BIPPA Blues

(My article published in New Spotlight, November 11-24, 2011)

The brouhaha surrounding the Bilateral Investment Promotion and Protection Agreement (BIPPA) between Nepal and India signed during Prime Minister Baburam Bhattarai’s October visit to India presented a spectacle true to the form of present-day Nepal. From a PhD-SLC topper head of government apparently failing to appreciate the substance and implications of the pact, to a lack of open debate before its signature, to coverage by the mainstream media in a consent-manufacturing mode bent on projecting the pact as the sine qua non for attracting Indian investment.

The national treatment and most-favoured-nation (MFN) treatment provisions in the BIPPA reinforce preferential treatment for Indian investors, who in practice are already treated on a par with domestic investors and enjoy more rights than do other foreign investors, thanks to the 1950 Treaty. A treaty that the Maoists, with “intellectual” fire-power from Bhattarai, once upon a time wanted to be scrapped but now are willing to accept in an adjusted and updated form. Nepal’s strategy should be to treat all foreign investors alike, regardless of their nationality.

The provision on compensation for losses (Article 6) requires each government to compensate the investors from the other country for any losses they incur due to war, state of emergency, insurrection or riots on a national and MFN treatment basis. This is, for practical purposes, more than national treatment, unless the Nepal government decides to compensate domestic investors similarly. Replacing “civil disturbances” with “riots” was trumpeted—with cheerleaders in the media—as a sterling achievement of the Nepali side, when in fact it does not require a brilliant lawyer to prove the equivalence of the two in many a circumstance, during international arbitration. A government of a least-developed country in perennial transition that is unable to maintain law and order has the cheek to pledge compensation to foreign investors for losses from its absence!

Media reports had it that the BIPPA would allay India’s concerns about the disruption of Indian investment projects, including the Upper Karnali hydropower project. The pact will not be able to address concerns related to disruption due to, say, load shedding, militant labour unionism, strikes, shutdowns, extortion etc, which are major concerns of all investors, domestic and foreign. Some “leading” dailies reported that whether to provide compensation for losses arising from incidents like strikes and shutdowns will be decided by a joint industrial committee comprising both Indian and Nepali businesspeople. The biased reportage was riddled with contradictions: the pact will encourage Indian investment by addressing security concerns; to show that Nepal has not given away much through the agreement, it is emphasized that compensation is confined to losses arising from war, emergency, insurrection and riots (thereby contradicting the hype about the agreement being key to attracting Indian investment into Nepal); and then it is let on that a committee shall decide on compensation for other types of losses. Since the agreement makes no mention of such a committee, what led the media to refer to it? Whose wishes were they articulating? Was there a letter of exchange to that effect?

Worst of all, the BIPPA could entrench a patently anti-development policy. Choice hydropower projects have been awarded to foreign investors to be built as export-oriented ventures even as the country is starved for electricity. There have been protests, including by a faction of the Maoists, against such projects. The means of protests have been violent at times, no doubt regrettable. But the policy that prompted such protests is also condemnable. The provision of compensation in the BIPPA gives the government a veneer of legitimacy in the form of “international obligation” to use force against such protests and/or use the state treasury to compensate foreign investors affected by the protests although such investment is not in the national interest in the first place. It may not be difficult to interpret the protests and associated vandalism as rioting. Or perhaps it is the putative joint committee that is to decide on compensation should they not be interpreted as rioting. The justification that the BIPPA will help bridge the huge trade deficit with India, which stood at 200.87 billion rupees in the first 11 months of FY 2010/11, is absurd. The immediate focus should be on channelizing all potential domestic resources, including remittances, into the productive, tradable (export and import-substituting) sector. Where foreign investment is essential (e.g., huge hydropower projects) it must be guided into priority sectors and uses (e.g., electricity for domestic use, not exporting away the multiplier benefits). Besides restoring law and order, developing hydropower for domestic use (load shedding is cited as the biggest constraint in business climate surveys), addressing other supply-side constraints, securing the removal of market access barriers faced in India and elsewhere, and obtaining improved transit facility are critical to increasing exports to India and beyond.

What is the PM’s position on the export-orientation of the hydropower policy? The media otherwise critical of the Maoists portray him as a pragmatist. There is a thin line between pragmatism and opportunism. Once upon a time he used to write fiery articles about how Nepal was forced into underdevelopment courtesy of the core-periphery relationship with its neighbour. Can he explain how exporting cheap hydropower can spur economic development in Nepal, which in his considered view is essential to strengthen nationalism? He reportedly broke down when visiting his alma mater, JNU, and said that he is what he is because of JNU, where he learnt Marxism. Does JNU Marxism mean keeping one’s own country underdeveloped while allowing its resources to be exploited by its neighbour—if the student happens to be a Nepali? Did he miss an opportunity to tell leftist gurus at JNU and CPI(M) comrades not to demonstrate “hollow” nationalism by protesting against Indian trade liberalization moves, including its free trade agreement with the European Union?  It seems that the Marxism taught at JNU is to be interpreted differently for different folks—one version (pragmatist) for Nepal and the other for serving the interests of its motherland.

