Monday, 13 July, 2020

Informal businesses, workers pose a challenge to economic revival

Budget analysis


By Modnath Dhakal

Kathmandu, May 31: The country has about a million business establishments, but only half of them are registered in any of the government agencies at the federal or local level. Agriculture engages about 60 per cent of population and almost all of them are informal workers.
About 401,236 micro, cottage and small enterprises were registered by mid-March 2020 which created 2.88 million jobs. If it is compared against the Central Bureau of Statistics’ Economic Survey 2018, approximately 2.88 million people are working in the informal sector.
These are the sectors that need most the government support during the hard times like the coronavirus pandemic, but they are missing from most of the government documents like the Economic Survey as well as the budgetary programmes and relief operations.
If there is one critical sector the budget of the coming Fiscal Year 2020/21 misses, it is supporting and formalising the informal businesses.
Informally run businesses do not pay the taxes, jobs in these enterprise are not safe, secure and are vulnerable. Both the enterprises and employees do not pay the taxes which rationalises the government indifference to these businesses.
The government is not obliged to save them since it does not recognise them, but they are critically important in terms of employment generation and mobilising the local economy. The government, including the sub-national ones, and the private sector organisations like the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Federation of Nepalese Cottage and Small Industry (FNCSI) seem unaware about this situation.
The FNCSI alone has the membership of about 35,000 enterprises. In a talk with The Rising Nepal recently, its Vice-president Anjana Tamrakar said that the cottage, small and medium scale enterprises (CSMEs) needed separate and special attention of the government and development partners.
Vice-president of the FNCCI, Shekhar Golchha, has been vocal in taking up the issues of the CSMEs. He has asked the government to formulate an effective programme to rescue and support them.
The government-announced relief package for the businesses will support a small number of formal enterprises since most of the options to have the facility are in the form of refinancing, interest rate subsidy and concessional loan.
For example, only about 5 per cent of the women entrepreneurs have obtained the bank loan, according to the Federation of Women Entrepreneurs’ Association of Nepal (FWEAN). According to the Economic Census, as many as 247,880 enterprises (29.8 per cent) are owned and run by women. It means only 12,000 enterprises run by women will be eligible for the government relief and support.
The Economic Survey of the current fiscal year 2019/20 maintains that the country has 41 per cent employments in the informal sector while about 40 per cent have partial participation in employment.
Finance Minister Dr Yuba Raj Khatiwada has not presented concrete programmes in the budget for the next fiscal.
“We aim to create 500,000 additional jobs next year,” he said in an interaction with the media on Friday afternoon while
rough estimates predict that about 2 million to 2.5 million youths would be forced out of job due
to the coronavirus pandemic and
measures put into effect to save lives from the crisis. Apart from the private sector businesses, government runs Prime Minister Employment Programme, poverty alleviation, youth self-employment and education-based loan programmes. But the statistics of the current fiscal year does not promise inspiring future – the PMEP employed about 188,000 people but with only 12.4 days of average employment while the education loan was mobilised to only 404 individuals.
Meanwhile, government-run poverty reduction programmes have largely failed due to poor execution and high rate of corruption. Experts said in pre- and post-budget interactions that the government must consolidate the employment and poverty alleviation budget scattered over various programmes and use a single-door policy to dole out the funds and expertise. Current modality of mobilising the funds for self-employment has high rate of misuse so far.
It is discouraging that the topic of informal business and their plight does not get space in the discussion of the experts, including the former finance ministers Dr Ram Sharan Mahat, Surendra Pandey and Dr Baburam Bhattarai, who also had been the prime minister briefly, and economists.
In the post-budget discussions, they expressed happiness over the financial support to the formal businesses but forgot mentioning the ‘missing half’. 

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