Nov 082013

Before the dawn of democracy in 1951, the economic backwardness was persisted in Nepal. This was mainly due to historical reasons and also due to a unique difficult geographical setting. This prompted the authorities of Nepal to adopt planned development efforts as soon as the awareness spread after the establishment of democracy in 1951. In the process, the historical year 1956/57, became the point of

departure for Nepal from backwardness to prosperity and progress. Therefore, planning as a means of national development to transform the socio-economic order from the existing poverty-stricken situation to better living conditions was adopted. National self-sufficient and welfare orientations were the goals set in this process.

a) First plan period (1956-1961): At that time, the conditions for planning were, however, constrained by lack of minimum information; absence of appropriate manpower, and basic infrastructure and administrative capabilities. Domestic resources were not available for implementing development programs. Therefore, a start was made towards planned development with a very small amount of Rs. 330 million. This amount of total plan outlay was earmarked to be spent in the public sectors. However, the amount set for the first plan was not fully spent in the five year period. Approximately, 75% was spent.
In view of the actual need for achieving the integration of different parts of the country by road links and communication, the biggest chunk of the resources being earmarked for this sector was understandable.

b) Second plan period (1962-1965): The political changes that occurred at the end of the first plan disturbed the planning process. The second plan began with a break. It started from 1962 to 1965 for a period of three years. In this plan also, the total outlay earmarked was to be utilized by the port and communication to social sector and electricity, gas and water. The total plan outlay of second plan period absorptive capacity of the economy was very low. As a result, the targeted amount was not spent. 0nly about 70% of it was spent.
In second plan period, total expenditure was allocated on the following priority basis. Social sector, electricity, gas and water, construction sector, industry and mining, transport and communication and agriculture, irrigation and forestry respectively. Whatever may be the priority given to the different sectors, the performance of the plan was very much poor. This was mainly due to investment climate, administrative machinery economic decision-making culture and political commitments were not conductive to attain speedy and qualitative implementation of the programs as envisaged in the plan.

c) Third plan period (1965-1970): From the third plan, involvement of the private sector was categorically made. As a result, total plan outlay was divided between the government sector and the private sector. The total plan outlay of the period was Rs. 2,500 million out of which the share of the government sector was nearly 70%. The priority and performance of the private sector activities in the planning process were not available. Therefore, reference of priority and performance was made with regard to the public sector only.
In this plan, 38% of the total outlay was earmarked of transport and communication sector, and 23% to the social sector. Agriculture, irrigation and forestry sector got almost 17% of the total outlay (much higher as compared to the previous two plans). A reasonable share was given to the development of electricity, gas and water. Despite prudent and balance resource allocation, the acute implementation of the plan was encouraging. The absorptive capacity of the plan was low.

d) Fourth plan period (1970-1975): The fourth plan was much better both in terms of judicious allocation of plan outlay and the performance thereof. Transport and communication sector continued to get top priority. At the same time, sufficient attention was given to the development of agricultural sector as well. The total plan outlays of this pan were Rs. 3,540 million out of which only Rs. 3,220 million was spent.
Next to transport and communication, which received 45 percent of total outlay, agriculture, irrigation and forestry got the second priority and received 21% followed by social sector at 18%. The plan implementation, measured at least in terms of actual expenditure, attained 98% success. The efforts made in the past plans and positive implications in terms of integration of the country by creating road network and establishing minimum social infrastructure. At the same time, experiences in plan implementation had been gained to some extent.

e) Fifth plan period (1975-1980): The total plan outlay of this plan was Rs. 9,200 million out of which only Rs. 7,820 million was spent. The growth rate of the plan was only 2.2% and, thus, the performance was also very low. Of the total plan outlay, a little more than 66% was earmarked to be used by the public sector. The whole amount was used by the public sector during the plan. This plan continued to place greater emphasis on the development of the core sector of the economy.
The proportion of total expenditure on the development of agriculture, irrigation and forestry was raised to almost 25% compared to 21% in the preceding plan. Similarly, the proportion of expenditure on electricity, gas and water to the total outlay was almost raised by two-times to 16%. In terms of relative share, transport and communication received 29% compared to 44% received in the fourth plan. On the whole, allocation was based towards improving the real sector of the economy with due weights attached to the expansion of the physical infrastructures like roads, bridge, telecommunication system and also developing education and health sector.

f) Sixth plan period (1980-1985): In this period, the absorptive capacity of the public sector improved considerably perhaps due to the experiences attained in the implementation of the previous plans. The total plan outlay of this plan was Rs. 33 arab. Like the past plans, the sixth plan also placed considerable emphasis on agriculture and forestry development. This sector achieved highest chunk 29% of the total plan outlay in the public sector. Next to this, social services got the greatest attention. The expenditure on electricity, gas and water was maintained at 17% as in the previous plan. The sixth plan seemed to be guided by the strategy of utilizing the existing infrastructure and emphasis on the development of the core sector, i.e. agriculture.

