Rajesh Kumar Agrawal
Kathmandu: The external sector is currently in good condition in terms of foreign exchange reserves and balance of payments savings. The data from the first ten months of the current fiscal year show that Nepal holds $18.4 billion in foreign exchange reserves—enough to cover 14.6 months of goods and services imports. Inflation is also low, recorded at 2.77 percent as of Baisakh (mid-May). Remittance inflows have increased to Rs 1.356 trillion. Banks and financial institutions have more than Rs 650 billion available for investment, and interest rates have dropped to single digits.
Despite the decline in interest rates and the availability of investable funds in banks and financial institutions, demand has not increased significantly. As a result, entrepreneurs are not borrowing or investing. This remains the greatest challenge for the existing economy.
Industries have not been able to increase production. The lack of regular electricity supply is increasing production costs. On one hand, investable funds in banks are rising, and on the other, past regulatory policies have discouraged investors. In an event organized by the Confederation of Nepalese Industries (CNI) in Bhadra 2080, I stated that the economy was going through a “policy-induced recession.” This situation has led to a balance sheet recession and a downgrade in consumption. The regulator failed to acknowledge this reality, and the economic impacts are now evident—even in the balance sheets of financial institutions.
Capital expenditure by the government plays a key role in keeping the overall economy dynamic, but the state of capital expenditure has been concerning for some time.
The private sector believes that the government will adopt effective measures to resolve these challenges and create an environment conducive to investment.
Legal reforms to improve the economic and business environment, increase investment, and ensure good governance in public service delivery—as well as the directive to use domestic products in public agencies and budgetary provisions promoting production in FY 2082/83—have raised optimism in the private sector. However, effective implementation of these reformed laws and directives is crucial to achieving desired outcomes.
CNI has submitted to the Government of Nepal a booklet containing a detailed study of outdated and obstructive laws, including those that should be repealed, amended, or newly introduced. We are grateful to the Government for undertaking legal reforms based on those suggestions and urge them to give high priority to further legal amendments.
Some of the legal and policy reforms initiated by the government in the fiscal year 2082/83 are historic. Breaking away from the traditional and narrow thinking that investment abroad should be prohibited, the government now allows Nepali businesses or companies to open sales branches abroad, export semi-processed goods, and establish processing plants. It also permits investment of up to 25 percent of annual export earnings in foreign countries—a forward-looking provision. Other capable sectors should also be allowed to invest abroad.
Through the 2082/83 budget, the government has emphasized further policy, legal, and procedural reforms in sectors that significantly contribute to economic growth, with a focus on promoting private investment. We welcome provisions like: exemptions and incentives for new industries in special economic and industrial zones; review of land acquisition and ceiling laws; operation of SEZs, industrial zones, and industrial parks through public-private partnerships; incentives for the IT sector; allowing industries to construct their own transmission lines and charge wheeling fees; and additional tariff discounts for productive industries consuming beyond a certain electricity threshold during low-demand periods. Additionally, a strategy for industrial development, support for quality standards, and facilities under special laws for industries must also be prioritized.
The legal and policy reforms initiated by the government should receive continued priority.
In cases of economic offenses, instead of imprisonment, financial penalties should be imposed. Countries like India and other developed nations prioritize this approach. CNI has already submitted a detailed proposal to the government, advocating for economic penalties over imprisonment for economic offenses. The idea of decriminalizing corporate law rests on the principle that the state does not benefit by jailing entrepreneurs, and this issue must be treated with high priority.
CNI has also requested provisions for anticipatory bail. Since such provisions would benefit not just the private sector but also bureaucrats, politicians, businesspeople, and the general public, anticipatory bail laws should be introduced.
Amid the current contraction in overall demand, producers are struggling and facing an added burden as they are unable to recover credit payments. Although other countries have payment protection laws, Nepal does not. Therefore, the government must introduce a Payment Protection Act.
The state is losing revenue due to unauthorized trade, and domestic industries are suffering. The government must take strict action to control illegal trade, especially along the Nepal–India border. Since there are many examples of the government successfully curbing illegal trade in the past, we are confident this can be achieved again with strong willpower.
Sections 57 and 95Ka of the Income Tax Act have resulted in double taxation, deterring investors. These sections need to be amended.
Prosperity is possible in our time. It is up to us to achieve it. If not now, when will we build a prosperous Nepal and ensure the happiness of all Nepalis? Therefore, the Confederation of Nepalese Industries calls on the Government of Nepal, political parties, the private sector, development partners, and all stakeholders to move forward with a commitment to building a $100 billion economy and achieving double-digit economic growth. We are confident that prioritizing infrastructure, energy, information technology, productive industries, tourism, healthcare, agriculture, mining, and education will help us reach this target.
The 16th Five-Year Plan has projected a requirement of NPR 11.18 trillion in investment over the next five years to maintain an average economic growth rate of 7.1 percent. Thus, achieving double-digit growth and a US$100 billion economy within the next decade will require significant investment. Yet with strong political will, this is achievable. To do so:
a) The rapid development and application of the IT sector must be prioritized to diversify the economy.
b) The demographic dividend and youth capital must be utilized effectively. For accelerating growth, the education and skill development of the working-age population, especially the youth, must be a top priority. Alongside expanding technical and vocational education, health infrastructure, and strengthening social health security systems, access to and quality of healthcare must be improved.
c) Sustainable tourism and proper utilization of natural resources are essential. With abundant natural resources, Nepal can foster economic growth through the promotion of sustainable tourism.
d) Nepal should prioritize renewable energy for energy security. To attract private investment in hydropower and renewables, various exemptions, concessions, and streamlined administrative processes are needed.
e) Nepal must adopt a multidimensional approach to reduce climate risks—prioritizing government policy, private sector collaboration, community involvement, sustainable land use, climate-resilient agricultural infrastructure, and institutional capacity strengthening.
f) Prosperity cannot be achieved through domestic investment alone. Hence, to attract and retain foreign investment, the business environment must be improved. This includes political and administrative stability, a strong financial sector, improved financial access through technology, and policies that support entrepreneurship and innovation.
g) As digital financial access expands, the savings base must also increase. Promoting the gig economy and digital entrepreneurship will strengthen savings in the formal economy, boosting private sector capital and contributing to economic growth.
h) Regional cooperation and connectivity must be emphasized. Developing the Bangladesh–India–Nepal Economic Corridor can reduce trade costs and increase bilateral trade and investment through strong infrastructure and connectivity systems.
i) We must create an environment that attracts multinational companies by utilizing our vast potential. Just as countries like India and Vietnam have benefited from their strategic locations, Nepal must do the same to attract global firms.
If we prioritize the above areas along with ongoing legal and policy reforms, we can quickly achieve a US$100 billion economy and double-digit growth. I call upon all to pledge and take action today to expand our current US$44 billion economy to US$100 billion.
Without this commitment and determination, the national aspiration for a prosperous Nepal and happy Nepalis will remain unfulfilled. It is the responsibility of the government and parliament to set clear goals, policies, and supportive laws. The private sector of Nepal remains optimistic and ready to expand domestic investment, attract foreign investment, increase production, and create employment.
(Statement by CNI President Mr. Agarwal during the 22nd Annual General Meeting of the Confederation of Nepalese Industries while handing over his tenure.)
Feature image credit: vistage.com
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