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Meena Poudel is a sociologist who has a long and committed history of development works, research and feminist activism on issues affecting lives of socially excluded and politically marginalized groups in Nepal and other parts of the south, southeast and central Asia, western Europe, and North Africa. She has worked for various national and international organizations including Oxfam GB, USAID, UN systems and academia. She is also the first Nepali woman to head an international organization in Nepal—Oxfam.

Poudel did her PhD from UK’s Newcastle University and has worked as a senior visiting research fellow with Newcastle University for several years. In recent years she has been engaging more on exploring various aspects of the lives of women, men and children vulnerable to and experienced migration in the global south in her capacity as member of the global advisory board of Migration Development and Equality, a large and multiyear academic research project funded by the British government. She has written widely on these issues that include a single-authored book, “Dealing with Hidden Issues: Social Rejection Experienced by Trafficked Women in Nepal”, which has been published in six different languages.

According to Poudel, Nepal’s foreign policy has scope of political and business diplomacy but lacks labor diplomacy. And one way to respond to challenges faced by migrants is to have an integrated migration policy that includes labor diplomacy and the contextual role of embassies.

Migration in Nepali context 

Migration, labor migration in particular, has been an important factor supporting the growth and development of Nepal and providing much needed employment opportunities for young Nepali unemployed youths in global labor markets of more than 150 countries. Organized labor migration began between Nepal and India since the British colonial regime in India started recruiting Nepali youths in their armies which was expanded for ordinary Nepali after having a friendship treaty in 1950. Nepal adopted liberal economic policy in late 1980 and changed the political system in 1990 to a liberal democracy. Since then migration for foreign employment has gained momentum in a more organized way and remittances became a part of the national economy.  

Data and research

The Government of Nepal has kept data on labor migration since 2008 only. Although currently about 6.5m workers are in foreign employment, this official data published by the Ministry of Labor does not count migrants working in India due to absence of a migration regulatory mechanism in place between two countries. In addition, migrants who leave the country without having a work permit from the government but following informal channels including human smuggler, traffickers and also man power companies taking workers out of the country without following government mechanisms are also not included in this official data. Various researches indicate that millions of Nepali youths, predominantly men, are working in India alone and tens of thousands are in other countries around the world who migrated for employment following informal, trafficking and smuggling routes. Thus, available data from the government is incomplete.

Migration and development nexus

Nepal’s traditional foundation of economy has gradually been shifting from agriculture to a service sector which, arguably, is dependent on remittances generated by Nepali migrants working abroad. So migration is a key pillar of Nepal’s development resources from family to national budget. Migration is an intrinsic part of broader processes of development. More clearly, migration generally and labor migration in particular contributes significantly to human development, shared prosperity, and address poverty. Poverty in the context of migration goes beyond traditional understanding of poverty that is predominantly a financial aspect. But migration and development discourse includes broader social change, cultural transformation and political awareness for both the countries of origin from where migrants come from and destinations of destination where migrants are employed for. 

When we talk about remittances, we should go beyond the financial definition of remittances. Migrants learn new skills, gain cultural knowledge, enhance technical skills, become aware about rights and welfare of migrants and gain confidence to deal with life challenges while dealing with a complex and competitive labor market. These are social capital one brings back home and apply in post migration journey and contribute to broader social change.

Integrated migration policy framework

Nepal is a remittances dependent economy but lacks migration policy. Nepal’s current policy framework to govern migration by foreign employment act and host of institutions, being coordinated by the Ministry of Labour, Employment and Social Security (MoLESS) as the apex structure in setting policy on and supported by various relevant thematic sub-structures from local to the federal level. Foreign Employment Act is essentially promoting foreign employment and facilitating recruiting agencies rather than managing migration by focusing protection concerns and enhancing justice to migrants and their families. Considering the role of financial, social, cultural and technical remittances migration generates for the home country, volume of migrant communities and nature work available in the destinations, it is crucial that Nepal government formulate an integrated migration policy framework to maximize benefits of migration and ensure welfare of working migrants and their families staying back.    

Better protection

Nepali migrants are relatively low skilled, less aware about vulnerabilities they face in highly competitive labor markets. Even their migration journeys are being facilitated by government regulated recruiting agencies but contractual fraud, wage discrimination, trafficking, sexual and gender based violence against migrant women, cheating in migratory cost, false promises, health and safety concerns are key challenges Nepali migrants face. Some of these challenges are Nepali institutions that are related to recruiting agencies, various departments and immigration services and some are related to discriminatory practices of employer and labor market of destination countries. These challenges can be addressed by making migrants skilled according to the needs of changing labor markets and raising awareness among migrants about their rights and responsibilities at work. 

Ratification of relevant UN conventions

Nepal is signatory of many relevant UN conventions that are important to protect rights of citizens but has not yet ratified two key conventions crucial to manage migration and protect the rights of migrants in general and migrant domestic workers in particular. ILO Convention 189 is important for welfare of migrants’ domestic workers, predominantly women and migrants’ rights convention is fundamental for protection of all migrants’ workers. These conventions are foundational mechanisms to address various injustices and challenges throughout migration processes. It is important that Nepal should ratify these two key conventions without any delays and formulate an integrated migration policy framework.

