- More than Rs 15 billion enters the economy during the season in the form of salaries and allowances.
- 10 percent of the total remittance inflows enters the country during this period. Between mid-September and mid-October 2011, remittance inflows was Rs 28 billion.
- Most of the goods consumed are imported.
- Revenue mobilization, hinged on remittances financed imports (custom duty and VAT), is the highest during festival month.
- FNCCI estimates daily transaction of Rs 13 billion during festival month.
Normally, festivals give a boost to the economy: quarterly growth rate and employment numbers go up, retail activities pick up, internal tourism is high and so forth. However, in a remittances dependent economy with declining manufacturing strength (which dropped to around 6% of GDP last year), festivals do not have substantial multiplier effects as is seen in other countries. The ones who gain are traders (who import goods and sell it in the Nepali market), workers in the formal sector (think of one month extra bonus!), revenue department (customs duty and consumption taxes on imported goods), middlemen (who rig prices and supplies especially in agricultural sector) and jewelry businesses (South Asian household's fascination with jewelry during festival seasons is quite unique!) among others.
The economy does not get much stimulus because most of the goods and services consumed during festival season are not produced domestically using our own workforce, i.e. value addition is very low, if any. Unless we solve the supply-side constraints faced by industrial sector (mainly power crunch, poor infrastructure, labor disputes, lack of innovation and R&D, and policy implementation paralysis), the outlook appears grim. Worse, if monsoon becomes unfavorable, then growth rate might plunge more than anticipated. Prolonged political uncertainty is another damper on investor’s confidence. As of now, it seems the ever-increasing transactions during festival season is going to widen trade deficit (merchandise trade deficit was Rs 424.07 billion in 2011/12 compared to Rs 332.97 billion in 2010/11-- around 24% of GDP) further.
Now, Nepal cannot solve all of the supply-side constraints at once. Nepal doesn't have the financial resources, political will and institutional strength to do that. It could at least work on improving industrial relations, implement the promised provisions in several policy documents, encourage private sector to engage in R&D by offering fiscal and other incentives and gradually work on meeting energy demand.
Anyway, enjoy the festivals!
