Manage Energy To Cut Trade Deficit

The size of Nepal's international trade is increasing rapidly. This reveals that the nation’s overall economic structure and gross domestic product is also on the rise. The level of consumption is rising fast. But most items consumed by Nepalis are not produced in the country. Everything ranging from salt to gold has to be imported from abroad. Despite being an agricultural country, Nepal imports a large amount of food, vegetables and fruits from India and other nations.

The share of imports is higher than exports in the volume of trade. According to the Economic Survey 2078/79 BS, in the fiscal year 2077/78 BS, the country exported goods worth about Rs. 141.124 billion while it imported products valued at Rs. 1,539.84 billion. The share of petroleum products and lubricants in import stood at Rs. 214.388 billion. The size of import of petroleum products is higher than the total export. 

Export promotion

In order to reduce trade deficit, the successive governments seemed to have focused on export promotion and sometimes making the country self-sufficient in agriculture. It is not that there is a need to reduce the import of luxury goods in a way that frustrates the rights of consumers. But there is no way to reduce the quantity of goods and services coming from the international market until the large quantity of imported goods can be replaced by domestic ones. 

In this era of globalisation, any country can benefit from global market on the basis of comparative cost benefits for consumption, production and distribution. This is also applicable in Nepali economy. No sensible producer is prepared to produce goods and services that cost more in Nepal than abroad. In order to reduce the growing trade deficit, it is not possible to implement a policy that reduces the level of consumption by reducing the living standards of consumers. 

Electric energy can be used as an alternative to petroleum products. After the increase in the price of crude oil in the international market, a lot of foreign currency (US dollars) has been spent on the purchase of petroleum products. The Nepal Rastra Bank has banned the import of luxury goods considering a depletion of foreign exchange reserves. However, the government has decided to lift this ban for certain goods. This will come into effect from December 16 this year. 

To reduce Nepal's growing trade deficit, proper management of hydroelectricity should be emphasised. Garbage management is becoming a big challenge in metropolises like Kathmandu, Pokhara and Lalitpur. Managing waste in other cities is also becoming a challenge day by day. The local governments can reduce the economic burden of importing petroleum products by using modern technology in waste management. With the management of waste in a scientific way and promotion of its use as energy, we could reduce the import of the petroleum products. 

Vehicles can be operated from gas produced from waste. Induction stoves can be used to cook food by using electrical energy. The government has been facing a financial burden on the import of cooking gas.  Demand for LP gas is increasing rapidly. In order to reduce the impact of the use of gas on the foreign exchange reserves and the widening trade deficit, the government has adopted the policy of using electric stoves in Singh Durbar.

The programme to promote induction stoves instead of gas can be helpful for minimising trade deficit and protecting the environment. But for that, it is necessary to devise a long-term plan by paying attention to the technical aspect.

Much emphasis should be also placed on the promotion of electric vehicles. As Nepal is rich in water resources, the country holds huge potential for power generation capacity. Hydropower should be extended to all types of industries operating within the country. By using electricity in industries that are producing electricity through diesel plants, the use of petroleum products can be reduced. 

Power export 

During the rainy season, hydroelectricity is produced in excess amount. However, the country still imports electricity from India during the winter. With the Government of Nepal entering into an agreement with India on energy exchange, the Nepal Electricity Authority (NEA) has started selling electricity generated by some plants to India on the basis of competitive prices.

There is a possibility that the electricity produced by large hydropower projects will be sold to India in large quantity in the future. It is necessary to develop the capacity to export electricity to Bangladesh through India. If a more conducive environment is created for Indian investors to invest in Nepal's hydropower sector, our electricity can be exported to the southern neighbour sustainably. 

Due to the ongoing war between Russia and Ukraine, there has been a break in the business of Russian petroleum products, including cooking gas, in Europe. It has had an adverse impact on global economy. The importance of energy is high in the modern economic structure. The use of energy in any country carries great economic and strategic importance. In the case of Nepal, the availability of energy, its proper management and investments made in the energy sector hold great importance in terms of trade balance. 

(Rijal teaches Economics at a college based in Birtamod Municipality of Jhapa.)