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Political, Economic and Social Development in Nepal in the Year 2011

The Year 2011 regenerated the hope of Nepalese people for stable political transition. On November 1 major political parties - the Unified Communist Party of Nepal (Maoist), Nepali Congress (NC), Communist Party of Nepal-Unified Marxist Leninist (CPN-UML), and United Democratic Madhesi Front (UDMF), a coalition of five regional parties -signed a seven-point deal on the peace process, constitution writing and power-sharing. The deal settled the future of 19,602 Maoist People's Liberation Army (PLA), agreeing to integrate 6,500 fighters into the newly-created Special Directorate of Nepal Army (NA), responsible for infrastructure development, industrial and forest security and disaster relief. The deal offers a package of $6,300 to $10,000 for PLA opting for voluntary retirement and $7,600 to $11,400 (depending on their rank) for rehabilitation. They will be integrated on an individual basis and their ranks will be determined according to NA's norms.

The coalition government, led by Maoist Vice-Chairman and Prime Minister Dr. Baburam Bhattarai, brought Maoist weapons under the Special Committee for Supervision, Integration and Rehabilitation of PLA, ended double security system for Maoist leaders and regrouped PLA in which 6 persons opted for rehabilitation, 9,600 choose integration and 7,286 preferred voluntary retirement. Maoists' promise to return the seized property during the conflict and dismantle the para-military structure of Young Communist League met resistance from the party's dissident faction led by its Vice-Chairman Mohan Baidya favoring radical reforms. NC and CPN-UML raised the question of allowances paid to PLA exceeding the categorized number by about 2,500 deserters. The establishment also failed to install Truth and Reconciliation and Disappeared Persons commissions necessary for transitional justice to rebuild this nation. Its decision to withdraw all conflict-era cases was opposed by international community, human rights bodies and the court.

On November 23 the establishment formed a nine-member experts' committee on state restructuring to give recommendation on defining federal provinces. The Dispute Resolution Sub-Committee under the Constitutional Committee of Constituent Assembly (CA) headed by Maoist chairman Puspa Kamal Dahal has settled most of the contentious issues except federalism and form of governance which hit deadlock. NC and CPN-UML mobilized non- Maoist parties for a parliamentary system of governance against the Maoists' desire for a presidential one. Prime Minister Bhattarai is scrambling to survive, NC proclaimed to head the future government while CPN-UML sought to topple him asserting that the November 7-point deal has replaced the 4-point deal signed earlier between Maoists and UDMF to elect him. The Baidya faction, now aligned with Dahal, terms both the deals "betrayal of people and the state," agreed to review them including BIPPA deal with India, replacement of Prime Minister, pro-people's constitution, dignified integration of PLA and engage in an urban revolt if other forces conspire against these goals. The Bhattarai faction who is unable to stitch up fractious interests in common ground for peace and constitution seems unsteady.

The cabinet splintered into feuding factions threatened its ability to govern. Bureaucracy, police, courts and service delivery public institutions are beset by political patronage and demoralized while those of private sectors are engaged in cartel, syndicate and hoarding of goods. Civil society groups of youth, women, worker, Dalits and under-classes of society demand justice from shifting coalition of upper caste elites, inner-party democracy and peace dividends for the poor. Political protection of criminals is the main obstacle to create security and investment-friendly environment to support post-conflict peace building. In the face of shrinking labor market and underutilized hydro-power, only remittances hold the nation's economic future. Nepal's foreign policy also missed strategic balance ratcheting up geopolitical pressures from the neighbors and great powers. Its genuine development partners have aligned their aid to national priorities, nourishing the hope of Nepalese people for a stable, peaceful and progressive Nepal and encouraging a sense of overarching national identity.

