A Simple Observation of Budget 2077/78 with Comments and Suggestions

Fri, May 29, 2020 1:20 PM on Economy, Exclusive, National,
A Simple O...

Every year since the introduction of new constitution in our country, Jestha 15th has been our Budget day as well as Republic day. It was itself a challenge for government to present comprehensive budget that could address all the issues of economic disruption arisen amid Corona Virus Pandemic. As the budget was being revealed at such difficult times, there were widespread expectations from people of all spheres and public had anticipate budget would address the issues of lives and livelihood. 

BUDGET SIZE: Rs 14.74 KHARBA

Current expenditure: Rs 9.48 kharba (64.4%)

Capital expenditure: Rs 3.52 kharba (23.9%)

Financial Management: Rs 1.72 Kharba (11.7%)

Tax Revenue collection: 8.89 kharba

Foreign aid: 60.52 arba

Foreign loan: 2.99 kharba

Internal Debt: 2.25 kharba

The followings are some observations on budget:

a. Income tax slab remains unchanged for individual. The demand of working class people to increase exemption limit for income tax remained neglected. This will inversely affect lower middle class people through reduction in disposable income and increment in price level. 

b. No any relief program is introduced for capital market. No any distinction between trader and investor through capital gain tax difference is introduced. Dividend Tax on cash and bonus remained unchanged.

c. Banks were instructed to issue debentures of 25% of paid up capital without raising awareness of it among general public. The budget has aimed to encourage transactions of debentures in stock exchange that are listed in stock exchange which is not an entirely new thing.

d. Digitization of Securities Trading System and introduction of fully online trading mechanism has been the demand of investors since long time. The idea of “Introduction of stock dealer to stabilize share market” has remained neglected since long time frame. Structural Changes of SEBON, NEPSE and CDS is again repeated line of previous policy and guidelines . Investors and general public are waiting for implementation of such concepts raised so far and now only the execution of plans matters the most. 

e. The budget has encouraged private investment through hedging. For this, amendments in policy frameworks are needed. As per “ Hedging related Niyamaabali-2075”, only five projects are allowed to hedge for foreign loan, namely, Hydropower projects of 100 MW or more generation capacity, Transmission lines of length of more than 30 KM for 220 KVA or more capacity, Railroad, metro or mono rail of length more than 10 KM, Fast Track of more than 50 KM length and others as pointed out by Nepal Government, Council of Ministers.

f. The fund allocated to Health sector has been increased to Rs. 90.69 Arab. The aim of establishing 300 bed hospital in Kathmandu and 50 bed hospitals in every capital of Provinces for communicable diseases is appealing. In addition to this, establishment of 272 hospitals in local levels for basic health facilities is also welcomed. The budget has aimed to cover health insurance of every citizen in three years. However, the urgency that the facility of government health insurance should be used in private sector hospital is not addressed.

g. Food for employment program to unorganized sector workers and employment through local level sounds good in budget speech. But the lack of data in part of government of unorganized sector will obstruct administrative mechanism to do it so.

h. Small, medium and cottage industries and corona affected tourism sector will be provided with credit at 5 % interest rate. For this, Rs. 50 Arab separate fund initiation is a relief to that related sector. Similarly, for Covid affected other agriculture, SME and Cottage industries, manufacturing industries, provision of refinancing loan of Rs 1 Kharab at 5% subsidy rate is also notable. However, contribution in 50% of premium for Corona insurance by government is unnecessary. Instead of this, coverage of Corona Virus illness in existing health insurance schemes would be better. Facility of government health insurance in private sector hospital would have helped people in much better way.

i. Establishment of fund of Rs 50 Crore for innovative idea to provide necessary seed capital at 2% interest rate is an exciting act. However, instead of providing such direct cash assistance in form of subsidy, it would have been better if the government had established Venture Capital Fund with that amount in company model by issuing shares to general public.

