India’s Blockade Is Leading To Nepal’s Worst Economic Crisis Till Date

Posted on November 27, 2015 in GlobeScope, Politics

By Om Astha Rai:

I wish I had not survived the earthquake,” said a middle-aged woman with whom I struck up conversation at a local tea stall this week. She looked upset, and didn’t speak for several minutes. I didn’t push her to explain her statement.

Then she spoke up again. “I have run out of cooking gas, the dealer is asking Rs. 10,000 for a new cylinder. That is half of my husband’s salary. How can we continue to live this way?

In his first address to the nation last week Prime Minister KP Oli tried to sell Nepalis a utopian dream of an end to load-shedding within a year, introduce electric public transport in Kathmandu immediately and attain self-sufficiency in agriculture by 2017.

REUTERS/Navesh Chitrakar
REUTERS/Navesh Chitrakar

Oli’s words sounded hollow, unrealistic and even nonsensical – proven by none other than his own finance minister Bishnu Poudel when he released a White Paper this week. Poudel’s figures about the combined impact of the earthquake, Madhes movement and India’s blockade on Nepal’s economy were beyond dismal.

Since Madhesi protesters began blocking the Birganj border days after Nepal’s new constitution was promulgated on 20 September, revenue collection from the country’s biggest customs point in terms of trade volume has been nearly nil. The Department of Customs had set a target of Rs 7 billion from Birganj during October. It didn’t even manage 1 per cent of that.

India’s not-so-tacit support for the cause espoused by Madhesi leaders in enforcing a blockade has certainly complicated transit problems, but customs revenue collection was badly hit even before the Indian blockade.

REUTERS/Navesh Chitrakar
REUTERS/Navesh Chitrakar

Already reeling under damage caused by the April-May earthquakes, Nepal’s economy began to dip when the Madhesi parties launched their anti-constitution movement in the Tarai 100 days ago.

Nearly 2,200 factories have been shut along the Tarai’s industrial corridors, more than 200,000 people have lost their jobs and inflow of tourists has gone down by half. The country’s economic growth rate is expected to be restricted to two per cent – or even less if the crisis continues for a few more months.

In the past four months the government has lost Rs. 38 billion in tax revenue. The accumulative loss incurred by the private sector in the corresponding period exceeds Rs 200 billion. And soon inflation rate is likely to hit double digits. This is the worst economic crisis Nepal has ever suffered. With remittance still flowing in, the banking sector is relatively less affected but there will be an epidemic of defaults.

Ironically, it is the central Tarai districts that have been most impacted by the Madhes protests. The eight districts of this region were already ones with some of the lowest Human Development Index (HDI) scores in Nepal. Schools have been forcibly shut for over three months. Local farmers are busy blocking the border at a time when they should be harvesting paddy and preparing to plant wheat. At a program in Kathmandu this week, Janakpur-based economics professor Surendra Labh said: “If it were not for remittances, the people would have already started eating each other’s flesh in the Tarai.”

It seems that Nepal’s economic crisis is now full-blown, and Nepalis cannot endure it any more. But the economic crisis we have dealt with so far may not be the main shock. If the Kathmandu-Madhes face-off continues, it could turn out to be just a teaser of a more devastating economic meltdown.

A student holding a placard takes part in a protest to show solidarity against the border blockade in Kathmandu, Nepal November 27, 2015. The middle hills and the capital Kathmandu have suffered fuel and cooking gas shortages after protesters in the south switched to blocking supplies from India, Nepal's largest trading partner, almost two months ago. Many in Nepal accuse India of supporting the protesters - a charge New Delhi denies. India has expressed its dissatisfaction with parts of the constitution, although it also says it cannot allow trucks to enter Nepal while conditions are unsafe. REUTERS/Navesh Chitrakar  - RTX1W3C8
REUTERS/Navesh Chitrakar

For now, we are just worried about immediate petrol and cooking gas needs, that we have not even begun to fathom the longterm impact of this crisis. The sooner we begin to think about food and energy security and trade diversification the better will the country’s state be in the long run. But for the time being, we urgently need a political solution so we can work to mitigate the devastating impact of the economic crisis.

This article was originally published in the Nepali Times and has been republished with permission from the author.

The writer can be reached on his Twitter handle, @omastharai.