Crisis of Constitutional Rule

The CA, amending the Interim Constitution 11 times, self-extended its tenure 4 times until May 28, 2012 for the delivery of new constitution. The Supreme Court's verdict of November 25 gave it last chance to extend the Assembly's term by a maximum of six months asserting that if the parties fail to deliver the constitution in time it should either go for a referendum to sort out remaining difference or seek a fresh mandate. NC defended the verdict while Maoists, UDMF and CPN-UML dubbed this judicial activism. The separate petitions by legislature and executive seeking a review of this verdict have been quashed by the Court. The thematic committees of CA have submitted their reports to the Constitutional Committee but the finalization of draft is facing hurdles because key leaders are transactional wrangling for factional supremacy in the party and executive power than transformational ones settling issues, meeting public expectation and producing a stable government. Only on February 3, the parliament elected CPN-UML Chairman J. N. Khanal as a new Prime Minister on the 17th round of election after seven months of having a caretaker government lead by Madhav K. Nepal from the same party. After the secret 7-point deal between Maoist chairman Dahal and J. N. Khanal on power-sharing, constitution and peace processes, the Maoists supported Khanal's candidature. This government lasted only for six months. On August 14, a 5-point deal reached between the major parties for a national unity government left Prime Minister Khanal with no choice but to exit from his post.

On August 29, 2011 Dr. Bhattarai was elected as new Prime Minister after his party signed a 4-point deal with UDMF and gave priority to peace, constitution writing and relief to the people. But It repeated the same mistake of forming a majority government while the approval of every article of the new constitution requires either a consensus or a two-third majority. The Baiday faction refused to join the government and wanted to scrap the deal for its promise to create a separate Madhesi regiment of NA with 10,000 personnel and abandonment of land reforms and People's Republic. Leaders of UDMF, flexing their political muscle anew, threatened to pull out of the government if it does not begin recruiting Madhesi in the NA. The Supreme Court, NC, CPN-UML and indigenous people opposed the group entry into NA. The 7-point deal, however, shelved the differences between Dahal-Bhattarai faction, NC, CPN-UML and UDMF on some issues but sharpened polarization inside Maoists. For the Maoists, the election of Dr. Bhattarai has saved the party from the brink of split. For the UDMF, the coalition with the Maoists provided it an incentive to neutralize class conflict, nullify land reforms and share the spoils of office. Common geopolitical glue strengthened the capacity of both to corrode the authority of the remaining state-bearing institutions-the NA and the Supreme Court, considering them the legacy of feudalism in need of restructuring and democratization.

Nepal's constitutional future is strained by steep challenges. First, state restructuring along federal line remains a Herculean task as federalism is coupled with the competing claims of various groups for autonomy, ethnic self-determination, "one- Madhesh-one-province", prior use rights on land, water and forest, special rights of dominant ethnic groups on major positions for two electoral terms and Article 169 of ILO guaranteeing the subsidiarity rights of indigenous people. The 14 federal provinces proposed by CA leave no space for three dominant social groups-the Chhetri, Dalits and Bahuns and even minorities. Second, the Maoists said clearly that it would not move the peace process unless a presidential system of governance is accepted. Third, Local Peace Committees, meant for broad reconciliation, are hobbled by patronage politics. Fourth, the engagement of armed groups and criminal gangs in the Eastern hills and central Tarai in the economy of violence - extortion, plunder and killing - marks Nepal's already tattered human rights conditions posing difficulties for peace, security and development. The lack of a strong national center has opened fissures along sectarian fault-lines and deteriorated state institutions. Pre-modern politics of divide and rule, factional strife, rise of caucus politics of sub-national groups across the party lines, demand of people for social representation and identity-related ethnic and territorial mobilization are eroding the national identity of citizenship and provoking counter-movement from the marginalized groups. Control of government by all-party committees from the villages to cabinet has confiscated the impersonal capacity of state to achieve governance goals and create responsive order to deal social plurality and political polarization. The government scrapped all-party mechanism at the local level for its excessive corruption, a fact also confirmed by a survey of Transparency International which considered parties the most corrupt institution followed by parliament and police.

Civil society raised a fear over the non-renewal of the tenure of UN Office of the High Commissioner of Human Rights (OHCHR) expired on December 8 as a pretext to grant amnesty to all crimes, denying justice to the victims of violence and perpetuating a culture of impunity. A special United Nations Mission in Nepal (UNMIN), in support of the peace process, had to leave ignominiously on January 15 without completing its mission. The Parliament's State Affairs Committee directed the government to make "a security plan to curb criminal activities" and "check the massive unlawful transfer of officials" which have clogged the production of order, legitimacy of authority, development and peace.