g) Seventh plan period (1985-1990): The seventh plan was ambitious as reflected by increase in total outlay compared to the sixth plan. The share of the public sector in the total plan was around 54%. During the implementation, the actual amount increased exceeded the target by 14%. Total plan outlay of the plan was Rs. 50,480 million.
The seventh plan early indicated given that the programs and the resources thereof, the absorptive capacity of the Nepalese economy was gradually on an increase. The minimum physical and social infrastructure achieved due to past efforts and the skill of manpower gathered over the years were quite supportive to implementation of the programs contained in the plan.
At the combination of the seventh plan, widespread changes were witnessed in the political dispensation. The people’s movement for democracy restored the multi-party system of governance. Immediately after the restoration, greater attention was needed to be focused on the consolidation of political system and administrative regime. All these factors were responsible for a two-year break in the planned development process.

h) Eighth plan period (1992-1997): After the two years, plan holiday, the Eighth plan was launched from 1992 with three broad objectives: (a) To attain sustainable development (b) To alleviate poverty, and (c) To bring about regional balance (To reduce regional imbalance).
Thus, the economy of the kingdom was seen from a broad perspective. The poor and downtrodden became the focal point in the planning process. The remote and hither to neglected regions of the country were to be encompassed in the broad planning framework. In the context of achieving the above objectives, private sector was considered to be instrumental. This is apparent from the fact that almost 64% share was allocated to the private sector in the total outlay. Thus, the role of the government sector was to be limited to the status of a catalyst or facilitator.
The amount earmarked for the Eighth plan increased by almost three-fold compared to the previous plan. This was conceived not as expenditure but as investment. The total plan outlay of this plan was Rs. 170,332 million.

i) Ninth plan period (1997-2002): Nepal embarked on periodic planning as early as 1956, however, upto fifth plan, emphasis was laid mainly on building physical infrastructure and electing the foundation of development in the country. It was only after the fifth plan that efforts were made to launch the development program with priority in the productive sectors such as agriculture, forestry and human resource.
When compared to previous plans, the eighth plan featured some fundamental difference. While all the earlier plans followed controlled economic processes, the plans of this period made a distinct departure with placing emphasis on liberal, market-oriented economy. The role of the government as well as the private sector was demarcated clearly at the economic activities, promoting private sector, and building physical infrastructure to enhance economic activities and sustaining social service sector by opening this sector for the private sector as well.
It is true that achievements, to some extent, have been made in the development of physical and social infrastructure though the implementation of preceding plans, and particularly. The growth rate of non-agriculture sector has increased as a result of policies adopted in the eighth plan. However, it is also true that desirable progress has not so far been achieved in alleviating the problem of rampant poverty and unemployment in the country. Therefore, with the aim of accelerating the process of national development, the ninth plan has adopted poverty alleviation as its main objective so as to lessen poverty confronting the whole nation. In doing so, a consistency will be maintained with the development concept of the 20 year perspective planning.
In the ninth plan, a clear and concrete implementation strategy will be formulated for meeting the target of poverty alleviation, and thereby improvement will be brought about in the living standard of the poor community. For reducing poverty effectively in the long run, poverty-focused sectoral and targeted programs will be launched in a coordinated, integrated and effective way.

j) Tenth plan period (2002-2007): The policy of tenth plan is efficient for the mobilization of resources with economic opportunities and employment expansion in the joint participation of government, local bodies, private sector and civil society. The main objective of the tenth plan is to reduce poverty by the means of empowerment, human development, security and targeted programmes. These will increase access into the means and economic achievements for women, backwards, ultra-poor and people living in the remote areas.
Tenth plan sets the target to reduce poverty to the level of 30%. Similarly, literacy 70%, reduction in the infant mortality rate to the 45%, life expectancy 62 years, excess to drinking water 64% of the population, electricity to the 30% percent, and telephone facility to the every village development committee are the goals of the tenth plan. A 10% improvement in the human development indicator is expected by the improvement in the social indicators. In the context of development goals, economic growth is targeted at the level of 6.2%.
To fulfill above-mentioned and other goals, determined by long-term concept, monetarily; economic, social and physical infrastructure indicators are determined in the tenth plan.