j. The use of fund in name of Prime Minister Employment Program is criticized in current year in terms of that program being unable to delivery considerable employment opportunities. It was repeatedly reported in Media for the fund being used for acts like grass picking. The fund allocated as much as Rs. 11 Arab 60 Crore for same program is questionable in terms of its effectiveness. The fund could again be allocated for venture capital fund which will not only provide cash to innovative ideas but also would have supported aspiring entrepreneurs in managerial ability, market exploration, technical know-how etc.

k. The continuation of social security allowance is admirable. But in upcoming years, as its coverage is being increased in rapid way, there might appear a problem of lack of funding sources for this program. As much as Rs 67 Arab 50 Crore is allocated for it which is a large amount.

l. The budget has aimed to encourage employees and institutions to be enrolled in Social Security Fund. But the existence of SSF is not even felt at difficult times of Corona Virus. With huge fund, SSF has not even planned any relief package to workers affected by Covid-19.

m. For agricultural crop insurance, the provision of paying premiums after production of crops will help farmers a lot to be enrolled in such schemes. It will minimize the risk of people involved in agriculture.

n. Establishment of Land Bank for helping people to be engaged in agriculture is a new initiation.

o. 60 Malpot and Naapi Offices will be handovered to local level. The aim of using information technology for land management is good but its implementation is a challenging one.

p. The aim of establishment of Co-operative Credit Information center is useful to reduce credit risk such as duplication of loans and multiple loan utilization by a single person, the risk of fund being used by defaulters etc.

q. Tourism sector is much affected by Covid-19. The program like ‘one province one tourist spot’ will help build big tourism infrastructure. However, fund of only Rs 1 Arab 26 Crore won’t be sufficient to develop tourism infrastructure in big scale. Encouragement to government sector and private sector employee to participate in internal tourism will mean a lot to tourism sector. If government makes provisions of 5 day working week, tourism sector will get a feeling of relief by movement of people.

r. Manufacturing of textiles and shoes by raw materials within country for national security personal and government employee will help domestic industries manufacturing such items.

s. Government has aimed to establish at least one industrial area in each province. In 130 local levels, establishment of industrial gram has been visualized. But considering allocation of just Rs. 2 Arab and 64 Crore , the amount allocated won’t be sufficient even for feasibility study of such project.

t. It is a good concept introduced for branding our productions like Tea, Coffee, Organic Vegetables, Drinking water and herbal items for export.

u. In one point government wants to encourage electric vehicles for traffic management in urban areas but at the same time increment in custom duty for import of electric vehicles is a surprising.

v. The government has aimed through budget to distribute 1 Crore of National Identity Card to Citizens in upcoming year. For such work, KYC information collected by BFIs can also be helpful. The mechanism to interlink KYC information collected and stored by Banks for National Identity Card can be developed for reduction in duplication of efforts and cost.

w. Allowances of government employee and other non-important administrative expenditures were curtailed. But no any decrement in facilities and services of political chairs and VIPs. “ Sthaniya Bikas Purwadhaar Karyakram” the fund of that program channelized through elected representatives is not scrapped though. It was needed to be stopped.

x. No any new appointments in government organizations and no new post will be created In upcoming year. Such policy derived all at once has poured cold water on dreams of thousands of aspiring people preparing for Loksewa . No any policy was introduced to engage this mass of educated people denied of government job to other productive sector.

y. It is often said that The financial sector in Nepal is much influenced by user of funds rather than those people saving funds. Providing interest rate concessions and subsidies to borrowers is great at times of COVID 19 but budget did not address the voice of depositors. Had the tax on interest earned on deposit been reduced, depositor would have ample disposable money that would help increase aggregate demand in the economy.

z. Home is most essential property of every citizens. There are numerous homeless people too. Buying land and building home has been much expensive and it costs general people a life to own a home. Through budget, government has introduced home loan facility to government employees only in subsidized interest rate. Every general people buying home for first time need to be provided loan in lower interest rate which remained ignored by the budget.

These are basic observations noted while going through budget speech. Any additions to suggestions and feedbacks on this observations are highly welcomed.

Sanjay Gelal; Biratnagar, Nepal