Nepal with Regional and International Affairs

Nepal's foreign policy faced geopolitical tension between its leaders' aspiration for the regime's high profile role and futility of their efforts and, in the process, missed a strategic balance essential to preserve the nation's unity, sovereignty and international image. Its candidates were defeated in the election of 66th Presidency of UN General Assembly, Asian seat of the Economic and Social Council of the UN and even mission force commander to hold referendum in West-Saharan Africa. Despite Prime Minister Bhattarai's desire to make Nepal "a vibrant bridge between the South Asian region and China, rather than traditional buffer state," ties with China are marked by mistrust. Chinese Ambassador to Nepal Yang Houlan expressed (October 16) "Nepal is turning into a playground for anti-China activities" owing to convergence of "activities of some international and domestic forces against China."

While Indian Prime Minister Man Mohan Singh stressed the "special relationship" between Nepal and India, Chinese Prime Minister Wen Jiabao's visit to Nepal from December 20-22 was postponed due to insecurity and engagement of Nepalese politicians on free-Tibet activities. Deputy Prime Minister Bijaya Gachhdar, who first refused to meet the Chinese delegation, visited China to reset the ties of trust. Sensing uneasiness with Nepal's tilted foreign policy, US Ambassador to Nepal Scott H. DeLisi suggested (December 12) Nepal to make its foreign policy bigger than its immediate neighbors as "The world is bigger than India and China." The US Undersecretary of State for Democracy and Global Affairs Maria Otero suggested Nepal to honor a "gentlemen's agreement" on Tibetan fleeing their homeland and register children of Tibetan refugees born after 1990. Nepal upholds one-China policy. The US Army in Nepal has begun providing training to NA for conducting joint relief and rescue operations during natural calamities and earth quake. On April 16 Nepal and the US signed a new Trade and Investment Framework Agreement giving it the possibility to export its readymade garments.

The 17th South Asian Association for Regional Cooperation (SAARC) Summit in Maldives on November 10-11 signed accords on Seed Bank, Rapid Response to Natural Disasters and the Implementation of Regional Standards. Nepal will host the 18th Summit by 2012. The World Bank approved a $99 m ($84m credit and $15m grant) for Nepal-India electricity Transmission and trade project to help Nepal meet the ongoing energy crisis and $41m for the implementation of Kabeli Transmission project and regional cooperation on wildlife protection.

Economic Recovery Muddles Along

Nepal's population is 26m with a growth of 1.5 %. It ranks 157 in the 2011 Human Development Report. Life expectancy at birth is 66.16 years (male 64.94: female 67.44). Adult literacy rate is 56.6% (male 71.6: female 44.5). With a per capital income of $645 the human poverty index value for Nepal is 25.16%. More than a quarter of the population earns less than half euro per day. Agriculture contributes 35%, industry 16% and service 49% to GDP. Economic growth is only 3.5 %. Agriculture growth picked up to 4.1% due to good monsoon rain turning the food deficit nation to a food surplus. Most of its 36 public enterprises are at loss consuming $ 27.18m public subsidy. Major constraints to economic progress are: shortage of electricity, corruption, capital flight and political instability. Labor is less a problem as majority of workers is employed in agricultural and informal sectors. The yearly migration of Nepalese workers abroad is around 355 000. The money sent home by 3m workers is $ 1214.12m which contributes to 23% of the GDP. Forty percent of its population is unemployed. Political strikes, bank defaulting, evasion of Value Added Tax by business elites and official corruption have left industrial development in tatter. Its growth is only 1.5%. Reduction of strikes contributed to 4% growth of service sector. This year, 719, 597 tourists entered Nepal. The contribution of foreign aid to budget stands at 26 % and development about 60 %. Its debt servicing ratio is 4%.

On March 24 industrialists and trade unions reached an agreement for a new salary adjustment of workers under which minimum salary stands $70.59 and daily wages $2.66. Employers contribute 20 % to Social Security Fund and workers 11 %. They also agreed on 'no work, no pay'and "Industrial Peace Year" for next four years.

The Global Financial Integrity report reveals that annual illegal capital flight is $494m by top business elites. The loss of political and business ethics is evident from major corruption scan-dals such as Sudan scam where the UN barred Nepali peace keeping mission citing sub-standard Armored Personnel Carriers purchase by senior police officers, red passport selling by four lawmakers, rent-seeking in airbus purchase by Nepalese Airlines Chief Executive and evasion of Value Added Tax where Finance Minister tried to protect 480 firms. The parliament ratified the UN Convention against Corruption, Suppression of the Financing of Terrorism 1999 and Transnational Organized Crime.

