On 15 Jestha, Finance Minister Swarnim Wagle will deliver the budget speech for the fiscal year 2083/84 in the federal parliament. The revenue and expenditure estimates presented by the Finance Minister will determine the country's future economic direction and there is a great public expectation that it will be positive. Amidst the question of what kind of budget the government will bring to address this expectation, we need to remember the country's economic history and future path. In this article, I will discuss the country's current economic situation, the existing economic complexities, the reasons why we are economically backward in history, and why we still feel uncomfortable being sure of our hopes for the future.

Budget debates in Nepal are often limited to numbers. Indicators such as how much revenue will be raised, how much expenditure will increase, how much the deficit will be, and what the public debt ratio will reach are also important. But the decisive question of keeping the economy moving is different. That is, which behavior does the budget encourage and who benefits, and which behavior and what does it make more expensive? Because long-term economic prosperity does not come from increasing public spending. For that, productivity must be increased. To increase productivity, we must adopt a policy that stabilizes the hopes and expectations of private investors through institutional reforms. Only through policy-credibility, a level playing field for competition, and continuous investment in human capital can we hope to increase productivity. The problem with our economy is not just a lack of financial resources. The real problem here is also where financial resources and labor are flowing and why they are being wasted.

Long-term economic prosperity does not come from increasing public spending. For that, productivity must be increased. If the rules are unclear, the process is slow, and decisions depend on individuals, access and setting replace open competition. In most cases, that is what is happening today. The country's capital is being directed not towards productive industries, but towards sectors that are quick to profit and low in risk but less productive in the long run. This misallocation and consumption of resources is reinforcing the cycle of not allowing formal employment to grow, weakening production and exports, and narrowing the tax base.

To understand this cycle, the concept of ‘creative destruction’, put forward by German historian Werner Sombert (1863–1941) and popularized by the famous twentieth-century economist Joseph Schumpeter, is useful. In his ‘magnum opus’, ‘Capitalism, Socialism and Democracy (1942), Schumpeter considered capitalist development not as a stable equilibrium, but as a process of continuous transformation. Where new technology, new institutions and organizations, and new markets displace old ones. According to him, real economic progress occurs not through small improvements, but through ‘waves’ of industry and technology, which destroy old structures and build new ones. This says two things at once. First, change is inevitable and second, change has a price. To increase productivity, we must give birth to new enterprises, new skills, and a new competitive environment. In this way, when giving space or birth to new ones, old industries may shrink, some skills may become irrelevant, or some groups may suffer short-term economic injury and loss. Therefore, the job of the state is not only to encourage the new. Both opportunities and security must be expanded simultaneously so that this injury and cost of change are socially tolerable.

There is another context that makes Schumpeter's theory interesting in today's Nepali budget debate, and it comes from his own life. In 1919, after the First World War, Schumpeter became the Finance Minister of the European country of Austria. At that time, Austria was in the midst of economic, political and social turmoil. In the then situation, Austria's revenues decreased, inflation was rising, the pressure of international obligations increased, and the expectations of the general public were focused on immediate relief. Unfortunately, despite being a great economist and theorist, Schumpeter could not last long as Finance Minister. Eight months after his appointment, in October 1919, he was removed from office due to political polarization, ideological conflict, and a major financial embezzlement scandal. The essence of this incident is deeper than ‘whether he succeeded or not’. What it shows is that correct theory and knowledge alone are not enough (there is another context to be added here. Schumpeter entered the US in 1932 and spent his life teaching at Harvard University). Without implementation capacity, institutional discipline, and political consensus, even the best points of the budget did not materialize. Our discomfort with the current situation and the future lies largely here. Historically, there has been a gap between budget announcement and implementation for the past 75 years. Programs are written in the budget but contracts are not awarded on time. Work starts but quality and deadlines are not ensured. Expenditure is incurred but citizens do not experience increased productivity.

Schumpeter has placed entrepreneurs at the center of economic change. He distinguished between a manager (who operates an existing system) and an entrepreneur (who changes the system by introducing new combinations). The forms of innovation are new goods and services, new markets, new production methods, new resources or new forms of industrial organization. These are the ones that make a leap in productivity possible. But entrepreneurship is not born only with budget slogans or workshop training. The first condition for this is to reduce the cost of business entry. In Nepal, uncertainty and high costs in business registration, taxes, permits and renewals, customs, banking loans, payment delays and contract renewals spoil the arithmetic of risk and return for entrepreneurs. This is why many potential entrepreneurs stop at ‘ideas’. Or are forced to trade or become middlemen rather than products. If the budget wants to increase entrepreneurship, it is not enough to announce tax exemptions. Reforms should be made to shorten the process, make rules time-limited and make the decisions of regulatory bodies auditable.