Rehab package: Turning Maoists into Capitalists?

So as many as 6,500 of the Maoist combatants in cantonments may be integrated into a separate directorate of the Nepal Army, while the rest will be rehabilitated, according to the seven-point deal reached between UCPN(Maoist), Nepali Congress, CPN(UML) and major Madhesi parties. Assuming that there are still 19,000 UN-verified combatants and 6,500 opt for integration into the security force, 12,500 combatants will have to be rehabilitated. The deal provides for two avenues of rehabilitation that the combatants can choose between: a package of education, training and vocational opportunity (with the cost ranging from Rs 600,000 to Rs 900,000); or direct cash payment of Rs 500,000 to Rs 800,000 (to be made in two tranches in two fiscal years).

Faced with a choice between a package that may or may not impart them with employable skills, that too in a situation of massive un/underemployment in the country (and getting a job means having to work) and a cash reward of at least Rs 500,000 for, well, doing nothing, a rational person, in general, is most likely to opt for the latter without second thoughts. The more industrious among them may use the cash to get a job abroad (Middle East or Malaysia). 

The cost to the treasury of the direct cash payment would be at least Rs 6.25 billion, or, taking Rs 650,000 as an average payment per combatant, Rs 8.125 billion. (On the higher side, it would run up to Rs 10 billion). Of course, the combatants who opt for the cash reward are unlikely to get the full amount they are entitled to: they will have to part with a portion of it as a levy to their beloved party. One need not be surprised if most of them splurge the money on gambling and drinking or other consumptive activities, or simply spend it to meet basic needs. The possibility of turning to crime when the cash runs out cannot be ruled out. It is also likely, as mentioned above, that quite a few will use the cash to get a job abroad, but not without the irony that combatants of a Maoist party that officially is in favour of creating employment opportunities for Nepalis in their homeland and that heads the government have to seek work on foreign shores with money from the state’s coffers!

Instead of doling out cash, it would have been sensible to provide only the option of productive work to those who are to be “rehabilitated”. This would not only help the combatants themselves and their families in the long run, but also contribute to the economy, not least by adding to the GDP and opening up further employment opportunities. How? Here are a few ideas but surely party-affiliated buddhijivis, members of the National Planning Commission and the PM’s team of economic advisors, among others, should be able to come up with even better ones (or else hang up their boots)—vocational training, internship, subsidized credit and other incentives for setting up own business (cottage and small enterprises), employment in infrastructure projects, some sort of employment guarantee, etc.

Perhaps the Maoists, in yet another volte face, are now seeing wisdom, albeit perversely, in the neoliberal preference for direct cash transfers, supposedly least market distorting, as a support measure for “vulnerable” groups. By this logic, the combatants should be free to choose the form of rehabilitation; guiding them into economic activities will interfere with the free workings of the market. Marx displaced by Friedman in a revolutionary party? Dr Sab leaders of Nepali Congress happy now? And the slogan of creating a swadheen economy can always be reinterpreted as per the demands of the dialectics of opportunism, right, comrades?

Notwithstanding all these, we are assuming that the 19,000 or so combatants in the cantonments were also combatants during the Maoist insurgency, and that integrating them into the Nepal Army or rehabilitating them will lead to peace. That’s a heroic assumption, although they have been “verified” as such. That a significant number of core fighters have assumed new avatars in other wings of the party has been a robust charge leveled by Nepali Congressites, among others. 

Then there is the issue of justice, but raising it runs the risk of being accused of attempting to throw a spanner in the works of a “historic” peace accord. Still, a cabbie—a janta ko chhoro to the core—confided to this scribe this morning: doesn’t the deal disincentivize earning a living through legal and peaceful means.

Parking Rs 500,000—the minimum amount of “reward”—in a fixed deposit account in a financial institution in Kathmandu fetching an interest of at least 10 percent will give the recipient of the largesse a steady flow of income of Rs 47,500 (after deducting 5% tax on the interest) per year, or Rs 4,000 per month, in addition to the capital of half a million rupees. From Maoists to Capitalists overnight – quite a transition! Moreover, that income is 2.5 times the per capita average national poverty line (the latest one used by the Central Bureau of Statistics for Nepal Living Standard Survey (NLSS) III, 2010/11) and also more than the poverty line for urban Kathmandu. It is also more than the per capita nominal Gross National Income for the year 2010/11. By the way, according to NLSS III, the poverty incidence in urban Kathmandu is 11.147 percent and that in the whole country 25 percent. With Rs 8 billion, at least 55 MW of hydroelectricity can be generated.

Donor countries are welcoming the deal. How about footing the entire bill in grant form, without diverting aid from other sectors, and/or providing employment to ex-combatants on donor-country soil in the true spirit of solidarity, humanity, compassion and all that jazz?