Divided We Stand: The Increasing Rich-Poor Gap

On May 31, 2014:

The recent Annual Household Survey released by Central Bureau of Statistics (CBS) sheds profound insight on persistent inequality between the rich and the poor and underscores the urgent need for better policy implementation. The increasing rich-poor gap has fuelled an ongoing debate on the efficacy of government policy recommendations aimed at uplifting the socio-economic status of people belonging to the lowest income strata. Although the government appears to acknowledge the enormity of the conspicuous divide between the affluent and the destitute, it fails to demonstrate genuine efforts towards evaluating previous well-intentioned policy steps that seem to have gone awry.

According to the survey, the annual per capita expenditure of the wealthiest 10 percent population ($1,470) is nine times larger than that of the poorest 10 percent population ($155) in Nepal. Worse, the findings show that rural households squander their hard-earned earnings mostly on alcohol and tobacco consumption: more than twice the amount they allocate towards their child's education expenditures. Despite a substantial decrease of almost 20 percent in the overall poverty rate in recent years, the rich seems to amass more wealth, thus giving rise to massive economic disparity. These latest CBS figures have urged the policy makers to devise ways that potentially dissuade poor households from consuming alcohol and tobacco. More importantly, the poor household's unfortunate decision to allocate significantly less amount on child's education has questioned government's blind obsession with education policies that hinge more on supply of schooling and less on demand for educated labor.

The government's recent report on consumption expenditure, however, has turned over a new leaf and forged a promising avenue towards using substantial evidence for better policy making in future. In the past, CBS has limited its resources to collecting data exclusively on living standards and employment in the fragile Nepalese labor market. While the previous initiatives that CBS undertook have been somewhat helpful, they are nowhere sufficiently adequate in the light of Nepal's recent drastic demographic shifts. Under the circumstances, the latest CBS findings outlining the national pattern of employment and consumption among different population sub-groups deserve special recognition. Undoubtedly, this CBS-led survey conducted during the first half of 2013 covering almost 3,000 households from 67 districts is relatively smaller in scale and less transparent in scope, compared to the quinquennial Nepal Demographic Health Surveys implemented under the aegis of Ministry of Health and Population. Yet, it provides aspiring researchers with a wealth of previously unavailable information on detailed consumption expenditure among rural and urban households of Nepal.

The underlying challenge ahead entails how policy wonks make use of these staggering statistical estimates on heavy alcohol and tobacco consumption. Despite the government's unanimous support for launching vigorous awareness campaigns against the adverse consequences of tobacco use on human health, no anecdotal evidence suggests positive behavioral changes among poor individuals who continue to drink and smoke copious amounts. Worse, the government's well-intentioned policy decision to ban public smoking two years ago in response to Tobacco Product Control and Regulatory (TPCR) bill introduced in 2010 has been a stupendous failure, thus adding insult to injury. This calls for a major policy breakthrough, lest poor's exorbitant expenses on alcohol and tobacco intake will lower the likelihood of bridging the widening rich-poor gap in health and education.

Substantial research evidence, however, offers highly effective policy solutions. Stringent price policies that involve steep taxation have reportedly contributed to a sheer reduction in tobacco and alcohol consumption in different parts of the world. Although Nepal hiked tobacco tax from 25 per cent to 35 per cent in 2013, assessing the direct impact of a tax increase on consumption across rich and poor individuals is, unfortunately, beyond the scope of the current government's shoddy evaluation strategies. Compared to countries like Sri Lanka and Thailand that levy a total tax share of 74 per cent and 70 per cent in retail price of cigarettes, Nepal's recent policy change certainly appears unpardonably insufficient.

Moreover, the government needs to consider the repercussions of a potential tax increase on both the tobacco industry as well as the consumers, specifically the share of a considerable money burden arising from the tax incidence on both parties. This is a classic public finance question that senior economists in Nepal ought to apply their expertise and find an answer to. Sadly, economists in Nepal actively serving the government still resort to raising awareness on effects of tobacco and alcohol consumption as the only policy solution. How economically poor individuals respond to increase in cigarette and alcohol prices will determine the efficacy of the tax hike; however, it's critical that the government carries out as well as evaluates such policy strategies.

Business owners belonging to the tobacco and alcohol industry will most likely leave no stone unturned to prevent the government from implementing a massive tax increase. The extant case in the Supreme Court filed against the two clauses of the TPCR bill that requires companies to cover 75 per cent of the packet, including a public health message accompanied by a color image, is a case in point. Their constant lobbying against the authorities to interfere with the decision-making process in the past leaves substantial grounds for government's impending failure at bringing about a significant policy breakthrough. However, it behooves the government to display strong political will and work diligently towards designing policies that potentially discourage the poor from frittering away large sums of money on alcohol and tobacco consumption.

In conclusion, the poor household's substantial budget allocation on tobacco and alcohol intake instead of human capital investments for their child appears to aggravate the widening economic disparity in Nepal. Unless the government makes an arduous attempt to help the poor modify their consumption behavior, cases of domestic violence and children drop-outs in public schools will most likely continue to persist. More importantly, policy makers need to employ statistical evidence generated by the CBS to design sound public policies, otherwise their inherent ability and ulterior actions will come under more intense scrutiny.