Exports rose to $278.71m and imports grew to $1594m with a trade deficit of $ 1.48b during the past four months. Nepal-India bilateral trade increased from $1,895 million last year to $2,700million this year. Its exports to India stand at $452m while with overseas it is $110.5m against the import of $662.7m. The balance of payment marked a surplus of $544.82m. The gross foreign exchange reserve of $4031.76m can sustain imports, goods and services for 10 months. Of the total budget of $4528.24m for the Year 2011-12, $2383.07m is allocated for development and $2145.18m for recurrent expenditure. The share of domestic revenue is $2844.35m, repayment of principal amount $69.76m and foreign grants $825.06m reflecting a budget deficit $788.94m to be met by foreign loan $384.82m and domestic borrowing $440.12m. Inflation is 8.4 %.

Nepal and India signed four accords: Bilateral Investment Promotion and Protection Agree-ment (BIPPA), leprosy prevention, $ 250m credit to Nepal and Double Taxation Avoidance Agreement. India's aid stood at $100m. China provided $1.6b loan for the West Seti hydroelectric project, a soft loan of $82.35m for the Upper Trishuli hydroelectric project, a grant for widening Kathmandu's Ring Road, $ 19.8m military aid and its Hong Kong-based, Asia Pacific Exchange and Cooperation (APEC) Foundation, xpressed to lend a $3b support to develop Lumbini, the birth place of Gautam Buddha. Nepal and China signed five agreements: Economic and Technical Cooperation, Provision of Concessional Loan, Security Equipments, Concessional Loan for Upper Tamakoshi Transmission Line Project and Tourism under which China provided a grant of $19.88m for development, a $ 20.35m soft loan for the transmission line and a $0.792m for security equipments.

German grant for Nepal in every two years is $57m. This year, it provided additional EUR 2m for the peace process. The World Bank committed $1.503b for various projects, additionally $75m for road, $65m for poverty alleviation, $50m vocational education, $25m urban gover-nance and grants of $123.7 for education. The Asian Development Bank granted $ 0.5m for waste management, $65m for education, $22.23m for municipal governance and $80m for water supply. The EU provided euro 3.2m to UNICEF for nutritional program, euro 69m for education, peace and development, euro3.275m for disaster risk reduction and $3.88m to UNHCR for Bhutanese refugees in Nepal. The US provided $30m for adaptation to climate change. USAID and Swiss co-funded project worth $3.65m for maize research while the latter also provided $5.25m for peace. Partners in The Global Agriculture and Food Security Program provided $46.5m grant for agriculture, Japan provided $ 7.6m for social protection, sustainable development, and gender inclusive access to energy and $470,807 for health. The UK provided 60m pound, Finland $3.86m, and South Korea $5.5m for health service and $3.5m for a technical training center.

Nepal's child mortality rate is 54 per 1,000 live births while fertility rate declined to 2.6 and maternal mortality reduced to 229 per 1,000. Net enrollment for primary education is 93.7% and gender parity has been achieved in primary education. The Supreme Court asked the government to provide free education up to secondary level and later gave another verdict granting couples in prison reproduction right. The government's Sanitation and Hygienic Master Plan aims to improve the situation of 15m people and upgraded 522 sub-health posts to health posts offering health facilities in rural areas. There are 2m children engaged in various forms of child labor. Due to weak law enforcement 15,000 girls and women are sold for trafficking every year while other 40,000 girls working in cabin, dance restaurants and massage parlors. HIV patients in Nepal dropped to 55,626 this year from 59,984 last year due to various intervention measures.


B Billion
BIPPA Bilateral Investment Promotion and Protection Agreement with India
CA 601-member Constituent Assembly elected by the people to draft a new constitution
CIAA Commission for the Control of Abuse of Authority
CPN-UML Communist Party of Nepal Unified Marxist-Leninist led by Chairman Jhala Nath Khanal
GDP Gross Domestic Product
ILO International Labor Organization
EU European Union
M million
NA Nepal Army
NC Nepali Congress Party led by its chairman Sushil Koirala
PLA People's Liberation Army of Maoist Party
SAARC 8-member nations South Asian Association for Regional Cooperation
UCPN(Maoist) Unified Communist Party of Nepal (Maoist)
UDMF United Democratic Madhesi Front, a coalition of five regional parties of Tarai, southern flatlands
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