Submit your Article

Recently, the International Monetary Fund has projected that the Indian economy will grow by more than seven percent per year. Even if India manages to sustain the GDP growth rate of six percent, India will become a $5trn economy by 2030.

With the current government, it is believed that this goal should be easily achieved. India’s gross domestic product (GDP) has crossed the $4trn mark in nominal terms, making it the fourth largest globally, several media reports said on Nov 19, citing a purported screenshot of the live GDP tracker of all economies based on International Monetary Fund (IMF) data.

With this development, India’s economy has made significant progress toward its ambitious goal of becoming a $5trn economy by 2025. India’s sustained efforts in several sectors, coupled with good governance and strategic policies, have also fueled this historic leap, highlighting India’s position as one of the fastest growing major economies in the world. India, having achieved the $4trn GDP milestone, stands tall as a beacon of economic prowess and global influence. It took the Indian economy nearly 60 years since independence (1990s) to reach the $1trn mark and added another trillion in just seven years. In 2014, India’s GDP crossed the $2trn mark. Now, India is working toward achieving a $5trn economy by 2025 and has prepared a roadmap for it.

Nepal’s GDP in dollar terms is estimated to be around $43.42bn in 2024 and $46.08bn in 2025. In terms of purchasing power parity (PPP), World Economics has estimated Nepal’s GDP in 2024 at $243bn and projected $255bn for 2025, while another estimate by World Economics has projected a real GDP of $35bn in 2024 and $36.5bn in 2025. In a nutshell, one of the major reasons why Indian GDP grew so rapidly in the early 2000s was foreign investment and investment in India.

The milestone of shared prosperity of the private sector of Nepal and India should be able to benefit from India’s economic growth. In this regard, regular dialogue, trade facilitation and policy coordination have been promoted by establishing a collective platform in the private sector in the past and even now, but it has not been seen in action and result. It is also necessary and imperative to implement the work of simplifying the trade process and utilizing the existing infrastructure to benefit from the easy opportunities for cooperation between the two countries. Although Nepal has developed a special economic zone in the border area, it has not been successful.

In addition, there should be no delay in ensuring collaboration, knowledge exchange and access to new markets between entrepreneurs and technology innovators of both countries by building startups and innovation bridges. The private sector must do this work. How will a $5trn economy affect the lives of Indians in this way? If India reaches a $5trn economy, the per capita income, which is $2,160, will double. The purchasing power of the people will double from what it is now. Thus, the people will live a better life.

The government will have more funds to invest in infrastructure development, create more jobs through industrialization, invest in higher education and research, etc. Instead of welfare measures, the government will empower the poor and lift them above the poverty line.
The government will invest heavily in providing drinking water to all. The government can also think of providing underground sewage systems in all villages.

Technology will be given importance. Investment will be in high technology like bullet trains, metros, smart cities, space and satellites, etc.

The government will invest in industries that provide large amounts of employment. A growing Indian economy presents both opportunities and challenges for Nepal. Increased trade, investment and infrastructure development are major potential benefits, while Nepal needs to strategically align its growth to capitalize on these opportunities and mitigate potential negative impacts like increased competition and dependence. 

Increased trade and investment: A stronger Indian economy could increase demand for Nepali goods and services, boost Nepal’s exports and attract Indian investment, especially in border areas. India’s focus on infrastructure projects could create opportunities for Nepal to improve its own connectivity and food production, potentially reducing trade barriers and transportation costs. A stronger Indian economy could boost economic activities in Nepal, fostering shared prosperity through greater trade, investment, and cooperation. 

As proposed by some, a start-up and innovation bridge could facilitate collaboration and knowledge exchange between entrepreneurs and technological innovators in both countries. Closer economic ties with neighboring India could strengthen Nepal’s position in regional and global value chains.

