A Perpetual Inspection Mechanism

This article was originally published by Ayushma Maharjan in the Himalayan Times on October 20, 2019.

With the onset of Dashain and Tihar – the government has intensified market monitoring in every nook and corner of Nepal. The country is experiencing the season of festivals in the form of tighter and stricter inspection.

The current inspection mechanism and its repercussions to entrepreneurs has only been subject to criticism as it does not rightfully punish the wrongdoers. Instead, it creates a skeptic environment for businesses – even the ones trading fairly. Over many years now, during this festive season, Nepalese have come across hundreds of news that portray the effectiveness as well as ineffectiveness of market inspections. Also, the issues related to anger and rage of the sellers during market monitoring are much hyped in the media every year.

Market monitoring in Nepal has been seasonal, which not only galvanizes businesses to rely on unethical means to acquire more income throughout the year but also promotes corruption and bribery in the economy. While such is the scenario, we can pose a question on whether this tool used to protect consumers from price hikes, shortages and substandard goods will actually be able to do so? The inspections and market monitoring done in haphazard way can bring many negative consequences than benefits to the economy.

A research conducted by University of London identified five salient events that instigate negative emotions among entrepreneurs that might prevent them from investing, innovating and growing. These events are, discretionary application of legislation, withholding important information from entrepreneurs, stalling or complicating authorizations, conducting frequent inspections on businesses, and threatening to fine businesses or close them down.

Referring to the same, Nepalese businesses in this festive season, tend to suffer from wide discretionary powers of monitoring officers, strict regulations and fines or punishments that they might have to comply with. Unsystematic market monitoring from the hands of myriad inspectors representing different agencies and levels of government can create unpredictable outcomes. This leaves a negative impression on businesses that wish to prosper and might pose greater threat to entrepreneurship.

Furthermore, an inspection not only takes time and resources of the firm, but also increases risks of future costs and vulnerability in front of state authorities. This scenario is more relevant for micro, small and medium-sized enterprises (MSMEs), which might lead to, them, refraining from making investment. The emotional drain caused by possibility of shame in front of society can be so corrosive that it might reduce entrepreneurial initiatives.

On one hand, the threat of inspection will not only create skepticism among fraudulent businesses but also among the honest ones. On the other hand, the demand during festivals is so high that reduction in suppliers can lead to problems such as shortages and price hikes.

An argument can still be made based on the importance of market scrutiny and protection of public interest during such peak seasons. However, it is important to comprehend that, for the past few years, there were various instances where consumer right activists were dissatisfied with the inspection mechanism. Despite the many fraudulent cases filed, only few shops were shut and no actions were taken against the majority of unethical practitioners. Negligence of the traders towards market monitoring by the government exhibited blatant defiance of authority.

From this, it becomes apparent that seasonal monitoring during festive season promotes corruption instead of curbing black marketing. The demands during Dashain and Tihar are exceptionally high, allowing regulatory authorities and inspectors to reflect predatory conduct. Given that, entrepreneurs need friendly ties with government officials to operate their businesses smoothly. In general, entrepreneurs have little alternative than to tolerate demanding interactions with officials – such as frequent inspections – and to pay bribes when called for in order to avoid the risk of business failure. Such behaviors serve to limit aggression by the authority, elicit trust, and promote survival. In the current context, such behavior also seems to contribute to the continuation of unethical behavior. It is a loophole through which bad business practitioners remain in the market.

This implies that the current inspections in Nepal has not been able to prioritize consumer welfare. Even after strict market monitoring, the protection of consumers from hazardous goods is still not guaranteed.

What could work

Nepal needs a year-round streamlined and transparent inspection mechanism which would be more effective in identifying and reducing anomalies of the market. Additionally, disincentivizing businesses to practice unethical behaviors should not just incorporate imposing of fines and punishments. This might create negative effects on the entrepreneurial and investment environment as a whole. Instead, dedicating greater time and effort in informing and educating businesses – especially micro and small – on various regulations and standards that needs to be complied by them can reduce such misconduct to a great extent.