The finance minister probably spoke out of ignorance, or on a whim himself. Privatisation is the transfer of state shares in a business to the people

Interview with Ram Sharan Mahat

May 14, 2018-Nepal has embraced a path towards economic reforms after the Girija Prasad Koirala-led government adopted economic liberalisation in the early 90s. Now, the KP Oli government talks of economic growth, development and prosperity. It is even planning grand new linkages with both our neighbours for improved trade and transit. And yet, the government in a recent white paper published by the Finance Ministry has criticised Nepal’s privatisation drive, claiming that it was carried out “on a whim.” Privatisation of state businesses and industries is considered to be one of the key aspects of the economic reforms Nepal has undergone. Ram Sharan Mahat, former finance minister, is considered  one of the architects of the post-1990 economic reforms; he was vice-chairman of the National Planning Commission when the process began. Mukul Humagain and Kabindra Purush Dhakal talked to Mahat about his views on the white paper, the economic reforms of the 1990s and the Oli government’s performance in its first three months in charge.

The finance minister’s recent white paper criticised the move by the early 90’s Nepali Congress government that began privatisation in the country. He has said that the move, and thereby the entire economic liberalisation process, was done ‘on a whim’ and that there was no proper planning. Is that so?

The finance minister probably spoke out of ignorance, or on a whim himself. Privatisation is the transfer of state shares in a business to the people. A lot of preparatory work and planning went on to implement the privatisation process. Thorough studies were conducted on every industry planned for privatisation, including on the valuation of assets. The decision was announced publicly, and Parliament voted for it. Multiple modalities were implemented—some state-run enterprises went through partial privatisation. And all were done in a transparent manner through an open bidding process. The committee dealing with the decision on recommending privatisation had a diverse set of members. The committee included the chair of the Finance Committee, a member of the opposition, a representative from the labour of the industry and a representative of the Federation of Nepalese Chambers of Commerce and Industries (FNCCI), among others. It was definitely not done in an ad hoc, haphazard manner. In fact, Nepal’s process during that time—when many others all over the world too were moving towards privatisation—has been appreciated by many countries as being the most transparent. Also, though the process was started by the Nepali Congress-led government, subsequent governments, including communist ones, too followed the same policy. For example, privatisation has occurred even when the government was led by the Maoists. The partial privatisation of Nepal Telecom occurred when Krishna Bahadur Mahara was Communications Minister.
Some of the companies transferred to private hands have not been functional and did not add value. Some, like the Bhrikuti Paper Factory, are reportedly being dismantled, re-plotted and sold off as real estate. Looking back now, nearly three decades later, do you think that the objective of privatisation has been met?
The experience has been mixed. We now know that some of these industries could not function even in private hands. As it turns out, the assumption that these businesses only suffered through bad management was wrong. Other structural issues existed as well, such as over-capitalisation in some cases. However, privatisation did not harm the country. Even if some of these enterprises failed, many more private businesses were established in the sectors in question. If one privatised shoe factory failed, dozens more entered the market, thereby providing employment to thousands. We now export footwear worth billions. The government’s decision to not run some businesses was still sound. The subsidies the government had to pump in to continue loss-making state-run enterprises could now be saved. The savings from not subsidising industries could now be spent on social sectors such as education.

Going back to the recent white paper, it implies that the government is willing to enter sectors where it thinks it should. What is the right balance between the government and the private sector to ensure service delivery to the public?
State presence is required in sectors where natural monopolies exist, where the private sector and competition cannot ensure service delivery. But in areas where a competitive market can function, the private sector should be welcomed. Previously, some sectors such as telecommunication, energy, etc. were considered to be ‘commanding heights of the economy’. The private sector was not allowed to enter. But now the private sector has entered some of these commanding heights sectors successfully. But where competition cannot ensure quality service delivery, the public sector should still have a presence.
The Oli government is currently working on the budget for the next fiscal year. In light of how the left alliance came to power promising prosperity, the new administrative system with three tiers of government and the tendency of Leftist governments to be distributive, what should the new budget look like?
The constitution has guaranteed the division of responsibility over one government at the Centre, seven provincial ones and 753 local ones—including paraphernalia to support these structures. Dividing the budget is going to be a tough task. Unlike previously, the Centre budget should not plan out the budget for every small programme or project. Central government has to be very careful in making the best use of the available resources. It has to focus on large-scale projects of national importance that give maximum returns, while ensuring regional balance. The coming days will be tough because recurring expenditure will increase. There is a growing tendency to expand the number of bureaus and administrative offices—this should stop. I recently heard the news that the government plans to reduce the number of allowances provided to its employees. This is a good move, one I have supported for long. Austerity measures must be maintained. Recurrent costs have to be minimised and unproductive activities have to be limited.