A stronger Indian economy could intensify competition for Nepali businesses, especially in sectors such as agriculture, manufacturing, and services. Nepal’s dependence on remittances from Nepali workers in India can be affected by economic slowdowns or policy changes in India. Disparities in infrastructure development, especially in rural areas, can hinder Nepal’s ability to fully benefit from increased trade and investment.

Nepal’s trade deficit with India, characterized by high imports and low exports, could widen further without strategic intervention. Effective policy coordination between the two governments is crucial to maximize opportunities and address challenges. Under the recommendations for Nepal, under strategic alignment, Nepal needs to align its development strategy with the economic trajectory of neighboring India, focusing on areas where it can leverage India’s growth for its own benefit. In infrastructure development, infrastructure development, especially in border areas, appears to be a priority to improve connectivity, reduce trade barriers, and facilitate the movement of goods and people across borders.

Under investment in special economic zones, there should be cooperation and emphasis on establishing special economic zones in border areas to attract foreign investment and promote export-oriented industries. Under border infrastructure, investment in border infrastructure can be expected to reduce logistical barriers and improve trade efficiency. Promoting private sector involvement is not only necessary but also imperative.

Private sector-to-private sector involvement can be expected to be encouraged, especially in areas such as energy and trade, to promote shared growth.

Policy coordination between the two governments should be strengthened to facilitate trade, investment and other forms of economic cooperation. By proactively addressing these challenges and capitalizing on the opportunities presented by the economic growth of neighboring India, Nepal can and should position itself for sustainable and inclusive development, otherwise Nepal will fall far behind.

A trillion-dollar question

There is a need to fight corruption, create political stability. All children should receive at least seven years of schooling. Women should be given the opportunity to access free birth control to decide whether family, education or work is best for them. Already developed sectors such as tourism and agriculture should be boosted by implementing new developed concepts for sectors with less technological maturity. New sectors and concepts should be created to drive future innovative areas of research and technology. The tax system should be refined to make it more efficient and fair. Taxes should be paid and support payments should be made when necessary. It would also be worthwhile to create rules that benefit entrepreneurs or students who are working in the country after completing their studies and taking risks by starting companies and providing jobs to people.

Nepal’s economic prospects may also depend on its relations with neighboring countries such as India and China, particularly in terms of trade and investment. Addressing challenges such as climate change, natural disasters and environmental sustainability will be essential for long-term economic health. While challenging to predict with certainty, creating a $1trn economy by 2050 will require extraordinary growth and development efforts. Current trends suggest that while ambitious, it is a feasible goal if Nepal can effectively utilize its resources and improve its economic situation.

Prime Minister KP Sharma Oli is leaving for Spain next week to participate in the Fourth International Conference on Financing for Development. The United Nations has been organizing the conference to provide financial resources and facilities for the development of least developed and developing countries.

More than 50 heads of state, and heads of various regional financial institutions, including the International Monetary Fund, the World Bank and the World Trade Organization, will participate in the gathering. As Nepal is the chair of the Least Developed Countries (LDC) group, Prime Minister Oli will also represent Nepal as the leader of the LDCs.

The conference will focus on reforming the international financial architecture and addressing financing challenges to achieve the Sustainable Development Goals (SDGs). It will also assess progress on the Monterrey Consensus, the Doha Declaration, and the Addis Ababa Action Agenda. The event will also explore key areas of action, such as domestic public resources, private finance, international cooperation, debt sustainability, and international financial architecture.

The conference will address urgent financing needs for the SDGs, reform of the international financial system, and development effectiveness.

The aim is to address the urgent financing challenges that hinder the achievement of the SDGs, with focus on mobilizing large-scale capital, reforming the international financial architecture, and strengthening support, especially for developing countries.

Spain is a significant contributor to development financing, focusing on poverty reduction, addressing malnutrition and promoting the inclusion of persons with disabilities. Spain's development cooperation has included bilateral aid and support for initiatives such as “Aid for Trade” to enhance the integration of developing countries into the global economy.

