Nepal is in turmoil even though calm seems to have been restored with the army taking charge and installing an interim prime minister. Parliament has been dissolved and elections are to be held in six months. Political parties have called these steps unconstitutional. These dramatic events were triggered by youth protests. There was so much anger against democratic institutions that the Parliament, Supreme Court, police stations and other key administrative buildings were burnt down.
A parallel has been drawn with similar youth-led movements in Sri Lanka in 2022 and in Bangladesh in 2024. Sri Lanka is a small nation with a population of 22 million and is better off than other South Asian nations. Bangladesh is a big nation with 174 million people but is poor. Nepal has a GDP of $42 billion, with a world ranking of around 110th, a population of 30 million, and in per capita terms, it is ranked at 161st place with $1,458. Therefore, Nepal is both small and poor.
Trade dependence
Small economies cannot produce everything they need and have to depend on imports. Sri Lanka’s trade to GDP ratio is about 0.45, Bangladesh had a ratio of 0.30 before the 2024 disturbances and Nepal in 2023 had a ratio of 0.42. India has a ratio of 0.45 but, as a much larger economy than the other three, it is in a different league. With Trump’s tariffs coming into play, India is also now talking of Atmanirbharta, that is, reducing its dependence on imports. China has a ratio of 0.37 and USA 0.25.
With the advent of WTO in 1995, globalisation saw an upsurge and the trade to GDP ratio increased dramatically for big and small nations. In 1990, India’s ratio was 0.155, China’s was 0.24 and for the USA it was 0.20. A global division of labour emerged with businesses shifting production to countries which offered a cost advantage, especially, where the wage and logistics costs were low like in China, Vietnam and Mexico. No wonder, Trump has berated them and India for ‘stealing’ jobs from the US.
Many small economies got marginalised by globalisation. They could not become a part of the global supply chains and became narrowly dependent on a few items of export of goods and services. This was an unstable situation since they suffered more during economic shocks.
For instance, Sri Lanka became more dependent on tourism, which collapsed during the pandemic. The result was that the country did not have enough funds to import food and energy in 2022. That created massive shortages and inflation and triggered generalised protests, which turned into rioting when the government used a heavy hand to suppress the protests. Anger against the corrupt leaders in power boiled over and they had to flee.
Economic dependency
Nepal is also heavily dependent on remittances. They account for roughly 34% of Nepal’s GDP today, whereas in 1995-96, it was 27%. Families receiving remittances have risen from 23.4% in 1995-96 to 77% today. Since few jobs are being generated in Nepal, the youth has been migrating in search of jobs to India and other countries. Unemployment in the age group of 15-24 is 22.7%.
Dependence on remittances sets up a vicious cycle of decline. Those with any skill leave Nepal, thereby impacting its development. It has been reported that in some households, people have stopped working, thereby creating a dependency. Aid from major powers like the US, China and India, has been an important source of receipts in the budget. This reduces the need to raise resources from within Nepal through developing the economy. A part of this aid is siphoned out by the leadership, further setting back development. More importantly, a philosophical change occurs in the nation based on a dependency syndrome.
Role of black economy
Nepali leadership became increasingly corrupt and this was visible in the lifestyle of the leaders and their families. The contrast in their living standard and that of the average citizen became stark. Even the Communist leaders who had fought against the corrupt monarchy got corrupted.
Leadership gave itself immunity from prosecution which emboldened them to circumvent every rule to make money. This blatant disregard of rules affected all institutions like, the bureaucracy, judiciary and police. It undermined the democratic constitution which, while good on paper, became non-functional.
This disregard of the rule of law and growing corruption resulted in rapid change of governments. The leaders wanted power to make money. This set up a vicious cycle of increased political instability and corruption. There were no exceptions and all political parties lost credibility in the public’ s eyes.
Growing black economy stunts development. It thrives on non-accountability, which undermines democracy, alienates people and breeds cynicism in them. This is visible in South Asia. By lowering ‘investment productivity’ and increasing ‘social waste’, it reduces growth and employment below the economy’s potential. It leads to policy failure so that goals are not achieved – government’s ‘expenditures do not lead to outcomes – and governments get discredited. Gains from the little bit of development that occurs is cornered by the elite and leads to the dramatic and visible rise in disparities.
Black income generation involves illegality and it has risen sharply in South Asian nations. Underlying black income generation is a triad consisting of corrupt businessmen, politicians and the executive. They get an income over and above their legal incomes. So, they do not check its growth, no matter which party comes to power. Such a triad has existed in Sri Lanka, Bangladesh, India and Nepal.
In Nepal, the anger against this triad has boiled over and was visible in the recent protests.
Evolution of dependency
How did the dependency syndrome and black economy get entrenched in Nepal? Is India an exception?
India gained independence after a long struggle during the national movement for independence. Indian leadership at the time of Independence was nationalist and anti-imperialist. It worked to reduce its dependence on the colonial powers by charting an independent development agenda.
There was considerable political stability in the initial two decades which enabled the pursuit of a long term developmental agenda. This set the stage for future development even though independence has been eroded during the last four decades.
Nepal also struggled against the monarchy over a long period of time. But political leadership was dependent on outside forces (US, China and India) that interfered in Nepal’s affairs and an autonomous development path was not worked out. The existing political instability got magnified after the downfall of the monarchy as the external forces pursued their own interest through political parties.
The Maoists, who came to power through arduous underground struggle, also got normalised because they acquired power in alliance with other parties. The intense struggle among the ruling groups has been for power and money, not development. The democratic institutions – legislatures, judiciary, bureaucracy and police – were manipulated for power and that led to their decline and further weakening of democracy.
In brief, underlying the explosive events in Nepal is the fact that as a small economy in a globalising world, it faces great instability. The struggle of the political parties against the monarchy did not make them an independent political force due to their dependency on global powers. This undermined the political process thereby aggravating instability. The drive for political power was intertwined with making money by resorting to illegality and that led to spread of cynicism and helplessness among the citizens and to the recent explosive events.
Author: Prof Arun Kumar, The article first appeared in The Wire
