Limited Government and Maximum Governance

The development activities were carried out relatively rapidly during the three-decade Panchayat although the country was ruled under single party system. A lot of infrastructural developments took place then. The roads of Nepal, Mahendra Highway, Arniko Highway (that connects Nepal with China), Tribhuvan Highway, Kulekhani Hydropower Project (the only one storage type project in Nepal), were built during the same period. Institutions such as Nepal Electricity Authority (NEA), Nepal Telecommunication Corporation, Nepal Drinking Water Corporation, and Nepal Airline Corporation (NAC) which were very essential for providing electricity, communication, water and air services to the people were created during the direct regime of the King which lasted till 1990. The development process is similar in other countries as economic development is initiated with the involvement of government intervention.

However, the involvement of government is not a sufficient condition for bringing prosperity at every nook and corner of the country because it monopolizes resources available and, hence, looses the incentive to utilize these resources efficiently in the absence of active participation of private sectors, which is quick in decision-making and following innovative practices. This is very true in case of Nepal as well as evinced by several examples in service and production sectors.

The generation of electricity has increased after deregulating energy sector by bringing Electricity Act in 1992. Private initiatives have already contributed to adding more than 237 MW of electricity to the national grid. Currently, around 44 projects, with a total capacity of 338 MW are under different stages of construction, and 76 hydroelectric projects that can contribute 711 MW to the national grid have already concluded Power Purchasing Agreements (PPAs) with the NEA. The output of electricity is expected to increase after complete deregulation in distribution as well transmission system as it solves one of the critical constraints – the construction of transmission lines by acquiring private land – of this sector. The government has recently decided to form a Transmission Company by including all the stakeholders such as Ministry of Finance (MoF), Ministry of Forest and Soil Conservation, Ministry of Environment, Science and Technology, Ministry of Land Reforms and Management, Ministry of Information and Communications, Ministry of Defense and Ministry of Home Affairs, and general public in order to solve the problems being faced by 18 different projects (worth over 650 MW) – continuous delay in construction of transmission system being the major one.

Access to mobile as well as landline phone has also risen after involvement of Ncell, United Telecom Limited (UTL), Nepal Telecom Satellite Private Limited (Hello Nepal), and through structural change of Nepal Telecommunication Corporation by disinvesting government’s share to its staff and general public and rebranding the same company as Nepal Telecom. These are just a few examples of sectorial development that Nepalese people have observed in the recent past. The easy access on phone has helped in overall development of the country as the farmers living in remote parts of the country can access necessary information such as the price, demand, supply and stock of their product, and initiate new ventures with the support of internet facility that is available in the mobile phones.

Liberalization, followed by privatisation is needed in an economy to mobilize human resources effectively and efficiently, reduce unnecessary expenditure, and manage other available resources more wisely. Furthermore, the involvement of private sector is very helpful for avoiding additional costs associated with insurance, pension and so on. Every year, Nepalese government has to allocate a large chunk of budget for such expenditure which increases with increase in number of employees.

On top of this, it is not necessary for private sector to follow lengthy recruitment processes that requires an examinee to go through a series of exams that lasts for more than a year. They do not have to worry about being unable to fire any staff unless they are legally declared unsound. It is widely accepted fact that without the presence of vibrant private sector, there is possibility of monopolization of the resources that reduces the chance of innovation – which actually results in fewer jobs in the country.

While the private sector helps in achieving high growth trajectory by judicious use of all forms of resources in the country, the government too can aid by maintaining rule of law, providing free and fair justice, and protecting private property. Only a decade ago, nobody wanted to establish any new enterprises in the Indian State of Bihar. This was also before Nitish Kumar came into power as the Chief Minister at a time when entrepreneurs were mugged, extorted and threatened by criminals. There was no security of life and property.

Today, many domestic and foreign entrepreneurs who want to invest in Nepal are not ready to do so due to lack of security of their property and absence of proper patient rights. Therefore, the government should make every effort to create an enabling environment for doing business by formulating necessary policies that bring efficiency to the economy, incentivize investments, and promote the culture of entrepreneurship.

(This article was originally published in Econity on March 10, 2015)