Aggregate Economic Goals

Description Status of Ninth Plan Goal of Tenth Plan
1. Annual economic growth rate (at factor cost)
2. National saving or domestic production ratio (%) 17.1 22.7
3. Total investment or domestic production ration (%) 24.6 26.8
4. Fixed capital investment ratio (%) 23.3 25.4
5. Marginal capital production ratio 4.3 4.3

The following are the social goals in the plan:

Main Social Goals

Description Ninth plan (status in 2001/2002) Tenth plan (final year)
1. Infant Mortality Rate (per thousand) 64.2 45
2. Total Fertility Rate (in percent) 4.1 3.5
3. Maternal Mortality Rate (per 100000) 400 300
4. Rate of Contraceptive Users (in percent) 40.4 50
5. Obstetric Service by Trained Manpower (in percent) 11.1 50
6. Average Life Expectancy (years) 59.7 62
7. Net Enrollment in Primary Level (above 6 years) (in percent) 80.4 90
8. Literacy (above 15 years) (in percent) 53.7 70
9. Female Literacy (above 15 years) (in percent) 42.5 65
10. Drinking water (Population benefited) (in percent) 71 85
11. Population Growth Rate (in percent) 2.27 2.1
12. Population below poverty line (in percent) 38 30
13. Human Development Index (HDI) 0.466* 0.517
14. Human Poverty Index (HPI) 39.2* 34

To achieve the determined goal of poverty eradication; population control and good governance would be emphasized. The strategy of sustainable and broad-based economic growth, which fosters the economic opportunities and its distribution to different sectors, would be taken in the tenth plan. Investment in the social sector would be increased to create the environment in which backward groups get benefited. Women empowerment work would be fostered with the capacity building and mainstreaming of the backward and oppressed groups. And their participation in the decision making process of poverty alleviation programmes at national level will be increased. The strategy of the tenth plan is to implement self-employment creating, income earning and protective programmes which directly benefit to the economically, geographically and socially backward groups, castes, disabled and helpless people and people living below poverty line.

Strategies are focusing mainly into the following four aspects in the tenth plan:

i) High, sustainable and broad-based economic growth: Poverty alleviation is not possible without rapid economic growth and which in itself is not sufficient to reduce poverty, so economic growth will be made high, sustainable and broad-based. To strengthen open and liberal economic policies, economic reform will make more effective and concrete.

To attain the high, sustainable and broad-based economic growth; agriculture, forest, industry and water resources will be developed maximally, where the employment and income generating opportunities are maximum. Domestic and export oriented industries will be given priority while developing these sectors. To increase rural employment and income generation, agriculture sector will be commercialized. Special emphasis will be given on the service sector mainly tourism, communication and information technology, finance and housing, construction and transportation. Similarly, to reduce production cost, productivity growth strategy will be taken as a campaign. For this, appropriate technology will be encouraged.

ii) Social sector and infrastructure development: Emphasis will be given on the infrastructure development as a corner stone of rapid economic growth and development of social sector for improvement in human lifestyle. More priority will be given to the sub-sectors like basic education, health and drinking water, which contribute directly to the human capability building and human development. It in itself is indicator of human development and directly contributing in poverty eradication. Economic viability in the infrastructure development, people’s approach in the social services and quality improvement of services will be taken mainly.

iii) Targeted programs: To improve the capabilities of backward sectors and communities, which are not able to participate in the mainstream of the development process; efforts will be taken according to liberal, market-oriented economic management; through targeted programs. Targeted and empowerment programs will be prioritized to promote the interest of oppressed, deprived, helpless disabled and senior citizens which creates the base to live in decent life for them.

iv) Good governance: To manage more effective and result-oriented drawbacks, good governance will be given priority. Stress will be given on participatory economic development for good governance. Monitoring and evaluation system will be strengthened and process of decentralization at local level will be emphasized to make decision-making process and public expenditure more responsive and transparent. More emphasis will be given to make administration punctual and disciplined. Effective mobilization of local resources, capacity building and reliability of local bodies will be strengthened through effective implementation of decentralization. To make implementation of development programs effective transparency and clarity in selection and prioritization in project implementation will be emphasized.

Follow sectors are identified for special attention on the basis of national priority, existing problems and prospects of development:

i) Agricultural development, sustainable management of natural resources and bio-diversity.

ii) Development of rural infrastructures and rural energy.

iii) Population management, social services and basic social security.

iv) Development of tourism, water resources, information technology, industrial and trade sector in the participation of private sector.

v) Human development and women empowerment.

vi) Targeted programs for the upliftment of backwards, dalits and poor and employment and basic social securities.

vii) Consolidation of the local bodies and NGO and community based organization.

viii) Emphasis on the remote areas and regional development.

ix) Use of high technology and improvement in the rural technology.

x) Guarantee and strengthening of good governance.

xi) Promotion and protection of environment.

xii) Infrastructure development of national and social level.

Nov 042013

The main purpose of economic planning is to keep a proper balance between production and social needs. The demands or social needs are always presented by the people, which are changing with the variations of income, habit and fashion of the people, and hence the planner has to be cautious for maintaining balance between the two.

