With increased income, people go on spending spree

KATHMANDU, July 13 : Income of the people has increased by 13.8 percent, especially as remittance grows significantly this fiscal year. However, lack of investment opportunity and mechanism to channel this money, has fuelled spending spree.

Income is being diverted to consumption of imported products, and saving ratio against consumption declined to Rs 8.9 from Rs 10.10 of each Rs 100 earned in the first eight months of the fiscal year.

Average saving of the last 12 years records an average Rs 10.45 and average spending of Rs 89.55 on every earnings of Rs 100.

Min Bahadur Shrestha, executive director at the Research Department of Nepal Rastra Bank, said that earners are spending lavishly finding no investment alternatives and also in many cases the investment is not a priority for many due to financial ´illiteracy´.

Remittance earners have shown reluctant to buy remittance bond offered by the central bank in the past, but statistics shows that the spending spree continues unabated without their investment in capital formation.

Foreign employment earners remitted astounding Rs 356.7 billion rupees in the first eight months of the current fiscal year-- which is an increment of 34.1 percent as compared to the corresponding period of the last fiscal year, according to economic survey unveiled on Thursday.

Increased remittance flow has not only fueled spending spree but has also hit the agro sector, which is one of the mainstays of the economy.

Families of migrant workers have left their villages to nearby urban centers and district headquarters, leaving behind farming. This is led to growing dependence on import of agricultural products.

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Highlights

• Lack of investment opportunities hurting growth
• Experts stress on agricultural yield to replace import
• People´s income up by 13.8 percent
• Of each Rs 100 earned, people are saving only Rs 8.9

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Secretary of the Office of Prime Minister and Council of M—nisters Krishna Hari Baskota is of the view that the model of—group farming promoted by the Sana Kishan Bank (SKB) should be adopted so that the dependence on at least agro products could decrease.

SKB has so far provided loans worth Rs 1.5 billion for group goat farming, and it has worked wonder for the farmers.

Consumption is not taken as a bad thing when production happens domestically, but in the context of ballooning trade deficit it´s an urgency to focus on investment in the agriculture to replace agricultural import, experts say.

The country imports agro worth products over Rs 100 billion every year and rice import alone stands at staggering Rs 1 billion per month.

Shrestha added that the central bank has suggested the government to issue bonds for the investment in hydropower and infrastructure development sector with attractive returns to encourage those earners who are on spending spree.

Baskota agrees.

He said that there are various examples of good returns from investment made in such sectors. Manakamana Cable Car and United Trade Center in Tripureswore are just two examples of such investment in the private sector.

“Such investment projects can be an important instrument if they also issue initial public offering and channel money but such investment can not come without political commitment of assurance of returns and policy consistency by the government,” added Baskota.

There are a number of state-run projects that need huge investments, and people could be eager to invest in them if the government would float IPO through political consensus to draw investments.

For instance, Budghigandaki Hydropower Project, a reservoir project of 630 MW, demands Rs 200 billion and Kathmandu-Tarai Fast Track needs Rs 100 billion. Commencement of such projects can pull huge investment if remittance can be properly funneled. Moreover a lot of individual and institutional investors would also be eager to diversify their portfolios.

“Nonetheless, the government´s overarching goal is to draft a new constitution first, hence it has not yet been able to focus on investment climate,” admitted Baskota.

Baskota also stressed on the need to overcome the misconception that gold and land are best the investment areas.

Jagadish Chandra Pokhrel, former vice-chairman of National Planning Commission, said that though foreign investment is important in the sectors of the maximum return in the country, there are clear evidences that the country can manage huge hydropower and infrastructure projects with domestic investment.

Huge oversubscription of the IPOs floated by some hydropower projects and commercial banks over the recent months also speaks that there is no enough investment instrument though people are more than willing to invest their money wisely than going on spending spree.

(Source: Republica)