KFA Writes

Government needs to implement immediate direct Cash Transfer

2020-05-20

For an Entrepreneur, who writes articles on ‘Entrepreneurship Series’, it might look surprising and unusual recommending Government to directly transfer Cash to the affected community as mentioned in the title. But, what we need to remember is – we are not in our normal circumstances, we are in an absolutely unprecedented and most severe situation of this COVID-19 Global Pandemic, where the entire world has come to a standstill. Hence, I strongly believe extraordinary measures are required in extraordinary times.

Rationale?

We have spent 2 full months of absolute lockdown, in which 99% of our economic activities were at complete standstill and we still don’t know how long will this continue. Whether this kind of stringent country-wide lockdown was required or not for so long, is a separate debate. But, matter of the fact is, our majority of population, including daily-wage and migrant laborers, highly needy micro enterprises and strategically important but financially vulnerable SMEs have faced this unprecedented lockdown and their incomes have dried up for such a long period.

These affected segments, considered as back-bone of our economy, have had zero cash in their hands for such an extended period. Further, uncertainty about this disease and its impact in their future livelihood is not only making them economically weak but also psychologically vulnerable. Hence, direct transfer of Cash is a must, mainly due to following important reasons:

  • To fight against the hunger

Our Poor people, who rely on daily or weekly wages, broadly estimated at 10% of our population, must feed themselves and their families. Currently, they are broken, under-nourished, worried, destitute and immediately need cash to keep them alive. This is an extremely serious situation and there is no need to think twice before Government deciding to take this measure. If through ‘Ehesash Program’ in Pakistan, NPR 12,000 could be transferred to each and every poor people, there is no reason, why Nepal cannot afford this.

  • To stimulate demand in the economy

If we put money in the hands of poor people, they will start buying products and services produced, more particularly produced by below-mentioned Micro Enterprises, which in turn will help small micro enterprises to remain afloat. Spending is key in this kind of situation. Government, all across the Globe, has been spending left-right and center. Our Government too must act immediately.

People unemployed due to Lockdown

Close to 3 Million Nepalese people are going to loose their jobs due to this pandemic. People from more severely-hit sectors like Hospitality, Transport, Retail, Trading have already been either laid-off or sent on unpaid leaves. People from slightly less affected sectors are also going to loose their jobs if this lockdown continues. This segment needs direct cash support from the Government. We need to find ways to provide cash to this unemployed segment. 

Small Micro Enterprises

Do we care about the following segments (Informal Micro Enterprises) of our economy?

Tea Shops      Small Food Stalls     Cobblers      Washer men (Dhobis)     Mobile-Repair Shops     Electric Repair Shops     Bicycle Workshops     Motorcycle Workshops     Tire  Repairing Centers     Restaurants     Photocopy Stalls     Stationery Shops   Newspaper Vendors     Locksmiths     Carpenters      Masons       Plumbers      Paan Shops      Road-Side Didis and Dais selling roasted Corns, Peanuts etc.     Road-Side street vendors selling Clothes and other Items     All Shops (excluding small retail shops and vegetable markets)     Juice Centers     Utensils Shops     Spice Markets     ….and many more …..

 

As explained above, all the above micro segments had zero revenue for last 2 months. These enterprises need cash flows to feed themselves and their families. Majority of them, will have no option but to wait for lockdown to be relaxed.

Small & Medium Enterprises (SMEs)

SMEs are bigger than Micro Enterprises, which are mentioned above. SMEs such as mentioned below are generally belong to the  formal segment and are under Government’s tax bracket:

Non-Star to 3 Star Hotels     Travel Agencies     Trekking Agencies     Adventure Tour Agencies     Domestic Airlines          Medium to Large Restaurants      All Schools (from Kindergarten to High School Grades)      Colleges (All Faculties)     Internet Service Providers      Movie Theaters     Play Theater     Movies/Plays Production Companies     Futsal           Sports Academies     Dance Academies     Music Centers     Art Centers     Auto Dealers (Two Wheelers & Four Wheelers)     Alternate Energy Ventures like Solar, Wind and others     Management Consulting Firms     Engineering Consulting Firms     Research Centers     Pharmaceutical Companies     Small Hospital, Health Care Homes, Nursing Homes, Clinics, Polyclinics     Printing Press     Photo Labs     Trading Companies (across all Product Lines)      Shipping Companies    Courier Companies      Construction Companies     Contractor’s Firms      Legal Firms     Accountancy Firms       Training Institutes (Both Technical and General)   Online News Portals     FM Radio Stations    All SMEs supporting Large Corporates like Airlines, Big Hotels, Telecoms, Road Department, Cable Cars, Big Media  Houses & Others…….

 

More than 60% employment domestically are created by the above mentioned SMEs and hence they are considered as the most important economic pillar of our Country. My straight recommendation:

  • 80% Payroll subsidy for the most vulnerable category of SME for 6 Months;
  • 60% Payroll subsidy for the other SMEs, which are also severely hit 

What is the scale of funds required?

Following Table depicts the scale of funds required:

 Note: 

 1. 10% of the Total Population estimated to be Poor                                                                                                                                      

 2.  One Million Small Micro Enterprises Estimated.                                                                  

 3.  Five Hundred Thousand affected SMEs Estimated. 15 People average number of 

      Employees per SME. Average Salary 25,000, 50% subsidy                                                 

15% of GDP looks little on a higher side, however, we need to cut all non-prioritized  budget and must allocate this fund. For such a large country with huge quantum of funds required, India has allocated 10% of their GDP in various Relief Programs. We can certainly do 15%.

How to do it?

For Category 1 (Poor Daily & Migrant Workers) Lets employ all our 753 Local governments, who will register applications, process individuals for opening of bank accounts, after which direct cash transfers can be processed. If we have complete will and team work, we can do this in 20 days.

For Category 3, network of Financial Cooperatives and Finance Companies can be used as almost all of these Small Micro Enterprises bank with Cooperatives.

For Category 2 and 4 – Unemployed People and SMEs – Regular Banking Channel can be used.

Dear Prime Minister and Finance Minister – This is the time to show guardianship of the Government. Lets not delay and start implementing the above measures immediately.

 

Thank you.

-Resta Jha

The Author is Chairman of KFA, leading Institute providing Training, Education and Consulting Services to various sectors in Nepal.

 

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