The planning, thus, related to a predetermined end. The end of economic planning may be economic or non-economic. In other words, the objectives of planning may be concerned with political or socio-economic achievements. But mostly they are interlinked with each other. The main objectives of planning that have been accepted by the planned economics in the world are: Political Objectives and Economic Objectives. However the objectives of planning largely depend upon the natural, social, political and economic environment prevalent in a country at a specific time. Hence, economic planning has multiple objectives in the developing countries, which are summarized below:

a) Rapid economic development: The objective of planning in underdeveloped countries is to increase the rate of economic development. Planning for economic development implies external direction or regulation of economic activity by planning authority. It means increasing the rate of capital formation by raising the levels of income, saving and investment. But increasing the rate of capital formation in Nepal’s economy is hindered with a number of difficulties. People are poverty ridden. Their capacity to save is extremely low due to low levels of income and high propensity to consume. Low productivity means low income and the vicious circle of poverty. This vicious circle can only be broken by planned development.

b) Solve the problem of unemployment: The need of planning in Nepal is further stressed by the necessity of removing widespread unemployment and disguised unemployment in Nepalese economy. Capital being scarce and labour being abundant, the problem of providing gainful employment opportunities to an ever-increasing labour force is difficult. IT is only a centralized planning authority, which can solve this problem.

c) Balanced development: In the absence of sufficient enterprise and initiative, the planning authority is the only institution for planning balanced development of the economy. For rapid economic development, underdeveloped countries require the development of agricultural and industrial sectors, the establishment of social and economic overheads, and the expansion of the domestic and foreign trade sectors in a harmonious way. All these require simultaneous investment in different sectors, which is only possible under development planning.

d) Agriculture and industrial development: Agriculture is the backbone of Nepalese economy, which covers more than 40% of national income. The need for developing the agricultural sector along with the industrial sector arises from the fact that agriculture and industry are interdependent. Reorganization of agriculture releases surplus labour force, which can be absorbed by the industrial sector. Development of agriculture sector is essential to supply the raw material needs of the industrial sector. The agricultural and industrial sectors cannot, however, develop in the absence of economic and social overheads. Building of canals, roads, power stations etc. are indispensable for agricultural and industrial development. State to crate social and economic overheads in a planned way.

e) Strengthen the market mechanism: The rationale for planning arises in such countries to improve and strengthen the market mechanism. The market mechanism works imperfectly in Nepal because of the ignorance and unfamiliarity with it. A large part of the economy comprises the non-magnetized sector. The product, factor, money and capital markets are not organized properly. Thus, the price system exists in only rudimentary form and fails to bring about adjustments between aggregate demand and supply of goods and services. To remove market imperfections, to mobilize and utilize efficiently the available resources, to determine the amount and composition of investment, and to overcome structural rigidities, the market mechanism is required to be perfected in Nepal through planning.

f) Poverty alleviation: The planning for development is indispensable for removing the poverty of nations. For raising national income and per capita income, for reducing inequalities in income and wealth, for increasing employment opportunities, for all-round rapid development and for maintaining newly own national independence, planning is the only path open to Nepal.

g) Proper utilization of natural resources: In the unplanned economy, natural resources are underutilized, misutilized and wasted. Therefore, in an underdeveloped economy, concrete action is essential for making the use of natural resources for production purpose and it is safe which implements this action through economic planning. Nepal is assumed rich in natural resources; hence the existing natural resources can be properly utilized in periodic plan.

h) Reduction in unequal distribution of income and wealth: In the poor and underdeveloped countries, there exist inequalities and disparities in the distribution of income and wealth. There is a sharp gap between poor and rich which is a threat to the sovereignty of a nation. Thus, distributive justice becomes indispensable by removing economic inequalities and disparities through adopting effective monetary and fiscal and other development activities. For this purpose, economic planning is a tool to overcome such shortcomings and creating a conductive atmosphere for economic development.

i) Economic and price stability: In the planned economy, the development of one sector is coordinated in such a way with other sectors so that a balanced and smooth development may take place. Similarly, there are fewer chances of occasional fluctuation and uncertainty which affects development adversely. Thus, economic planning is a green signal to economic stability and prosperity of a country. Similarly, to attain stability is the price level is also a vital objective of economic planning. Economic planning is the only effective alternative for all evil of capitalism by minimizing the fear of trade cycles and progress with stability is desirable.

j) Defence of the country: By formulating economic planning, a country prepares and executes comprehensive plans to make modern and sophisticated armaments and equipments. There is another point in favour of making defence through planning. It enables the country to provide sufficient funds to modernize the defence structure.

Besides these, reduction in population, more farsightedness, control in economic concentrations and monopolistic tendencies, coordination of other sectors, expansion of the domestic and foreign trade requires not only the development of agricultural and industrial sectors along with social and economic overheads but also the existence of financial institutions. There is economic instability generated by international cyclical movements. It is the planning authority, which can control and regulate the domestic and foreign trade in the best interests of the economy.