Given the past distributive tendencies, do you think the government will jump at the chance to build such programmes again?
Earlier, the tendency was to introduce populist programmes when a government was exiting office. This was a move to please the electorate. The communist governments began this practice and repeated it over time. Now, most recently, even Sher Bahadur Deuba did the same as he was leaving office. That is not the case at the moment. The government has a large mandate and a nearly two-thirds majority in Parliament, and has the opportunity to complete a full five-year tenure. It has the advantage to be able to focus on a long-term vision, on sustainable development, and not be pressured to seek populist measures for short-term political gains.
You mentioned that the government has to tighten its purse strings due to added costs. Do you think that federalism will turn out to be a costly venture for Nepal? Any prescriptions?
Since federalism was proposed, I had cautioned the political parties repeatedly that federalising a small country is a tough task. This is because the federal system is a very expensive proposition. It will add to the tax burden on the people given the added tiers of government that need to be supported. But economic considerations did not prevail in the planning of federalisation. The constitution also promises an extensive basket of fundamental rights. To ensure these rights, the economy has to grow very fast and become strong. This is where austerity becomes important. So does the emphasis on production and economic growth. I also prescribe the attraction of more private capital from all sources, while focusing government expenditure on creative, important infrastructure. In the past, on the foundation of the liberal economic reforms introduced in the 1990s, we have been able to generate more internal revenue. Nepal is one of the few countries globally where internal revenue (IR) has grown so fast—at more than 20 percent. Now, Nepal’s IR to GDP ratio is one of the highest in the world. This was due to the expansion of economic activities and tax measures that we introduced, despite the fact that the economic growth rate was low. So, by expanding the productive sector and attracting more capital, revenue can grow fast. Only then can Nepal meet constitutional obligations. With the government focusing on necessary infrastructure and the private sector focused on productive sectors, the country can achieve prosperity.
Nepal of late has increasingly been receiving the attention of our two immediate neighbours—India and China. There have been high-level visits from Prime Ministers of Nepal and India. PM Oli will visit China soon. How important is it for us to act as a viaduct between the two to attain prosperity?
These two economies are the largest contributors to global growth currently. Nepal can use its relations with the two on three fronts. One, both these countries can be major sources of capital investment. Two, both can be markets for our products. This includes attracting tourists from both countries to Nepal—potentially a huge number. Third, Nepal must utilise both countries as a source of development assistance. So, we have to have cordial relations with both while focusing on these fronts. The government needs to be mature enough to realise the potential of these relationships. It must mobilise the best talent in this aspect. Unfortunately, I am witnessing a lot of politicisation and administrative reshuffling. Moreover, instead of focusing on fanciful ideas such as railways and waterways, the government must do its homework on what the immediate needs of the country are. It has been a decade since the Tarai Postal highway was talked of, yet we see no results. Similarly, there are road linkages such as the fast track that have to be prioritised. Knowing that these roads will be built, has there been enough study on the cargo and people-load to justify a railway line in the immediate future? Also, what is the funding modality?
The government is nearing the 100-day mark since it took office. How have they performed?
The government has engaged more in rhetoric and less on work. It is important to think about long-term plans, but the government has been ignoring immediate needs. The state of our only international airport is an example. Yet, the government has unfortunately focused more on future transportation plans. The government is also doing some concrete work. The move to break cartels is welcome. However, it remains to be seen whether the government can enforce similar actions in sectors outside transportation. What we know currently is that the Director General of the Department of Roads and Transport is strong. We need to see whether this will be replicated in other areas. It is too early to judge, but early signs indicate that the government is more focused on publicity and propaganda over concrete action.

It seems that the Nepali Congress has lost its way further since suffering its worst electoral defeat. The recent standing committee meeting of your party ended inconclusively, and the president has appointed party officials unilaterally. This, at a time when the people are looking towards the Nepali Congress to get its act together as the main opposition.
This is a very unfortunate development in the history of Nepali Congress. In the past, all decisions by the party were taken unanimously. Now, especially considering the major electoral setback, the president should make an effort to come to decisions unanimously, not unilaterally, to strengthen party unity.
If the Left government does not fracture, and is stable for the next five years, will it not be difficult for the NC to make a comeback?
There is definitely an organisational and management problem within Congress at the moment. However, I am not that pessimistic on the future outlook.  There will be a realisation of the mistakes that people in the party have committed. The unity of the two communist parties is only one part of why we lost during these elections.  Electoral success depends more on organisational strength and the way we present ourselves to the people.

The new ‘integrity policy’ aiming to control non-governmental organisations and civil society, the two-thirds majority of the current government : do you see issues emerging from these in the future?
It remains to be seen what this ‘integrity policy’ constitutes of when it is implemented. However, I do see some authoritarian tendencies. Although the present government had won a majority during elections, the Prime Minister was doing his utmost to add other parties to the government reach over two-thirds majority. Two-thirds majority guarantees constitutional amendment.  This was not necessary to run the government. The PM went out of his way to increase his Cabinet to reach a two-thirds majority. These, and his attempt to amass more power in the PMO, are not good signs. This attempt to add more authority to the PMO will be counter-productive in the end. The Prime Minister will be overburdened, and it shows that the PM does not think the ministries are competent

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