Another crucial aspect related to this is competition. Competition is not just a traditional 'price reduction game'. Dynamic competition that displaces old industries with new technologies and new products makes sense. Innovators have the potential to earn extraordinary profits for a while. Because they need an incentive to take risks. But competition policy must be strong to prevent that temporary profit from turning into permanent rent through continuous cartels, syndicates or regulatory capture. The language of syndicates, cartels, setting and license raj is common in almost all sectors of the country. What this indicates is that the competitive field here is weak. In such a situation, it is not enough to simply distribute discounts or facilities to the industry in the budget. If these facilities are not designed to increase competition and facilitate new entry, only the profits of a limited group are protected and overall productivity does not increase.

The most sensitive area for building the credibility of the state is public procurement and project management. The news of increased capital expenditure seems good, but the citizens experience it differently. The questions that citizens ask are – was the road built on time or not, what is the quality, has the transportation cost come down or not, can the industry rely on electricity and logistics or not . The current situation is that project selection is linked to politics, project preparation is weak, bidding competition is limited, and penalties and fines are not certain if the quality of work or the deadline fluctuates . This increases costs, delays, and ultimately reduces the social return on investment . If the budget wants ‘productive’ development, then public procurement should be made transparent, competitive, and result-oriented . The budget should focus on developing a system that ensures payment according to work milestones, publicly trackable data, and penalties and fines for guilty contractors and officials . If this is not improved, the budget cannot contribute to solving the structural problems of the economy . It will only be a ritual of the next new fiscal year  

The same is true of digital governance . Digitization is not magic  It is simply a tool to reduce transaction costs in the relationship between the state and citizens and the state and business. If tax administration, company registration, permits, public services and procurement systems become time-limited and auditable with digital tracking, then arbitrariness, bribery and delays in decision-making will be reduced. But if the digital system is built by creating dependence on a limited number of vendors through opaque contracts or by weakening data governance, the old rent-seeking behavior can be further entrenched in new technology. Therefore, the budget should prioritize ‘digital services’ as well as ‘digital accountability’. The common citizen should have access to open standards, public dashboards, resolution of complaints and their time limits, and an audit trail of the decision-making process.

Now the social aspect of creative destruction is added to the question of ‘why do the poor remain at the bottom?’. Even when opportunities arise, not everyone has the same ability to seize opportunities. The poor have less access to quality education, health, nutrition, digital access, language/communication, networks and risk-taking. All of these are distributed unequally. For vulnerable families, today's income is tied to today's survival. This makes it difficult for them to make decisions about long-term skills-investment, enterprise risk or relocation. When the labor market is informal and social protection is weak, risk is imposed on individuals and families. This makes the poor not 'risk-averse' but 'risk-averse'. Therefore, if the budget does not put social protection and human capital at the center when it talks about innovation and competitiveness, inequality increases, dissatisfaction increases and ultimately the political basis for reform weakens.

शुम्पेटर अस्ट्रियाको अर्थमन्त्री भएर निस्केपछिका झन्डै दुई दशकपश्चात् उनले आफूले सिकेका पाठलाई आफ्नो जीवनकृतिमार्फत सन् १९४२ मा बाहिर ल्याए । त्यो पाठबाट हामीले र हाम्रा अर्थमन्त्री तथा सरकारले धेरै पाठ सिक्न सक्छन् । बीसौं शताब्दीको त्यो घटना कथा मात्र होइन । यसले बहुआयामिक पाठ सिकाउँछ । तिनलाई हामीले आत्मसात् गर्नुपर्छ ।  This is why it is not enough to understand social protection simply as a charity or expense. It is the economic infrastructure that makes this transformation socially possible. Basic health security, child nutrition, quality education, targeted scholarships, reskilling and job-matching systems, and minimum income protection in times of crisis enable people to take risks. When a single failure leads to complete collapse, entrepreneurs are not born. When the free time to change skills is unsustainable, labor transfer does not occur. Social security must reduce the intensity of the ‘destructive’ side to drive the ‘creative’ side of creative destruction. This is where both the human and economic test of the budget lies. The question of how many lives have been reduced and opportunities increased is more important than how many programs have been introduced. The beauty of the budget lies not in the speeches, but in its credible implementation. The debate on youth migration and despair is ultimately linked to productivity and trust. The slogan ‘employment in the country’ is not enough. Quality of employment, career paths, and respect for workers are needed. There is potential in IT, energy, tourism, agricultural value chains, and light manufacturing. But converting potential into jobs requires reliable energy, logistics, predictability of customs procedures, digital infrastructure for international payments and a skills system linked to industry. Even if the number of training programs organized by various public bodies and departments is high, the results may be weak. The budget should be able to specify a way to measure the effectiveness of public spending by focusing on employment, productivity, exports and entrepreneurship. The first question is whether the budget has made concrete reforms to ensure competition, facilitate market entry, make cartels/syndicates and setting expensive and make public procurement transparent. Second, did the budget shift the allocation of resources towards productivity? How many credible steps have been taken to remove obstacles in energy, logistics, project quality and exportable sectors? Third, how much priority has the budget given to the human side of the transformation? Whether the quality of education and health, skill transformation and social security have been based on results? These are the simple questions to evaluate the upcoming budget.