Prahalad Rijal, The Kathmandu Post, April 30, 2019
Nepal’s gasoline consumption almost doubled in the last five years, leading to a yawning trade deficit besides causing environmental consequences. According to a report released by the Central Bureau of Statistics last week, Nepalis consumed 90 percent more fuel than they did five years ago.
Data obtained from Nepal Oil Corporation showed that annual petrol consumption soared 92 percent in the past five years. The increased stood at 20.5 percent from the fiscal years 2016-17 to 2017-18. Diesel consumption rose 96 percent in the last five years, and by 23 percent between fiscals 2016-17 and 2017-18.
“Our economic growth model is heavily dependent on the import of fossil fuels as we are yet to fully adopt green energy consumption in our development policies,” said Swarnim Wagle, former vice-chairman of the National Planning Commission. “We are at a crossroads; we must focus on implementing a proactive energy policy particularly in the public, private and government transportation mediums and other sectors.”
There is a huge difference in taxes on automobiles powered by fossil fuels and electric vehicles. Electric vehicle buyers have to pay 10 percent of the purchase price as tax while gasoline-powered car owners pay more than 250 percent in import duty. However, this has not helped to change automobile consumption patterns.
Statistics unveiled by Nepal Rastra Bank show that vehicle and spare part imports went up by a whopping 36.06 percent from Rs77.84 billion in the fiscal year 2016-17 to Rs105.9 billion in fiscal 2017-18. As per central bank data, in the eight months of the current fiscal year, Nepal imported vehicles and spare parts worth Rs71.30 billion, accounting for nearly 12 percent of total imports.
Some economists say the drastic rise in the consumption of gasoline and automobiles is largely a reflection of an expanding middle class, rising living standards and growth in economic activities fuelled by remittance-driven markets.
Remittance inflows were recorded at Rs755.06 billion in 2017-18, an increase of 8.6 percent year-on-year. Based on the inflow, the ratio of remittance-to-GDP was registered at 25.1 percent, ranking Nepal high on the list of economies with heavy reliance on remittance contribution to GDP to keep the economy floating.
As per central bank data, Nepal imported petroleum products worth Rs137 billion in the first eight months of the current fiscal year, up by 36.4 percent year-on-year. “Increasing use of petrol suggests a rise in living standards with more middle-class people buying new vehicles while increased diesel consumption suggests a growth in the industrial and manufacturing sectors,” said economist Niraj Poudyal, an assistant professor at the Kathmandu University School of Arts.
“It simply widens the trade deficit,” said Raghubir Bista, an economist and assistant professor at Tribhuvan University. “If we compare revenue collection from automobile imports and taxes and the level of capital spending, the rise in consumption does not reflect economic growth.”
In the fiscal year 2017-18, Nepal’s trade deficit swelled by 27.5 percent to Rs1,163.86 billion. In 2016-17, the deficit was recorded at Rs912.82 billion, data from the Trade and Export Promotion Centre shows.
In the first eight months of the current fiscal year, the country registered a deficit of Rs887.89 billion, a steep rise from Rs719.17 billion during the same period in the last fiscal. The ratio of import to export jumped to 15.5:1, which means Nepal spent Rs15.50 on importing goods for every rupee it earned in exports.
“Nepal’s economy is largely driven by remittance. And a large portion of it is spent on consumption and not production. Full faith in the government’s statistics might lead us to an illusionary trap of falsified growth if we discount the impact of over dependence on remittance to balance the accounts,” said Bista.
According to experts, unless there is a growth in industrial output and a decline in the fiscal deficit, an increase in the consumption of imported petroleum products that account for around 11 percent of total imports does not add much to domestic value in terms of economic growth.
“The costs we pay for being over-reliant on petroleum and automobile imports largely outweigh the benefits we derive,” said Bista. “The money neither stays in the economy nor is invested to increase productivity.”
That apart, there are environmental concerns too, say environmentalists. The major contributor to rising air pollution, according to the 2017 Air Quality Management Action Plan for Kathmandu Valley, is vehicle exhaust, along with smoke from brick kilns and dust from construction. Motor vehicles are responsible for 30 percent of particulate matter (PM10) in the air while the construction sector accounts for 53 percent, as per 2018 data. As per the global Environmental Performance Index released in January 2018, Nepal ranked the worst for air quality among 180 countries. The report also showed Nepal’s overall performance as ‘poor’ in terms of the environmental index.
“Low scores on the index are indicative of the need for national sustainability efforts on a number of fronts, especially cleaning up air quality, protecting biodiversity, and reducing green house gas emissions,” the report said. “Some of the lowest ranking nations face broader challenges, such as civil unrest; but the low scores for others can be attributed to weak governance.”
“Diesel is not a clean fossil fuel and it is a major contributor of air pollution,” said Chandra Pandey, an environment and climate change expert. “The developing economies like Nepal should adopt and promote clean energy policies at the earliest to mitigate the health hazards and curb CO2 emissions caused by diesel driven vehicles.”
According to Wagle, it is high time policymakers focused on encouraging the use of electric vehicles—which also come with large tax benefits—with supporting policies. “Keeping apart the ideals and environmental statement, use of clean energy must also make sense economically,” he said.
“If it does and we incorporate it, then we can gradually claim to be a green economy with a healthy environment.”