Nepal lacks microeconomic analysis
Nepal has long struggled after the Covid-19 pandemic to revive its economy. Every economist in Nepal has been involved in answering one question that is “Is Nepal going into recession?”. Formally, recession is a condition where there is a significant decline in economic activities spread across the economy, lasting more than a few months, normally visible in production, employment, and real income. Economists in Nepal have been dealing with this question with ease but are not even concerned about the microeconomic position of the country.
The Nepal Rastra Bank has been publishing its macroeconomic analysis, but to date, Nepal lacks a strong microeconomic analysis. Microeconomics is social science, a fundamental department of economics that studies the implications of incentives and decisions and how that affects the utilization and distribution of resources on an individual level.
Nepal has adopted a free-market economy where there is no government intervention. The economic condition of Nepal has been solely reliant on the service market, product market, and remittances. The service market contributes about 55.36 percent of the GDP of Nepal. But only about 11 percent of Nepal’s GDP is dependent upon the production market. Still, agriculture is the top occupation in Nepal about 65.7 percent of the population are farmers. Though these are just numbering; the economy of Nepal is dependent upon the average population and their purchasing habits and behaviors, and Nepal still does not have these microeconomic analyses.
Nepal has a grand loophole in micro-level economics, for instance, there is no analysis done in Nepal that shows the purchasing habits of people. It is people who set the standards of demand and supply in every free market economy. Without knowing individual habits and how they spend their hard on money, the market analysis is reluctant to a failure. Nepal’s micro landscape indeed faces significant challenges, practically in understanding consumer behavior and purchasing habits. Without a clear understanding of how people allocate resources, and the factors impacting the spending decisions, economic policies will always go into a static failure. Businesses established in Nepal have more microdata of consumers than the authoritative body in Nepal.
Nepal lacks a systemic and comprehensive data collection mechanism at a microeconomic level. No government mechanism dwells with mechanisms to track consumer spending patterns, income distribution, or the saving habits of people. This absence of data makes Nepal’s economy unpredictable, and the market movement is fluctuant. The prominent part of Nepal’s economy is informal, with high remittance flow, and the hundi system in Nepal has led to a rapid flow of cash in Nepal making the purchasing power of people high. Many transactions occur outside the formal banking system, and small businesses have no financial records. Nepal’s market is driven by luxury goods from the foreign market making Nepal lose forex. These two parts have made the economic situation of Nepal arduous, which has not been studied by the government till now officially.
Nepal’s market is trendy, it is driven by foreign-influenced thoughts from social media. Nepal itself being a culturally diverse country tends to have different consumption behaviors geographically. There is no localized data so it is difficult to understand these variations and tailor economic policies or business strategies accordingly for economic growth.
To allocate and address this problem economists in Nepal must now focus more on the micro-economic analysis than the macro part of the economy. The government must also collaborate with private sector stakeholders and must invest in the formation of a strong data collection system. They must focus on providing household surveys, consumer spending trackers, and digital payment analytics, to better understand purchasing habits. Policies should be made targeting the formalization of the economy, the government must track and band the hundi system. Which is leading to high purchasing power and disbalancing the demand and supply system of the economy.
Promoting research institutions that focus on microeconomic analysis, utilizing technology like Artificial intelligence to monitor real-time spending patterns through digital payment systems, and conducting cultural and regional studies to understand the unique economic behaviors of diverse communities are essential steps. These measures would provide valuable insights, enabling the development of more effective and targeted economic policies, and ultimately fostering and making the economy of Nepal predictable and robust.
