Rapid Economic Development – The license to a new Nepal

Experience worldwide has indicated that the surest prescription for political stability is rapid economic
development where jobs are created and the youth of the country find well paying jobs. Based on this
worldwide experience it would indeed be prudent to conclude that Nepal would need to embark on policies
that promote rapid economic development. Being fixated on the past in an effort to reshape history will not
accomplish much in designing and implementing policies that would result in a new Nepal that is
prosperous and a reservoir for jobs.

We can only peer at history with circumspection. The problems of the past such as inequalities and
feudalism only educate us on the defects of our own history and provide us with opportunities of how not to
repeat those mistakes. Any action today to obliterate the events or figures of history cannot wipe out
events that unfolded decades and centuries ago. How we now shape our future based on the experiences of
the past is the challenge for all Nepalese. The quicker we realize and internalize this aspect the better off
we are. Looking to the future with a positive frame of mind, examining the strengths of our country is the
only panacea at present. Fixation with the past with a vengeful attitude is perhaps the surest prescription
for failure and such an attitude will be a serious impediment to growth.

Let us move ahead defining a vision for a new Nepal learning from our own history and stressing the
importance of rapid economic development. For this, politicians and political leaders have a major role to
play. Their focus must shift from quarrels for berths in the ministry to an open discussion on how to guide
Nepal ahead to make it a prosperous nation in the shortest possible time. We have a great opportunity now
with the resilience of the Nepalese people, with technology developed by others that can be used instantly,
and a country steeped in natural resources that needs to be recognized as the prime mover for our
development.

Steps to bring about economic changes

The first step for us is to recognize that a small country like Nepal that is resource starved at this juncture
cannot and should not attempt to develop every sector of the economy. Emphasis on too many sectors
would diffuse our scarce resources and inputs to these sectors would be so small that no meaningful results
could be obtained. We must concentrate in those sectors where we have a competitive advantage.

This means there are about 5 sectors that can be developed today in order to move the country forward.
These sectors have by now been largely recognized as tourism, agriculture, agro-based industries, hydro
power and forest based industries. The diversification of tourism into ecotourism, adventure tourism,
religious tourism should help Nepal become a major tourist destination in the world provided our private
sector and the Government work together to make this a distinct possibility. The challenge will be in
subduing vested interest among the tourism entrepreneurs to bring about an atmosphere to work together to
realize this possibility. In order to develop agriculture and agro-based industries, there will certainly be a
need to develop smaller and large irrigation systems to irrigate large chunks of land in the hills and the
Terai. Increased agricultural outputs will create the conditions for the development of agro based industries.
We then have hydro power where revamping existing policies will be a pressing imperative. Highly
expensive hydro power generation will never be a prime mover for the country's development. Instead we
need to find a method to develop our immense hydro power potential at minimum cost. Finally the
presence of herbs and other forest based resources should be developed through the development of a forest
management plan with the incorporation of our experience and expertise in community forestry.

Mere formulation of plans by the National Planning Commission will not be sufficient to bring about
development of the 5 sectors. While a more comprehensive plan may be the first step in implementation,
there has to be greater emphasis in involving a larger section of the population in implementing those plans.
In other words we need to be more action oriented with truly well defined time lines and interim goals. It is
then and only then that our plans will be translated into implementation and meaningful results.

What needs to change?

The experience of developed countries indicates a direction for us to replicate in Nepal. Small industries
create about 80% of all jobs contrary to the notion that large companies are the reservoir of jobs in
business. As a result our rules and regulations should be geared towards the development of the small
industries. Currently the regulations in place and the requirement to visit various Government departments
and ministries regularly create serious disincentives for the establishment and promotion of small
industries. This needs to change.

Over the last decade, the Government has always touted market liberalization as its new mantra. While
some liberalization has taken place in terms of privatization of some government owned industries, the
government has not achieved one important transformation. It has failed to move its modus operandi from
that of a controller of the economy to that of a regulator of the economy. This is because this
transformation requires major attitudinal changes of politicians and the bureaucracy. It is high time we
embarked on this path earnestly and immediately.

As the economy expands and new areas open up, the tendency of the Government to encapsulate
everything within narrow definitions and rules is a serious deterrent to development of most industries.
The Government has established set criteria formulated over two decades ago, and accommodating new
types of businesses within this narrow framework with its rigid structures means many businesses are not
defined properly. This narrow definition is utilized in all Government entities to define what can and
cannot be done. For example the electric vehicle business was absolutely new in Nepal, but the permits
provided for operation was so limited in scope that it created serious impediments to smooth operation of
the business. Just to carry on some of the important activities required additional government permission
and approvals from time to time that is both cumbersome and difficult to fulfill. These constraints are
applicable to other businesses as well.

If an industry is registered in Kathmandu, it may be justified to seek permission to establish sub entities in
other districts but if the company that is registered in Kathmandu wants to establish another sub entity in
another part of Kathmandu, what is the sense in seeking permission again for such minor activities? Such
rigid rules must be abolished in order to promote industries and businesses in the country. This type of
controls is totally unwarranted as it seriously inhibits business formation.

There are other complications as well. The Government by law used to provide tax exemption for industries
ranging from 5 to 7 years in the manufacturing area. However, to facilitate this process an Industrial
Promotion Board was established. The Industrial Promotion Board has repeatedly made decisions that
were against the law. Despite the illegal nature of such decisions, it was these decisions that were
implemented while the major legal provisions were ignored. These steps create confusion on policy and
inhibit risk taking that again has a detrimental impact on business formation. These contradictions must be
eliminated completely in the new Nepal.

It is absolutely imperative that the mindset of the bureaucracy is altered completely. Often I have had the
feeling that many rules were formulated in order to create difficulty for the business owner in order to bring
these problems over and over again to the bureaucracy for a resolution. More contacts resulted in more
money under the table. It is this type of motivation that is prevalent in the formulation of rules and
regulations, and not the formulation of rules to facilitate the development of the country. It is about time
many of these rules are revamped and abolished so that many of the controls are removed once and for all.
This will create an atmosphere for business and lead to business formation and the creation of jobs. This is
the pressing need of the day.

I recommend that we set up a special committee to study all the current rules and regulations and discuss
them openly and thoroughly with involvement of organizations like the Federation of Nepalese Cottage and
Small Industries (FNCSI), and the Nepal Bar Association and the FNCCI and other professional
organizations. If the process of developing businesses can be eased with far fewer regulations and control,
we may indeed solve the first hurdle towards rapid economic development.

Finally, in an ever changing world or economic scenario of the type we will face, no law written at one
time addresses all the issues likely to develop as the economy changes. Every law introduced in the books
today has a purpose for which the law was introduced. This is what is often described as the intent of the
law. As the economy changes, the intent may no longer be valid, so we must be able to address these
changes quickly so that regulations do not seriously impede the formation of new businesses, because of
an obsolete law that is no longer applicable. The intent of the original law may no longer be applicable, and
Government must be able to reach quick decisions either on the basis of intent or the formulation of new
amendments more applicable to the conditions at hand. This aspect must also be addressed by the special
committee.