),  Thailand’s Ambassador to India, Chutintorn Gongsakdi, gave a comprehensive view of bilateral relations and
 
read-more
The struggle for autonomy has been going on within the Indian Institutes of Management (IIMs) from their inception, writes P.D. Rai
 
read-more
As India and the 10-nation ASEAN bloc culminate the commemoration of 25 years of their dialogue partnership with a summit in New Delhi January 25 that all the leaders will attend, India is laying out the crimson carpet to ensure that the first ever Republic Day celebrations at which 10 ASEAN leaders will be Chief Guests, jointly, is a
 
read-more
The United Nations Security Council concluded a fact-finding mission to Afghanistan in a show of support for the war-torn nation where it denounced the activities of terrorists there, the UN Assistance Mission in Afghanistan (UNAMA) announced Monday.
 
read-more
While appreciating the remarkable turnaround by Indian exports during November 2017, Anil Khaitan, President, PHD Chamber of Commerce and Industry said that India has seen a major breakthrough in its exports to China during last few months whereas the surge in imports for Chinese products in Indian market is on deceleration.
 
read-more
“We have a very solid commitment to climate action,” he said. “We cannot be defeated by climate change and we are not yet winning this battle” and the biggest victims of climate change are the developing countries that are members of the Group of 77 (G77).
 
read-more
In a bid to promote trilateral innovation and business opportunities between the US, India, and Israel, Israel-India Technology Group has launched a trilateral fund of $50 million. "We ar...
 
read-more
Column-image

Title: Salafi-Jihadism -The History of an Idea; Author: Shiraz Maher; Publisher: Penguin Random House UK: Pages: 292; Price: Rs 499

 
Column-image

A Review of Anatomy of Failure by Harlan K. Ullman (Naval Institute Press, 242 pages)

 
Column-image

Title: The Beckoning Isle; Author: Abhay Narayan Sapru; Publisher: Wisdom Tree; Pages: 157; Price: Rs 245

 
Column-image

Title: India Now And In Transition; Editor: Atul Thakur ; Publisher: Niyogi Books: Pages: 448; Price: Rs 599

 
Column-image

Title: The Power Paradox; Author: Dacher Keltner; Publisher: Penguin Random House UK: Pages: 208; Price: Rs 499