The United Nations Economic and Social Commission for Asia and the Pacific plays a role in facilitating discussions and strategies related to financing for development in the Asia-Pacific region, including Nepal, with a focus on infrastructure development and the SDGs.

The Organization for Economic Cooperation and Development, meanwhile, monitors development finance and its characteristics, including its role in climate change adaptation and mitigation. 

Spain allocates part of its bilateral Official Development Assistance (ODA) to key areas of poverty reduction and addressing malnutrition. It also supports projects that promote the inclusion and empowerment of persons with disabilities. 

Nepal is actively engaged in discussions and initiatives related to financing for development, including infrastructure financing strategies for sustainable development. Nepal is also part of the Asia-Pacific region, where ESCAP plays a key role in facilitating dialogue and cooperation on financing for development.

Through the conference, Nepal hopes to overcome the challenges in mobilizing domestic resources and addressing the financing gap to achieve the SDGs.

Nepal Rastra Bank has started preparations for the formulation of monetary policy for the fiscal year 2025-26. The newly-formed Monetary Policy Committee has an uphill task of focusing on global practices, the context of Nepal and the path that it should take in the coming days against the backdrop of permanent pegging of Nepali currency with Indian currency and the absence of good governance in the country.

What is a monetary policy? 

Before delving further, let’s begin with a key question: what is monetary policy?

Monetary policy is related to monetary or currency matters such as cash reserve ratio, statutory liquidity ratio, open market operations, repurchase obligations. It affects the money supply in the economy. 

Who drafts the monetary policy? The central bank of a country—the Nepal Rastra Bank in the case of our country. 

When talking about this policy, another related policy also comes to mind and that’s fiscal policy. This policy is used to monitor and influence the economy of a nation.

Fiscal policy is the “sister strategy” of monetary policy through which the central bank influences the money supply of the nation. Formulated by the Ministry of Finance, it deals with fiscal matters such as government revenue (tax policies, non-tax matters like disinvestment, debt collection, service charges, etc) and expenditure matters—grants, salaries, pensions, money spent on creating capital assets like roads, bridges and the like).

The twin policies deal with inflation (the rate of increase in prices over a given period of time). The main objectives of monetary policy are as follows:

To check inflation or deflation (increase and fall in prices, respectively) or price stability in the country, to safeguard the country’s gold reserves, exchange rate stability, elimination of cyclical fluctuations, achievement of full employment and accelerating economic growth, etc.

Dealing with inflation: A tight monetary policy that reduces money supply in the system—that is one way of dealing with escalating prices.

Dealing with devaluation: This is done by increasing money supply in the system, by adopting an easy money policy and a cheap money policy.

When the economy is devastated by a war or hampered by a recession, a dispute or disruption in the economic horizon is very beneficial. In such situations, a country may adopt a dear/cheap money policy.

There is also a distinct difficulty and confusion when it comes to grasping monetary policy. Some people tend to think that dear money means that its value is high in terms of goods and services i.e prices are low while some others think cheap money means that the value of money is low and prices have increased.

Which money policy is better: It all depends on the economic situation facing a country. Interest rate is an important tool for the implementation of an economic policy. There are times when an economic policy demands that the interest rate in the money market be kept low and sometimes it demands that the interest rate be kept high for fulfilling certain economic objectives.

After this discussion, we are now in a position where we can classify these two policies based on their respective uses. We can say that we can identify the time and reason i.e when and why we use one of these two policies.

A tight money policy is preferred when the balance of payments is heavy against the country or is in danger of remaining unfavorable and when there is reckless or unwise investment from industries/industrialists and when credit creation by the banks exceeds all prudent limits.

Limitations: Monetary policy has to face many difficulties, especially in underdeveloped countries like Nepal. The existence of a large non-monetized sector—one-third of the economy in underdeveloped countries—can seriously limit the scope of use of monetary weapons, but two-thirds of the economy provides a fairly large opportunity for monetary action. Moreover, in such countries, currency occupies a relatively more important place than bank deposits.