Private sector’s boost may spur economic rebounding

The budget for the next fiscal year (2023/24) aims to present a range of reforms recognizing the private sector as a driving force for economic development. These reforms include initiatives to promote domestic production of various materials such as cement, iron rods, zinc sheets, iron pipes, plastic pipes, and electrical wires. The budget also highlights the importance of public-private partnerships in industrial development, the revision of foreign investment limits, and measures to facilitate boulder and gravel extraction. Furthermore, there is a focus on allocating budget resources to projects with site clearance. While these initiatives are commendable, there are concerns regarding the lack of incentives for industrialists in neighboring countries and the need for correction of import duty rates. The private sector is disgruntled following the tax provisions for FPOs (Follow-on Public Offerings) and mergers and acquisitions. Additionally, the imposition of VAT (Value-added Tax) and luxury tax on tourism-related services may have adverse effects on the industry. It is crucial for effective measures to be implemented to control illegal trade, and to take into consideration recommendations for expansion of the list of items eligible for cash subsidies in the export sector. Addressing challenges such as rising interest rates, reduced demand, cash flow issues, declining production, and job cuts requires a comprehensive approach to reboot the Nepali economy, necessitating collaboration between the private sector and the government. While the budget has addressed several of business communities’ concerns, entrepreneurs have underscored the significance of effective implementation of the budget as a determining factor for its success. However, the government has unveiled a comprehensive set of policies, programs, and budget allocations for the upcoming fiscal year. These initiatives aim to stimulate investment in industries leveraging indigenous raw materials such as agriculture, forestry, herbs and water. By reducing dependency on imports, enhancing exports, and fostering job creation, this strategic approach promises to revitalize the current economic landscape. Considerable strides have already been made in developing diverse industrial infrastructure, including industrial zones and special economic zones. However, further progress necessitates robust collaboration between the government and the private sector. Capitalizing on the existing infrastructural foundations, the joint efforts of both stakeholders are essential in expanding industrial infrastructure. The government has said that it is actively engaged in implementing a series of reforms to cultivate a conducive industrial ecosystem, while the private sector is poised to intensify investment endeavors and attract foreign capital. Upholding the principles of social justice, good governance, and economic prosperity, the government must demonstrate unwavering dedication to expedite economic reforms and progress toward these noble objectives. Industrial promotion is a key aspect that needs to be addressed. Clear provisions should be established to eliminate land restrictions for the industrial sector. It is crucial to thoroughly examine and formulate a comprehensive policy on land delimitation to drive industrial promotion effectively. Sustainable infrastructure development is also essential for fostering a prosperous nation. It is recommended to increase the capital budget and establish a well-defined infrastructure development master plan that aligns with national priorities. This will ensure timely and cost-effective completion of ongoing and upcoming infrastructure projects while maintaining superior quality standards. In the upcoming fiscal budget, a careful analysis of the Public Procurement Act is required to identify areas for structural reforms. Forming a committee and introducing necessary amendments to the Act will create an environment conducive to executing projects within specified timelines and budgets. Furthermore, a reassessment of the low bidding qualification system is necessary to ensure infrastructure quality and timely project delivery. The tourism industry, which has received significant investments from the private sector, holds immense potential for Nepal. However, the flag-carrier’s inability to compete effectively has made Nepal relatively expensive for international tourists. Enhancing the competitiveness of Nepal Airlines Corporation through strategic partnerships is crucial. Efforts should also be made to reinstate direct air connections with European countries, as their discontinuation since 2013 needs urgent rectification. The energy sector plays a vital role in foreign exchange earnings and reducing the trade deficit. Private sector investments in the hydropower industry showcase commendable entrepreneurial spirit and willingness to take risks. Agreements and commitments made during the Prime Minister's visit to India, including a 10-year, 10,000-MW electricity purchase agreement, are expected to attract substantial investments in the energy sector and expand the electricity market in India and Bangladesh. Urgent action is needed to reopen power purchase agreements (PPAs) for over 11,000MW, as their halt poses a risk to private sector investments. Facilitating private sector participation in the electricity trade and considering concessional rates for power supply to industries will enhance industrial competitiveness. The information technology (IT) sector holds significant potential for Nepal, given favorable conditions such as availability of electricity and favorable climate. However, the government has still not established IT parks. Defining the minimum prerequisites for IT parks and allowing the private sector to undertake their development is crucial. It is evident that the skilled workforce produced by the IT sector in Nepal is sought after by renowned international companies. This exemplifies the world-class caliber of Nepali IT professionals, with many prominent IT companies in Nepal catering to third countries. Encouraging non-degree IT education by eliminating student quotas in various colleges under different universities is also essential for promoting information technology-related studies. Achieving a six percent economic growth rate in the upcoming fiscal year is vital despite prevailing economic challenges. This necessitates the implementation of an investment-friendly monetary policy to boost the private sector’s confidence. The private sector is adamant on this. To foster an investment-friendly environment, the private sector seeks supportive government policies and administration. Frequent short-term policy changes undermine confidence, and guaranteeing policy stability for at least 10 years regarding laws and regulations will attract investment and facilitate the country's transition from economic recession to a path of prosperity. In the early 1990s, Nepal yielded substantial achievements in socioeconomic development through expanded private sector investment. The country turned from closed to open economy. This led to advancements in education, healthcare, industrial production, employment, and overall economic growth, resulting in Nepal's transition from a least developed to a developing nation. However, recent years have seen excessive regulatory measures impeding the progress of the private sector. Prompt attention to the implementation of the second phase of reforms is crucial. It is encouraging to see the second-phase program prioritized in the budget. Proactive policy and structural reforms should be undertaken to propel the second phase forward. The author is associated with Nepal Rastra Bank. Views expressed are personal