The rate of growth in gross domestic product (GDP) may fall short of the target due mainly to the economic factors-sluggish investment, infrastructural underdevelopments, unsatisfactory collection of revenue vis-à-vis target, low-performance in external sector, and non-economic factors - institutional weaknesses and current political uncertainties.
This was revealed by Unnayan Onneshan (UO), an independent multidisciplinary think tank, in its half yearly assessment of the economy for FY 2014-15, reports UNB.
The UO also suggests an urgent inclusive political dialogue that reducing the exigencies of current political uncertainly will ensure consolidation of democracy through regular transfer of power and cause the economy to grow faster.
The UO after a rigorous assessment of the trends of major macroeconomic indicators during the first half of FY 2014-15 projects that if the business as usual situation continues the rate of growth in GDP falling short of the target of 7.3 per cent may stand at 6.26 per cent at the end of the current fiscal year.
Taking account of the impact of non-economic factors such as political uncertainty together with underdeveloped infrastructure, the think tank opines that industrial production has been badly affected by the current uncertain political situation-induced risky investment climate.
As regard declining private investment, the think tank shows that private investment as percentage of GDP has been on the decline since FY 2010-11. In FY 2011-12, private investment stood at 22.50 per cent, which reached to 21.75 per cent and 21.39 per cent in FY 2012-13 and FY 2013-14 respectively.
Referring to increased gap between savings and investment, the research organisation evinces that in FY 2012-13 and FY 2013-14, the national savings were 30.53 per cent and 30.54 per cent, whereas the total investment were 28.39 per cent and 28.69 per cent of the GDP representing 2.14 and 1.85 percentage point gaps respectively.
Pointing to the economy's lagging behind other developing economies in collecting revenue, the UO demonstrates that the tax-GDP ratio stood at 9.7 per cent against the target of 11 per cent in FY 2013-14. Meanwhile, the ratio stood at 13.9 per cent and 12 per cent in Nepal and Sri Lanka respectively in 2013.
The total number of the holders of Taxpayers Identification Number (TIN) is only 1.70 million which is only 1.09 per cent of the total population against 6.90 million people of taxable income. Among the total number of TIN holders, only 0.86 million people that represent 0.54 per cent of the total population submitted their tax returns in November 2014.
Referring to institutional weakness of the economy, the research organisation says "country's banking sector is caught in trap and is characterised by high interest spread, excess liquidity and declining growth in disbursement of credit to private sector coupled with poor risk management, fraudulence, captured governance and lax oversight."
In FY 2010-11, the rate of growth in quantum index of production (QIP) was 16.95 per cent, which decreased to 10.79 per cent in FY 2011-12 and slightly increased to 11.59 per cent in FY 2012-13. Later on, the index drastically fell and stood at 8.3 per cent in FY 2013-14.
The research organisation has called for an expedient seven-point policy measures - improved international diplomacy, employment enhancement strategies, higher revenue collection through expanding tax base, institutional reform in financial sector, increased private investment through incentivising investors, narrowing interest rate spread through effective harmonisation of macroeconomic policies, and development of a functional social security system.
