Double digit growth in Nepal: How and from where?

The Confederation of Nepalese Industries (CNI) just held an economic summit, with focus on garnering a national commitment for achieving double digit growth, in the next ten years. Before speculating and commenting on whether Nepal can really achieve double-digit growth and increase income per capita, I want to read the whole paper presented in the summit. Given the success of India, China, Vietnam, and other countries that initiated economic reforms in the past decades, I am positive that Nepal can also attain a double-digit growth rate. But, it might come at a price: high inflation rate, investment volatility, strain in the pegged exchange rate and high risk and uncertainty filled with sectoral bubbles.

...Annual national investment has to rise to Rs 400 billion from Rs 176 billion in the next 10 years to increase per person monthly income to Rs 12,000 from the existing Rs 3,500.

...the summit was organized in a bid to explore ways to arrange additional Rs 225 billion annually, besides seeking political commitment and necessary policies to incorporate such investments in future.

...hydro power, tourism, agriculture and industrialization as tools for economic development.

Here is a good Op-Ed written by Binod Chaudhary, the head of CNI clarifying his position and the summit's intention. Sorry it is in Nepali!

On a different note, here is an interesting interview about corruption in water sector and a humanitarian disaster following flooding in Bihar and Eastern Nepal.

How to create more than 200,000 jobs in two years in Nepal?

This is kinda easy! If the government eases complex licensing regime and facilitates private sector involvement in small and medium sized hydro power projects, then creating over 200,000 jobs in just two years is perfectly achievable.

Here is how it works: A small scale one mega watt(MW) hydro power plant is considered financially viable and sustainable in terms of private business. The total investment required would be Rs 250 million. A 1 MW hydro power plant can create 200 low and semi-skilled jobs. Given the current wildly raging river in almost all parts of the country, starting 100 1MW hydro power plants is not that difficult, provided that the government substantially eases the licensing regime and extends some tax credits.

At present, it usually takes five to six years to get license for one such project. Technically, if bureaucracy is not embroiled in  corruption and commission games, then getting license should not take more than six months. The government should be careful in giving license though. Many companies take license but do not start work within a required time frame. License should be given only to those companies that are credible and can inject funds required to complete project. The total number of new jobs in just two years would be at least 200*100 = 200,000!

This would help absorb surplus labor from the agricultural sector. Meanwhile, if more small hydro power projects are initiated, then investors would be encouraged to invest in manufacturing machinery (turbines and other capital goods) required for such projects. This would help prop up one whole new sector and add more jobs in the economy. A strong multiplier effect would kick in and potentially up GDP growth rate.

What about funding source? Well, the government should encourage the banking sector to invest in this industry because the banking sector is awash with liquidity. The government should encourage NRNs to invest in hydro power by easing rules for investment and property rights. Also, the government should itself invest, with donor funding, heavily in this industry. Encourage FDI in the hydro power sector.

Learn from Bhutan, which generates 60% of state revenue from energy export. Hydro power export alone constitutes 25% of Bhutan's GDP. Prioritize hydro power sector ahead of other sectors by designing a progressive industrial policy.

Harvest the energy of wildly flowing river water. The is no point saving it! It just flows!!