Cross border migration with India 

Indo-Nepal migration has been significant to create job opportunities for millions Nepali laborers but they are neither counted as migrants nor their remittances are accounted for by the national economy. Lack of acknowledging their status limits any benefits or justices that Nepal migration governance covers. Later or sooner Nepal has to address this issue and integrate cross border migration into migration definition, maximize their benefits into national development and respond to their challenges without any discrimination. It is also important to note that labor migration to India are predominantly low income, unskilled and seasonal, short term to medium term migrants. Some research shows that migrants who generated some financial resources, they plan to go to Arab and other destinations.

Female migrants

My research and program development experiences in various countries of south, south east and central Asia, eastern Europe and north Africa suggest that migrant women are most vulnerable due to social perceptions on their sexuality and migrant status. Regardless of their types of migration, women are immediately seen as migrants working in sex sector, trafficked women, and domestic workers experienced sexual abuses etc. This negative narrative is not true. Any migrants regardless of their gender and sexual orientation may encounter various forms of abuses including sexual. It is true however women migrants face more gender and sexual violence than men because of unsafe labour market but migrants women are also migrants like their male counterparts and work in various sectors including hospitality, marketing, tourism, transportation sector and electronic companies. While migrant women face more abuse than men at work, they also face social and cultural stigma on their return by their own family, neighbors and wider society. This stigma is high for those migrant women who return with less financial remittances. To address this stigma, we need to make the wider public aware about the role of female migrants in their family and wider social development.     

Migration is not to stop

Many Nepali politicians talk about stopping migration, particularly during the elections but this is false promises and lack of understanding on migration phenomenon. Migration is part of liberal democracy and market oriented economic policies which is the foundation of our current political governance, development framework and pillar of economy. So, proper management through relevant, migrant friendly migration policy and harnessing benefits from migration is the ultimate approach a country like Nepal needs to adopt.      

Coordination and cooperation

To conclude, when we talk about integrated migration policy, this also emphasizes proper coordination among government stakeholders such as ministry of labor foreign employment and social protection, ministry of women, children and senior citizens, ministry of foreign affairs, ministry of home affairs, ministry of law, ministry of finance and national planning commission. This coordination also needs to be at provincial and local level. So vertical and horizontal coordination within government institutions and with relevant NGOs, migrants rights organizations and recruiting agencies is crucial for safe and dignified migration management and maximize benefits of migration in development plans of Nepal.

Radhika Regmi is the deputy country director for Nepal at the International Foundation for Electoral Systems (IFES). She is an elections administration specialist with over two decades of experience in democracy, governance, elections, and inclusion programming. She has overseen and managed projects that provide technical support for inclusive, effective, and democratic elections and governance in Nepal. Since joining the IFES team in 2010, she has been offering technical support to the Election Commission (EC) of Nepal to implement free, fair, inclusive and credible elections. Regmi has also worked as faculty in universities and with various UN and international agencies.

In this write-up, she shares insights from her 20 years of experience and offers recommendations for improving election planning in Nepal.

Periodic election

Our constitution mandates that general and local elections be held every five years, but it does not specify the exact date. Consequently, the legal framework grants the government the authority to set the election date. This flexibility allows the government to potentially delay or advance the election timing based on its favorable conditions. Therefore, the exact date of the election should be explicitly mentioned in the legal framework or should be announced by the election management bodies. Additionally, as time progresses and new generation issues emerge, many laws and regulations require amendments and updates, which fall under the legal framework of elections. This legal framework must be simple and robust to ensure high-quality elections.

Electoral calendar

The gap between two elections is five years, and there must be a comprehensive plan for this period. Election management involves several steps to ensure a fair and smooth process. The election calendar is an important tool for keeping elections on track and includes an overview about all relevant milestones of election operations. It ensures tasks are not overlooked, are completed on time and include time buffer in the planning to avoid

In a mature democracy with a well-established electoral system, the preparations for an election are familiar and routine. For newer democracies, especially in developing countries and countries undergoing a transition, preparing for an election can be a major undertaking that requires much more time. Good planning should allow enough time to launch and manage an election, and to perform each task properly. It sets the dates and duration for various activities such as what dates and times voters can register to vote, when political parties can nominate and register candidates, campaign and monitors to observe the process and so on. Integrity may be jeopardized if there is not enough time for some important activities. On the other hand, a lengthy calendar may increase operating, staffing and other costs of the electoral management body. Observation and monitoring groups may also be affected by a lengthy calendar. This cycle should be continuous to ensure consistent improvement and readiness.

Voter registration and education

In Nepal, voter registration is open continuously and allows Nepali to pre-enroll online in the process. To complete the registration, voters are required to visit the province or district election office to provide their fingerprints and photograph, but it closes once the election date is announced. Since many people attempt to register only after the election date is announced, registration should remain open for at least a week or two afterward. Additionally, the voter registration process should be accessible and closer to the people and the voter database needs to be robust. For instance, it should accurately reflect voter status by removing the names of deceased and duplicated individuals to avoid proxy voting and ensure fair election. The election management bodies should collaborate and work together with local governments to ensure accurate and timely updates on deceased voters. This collaboration is crucial for maintaining an up-to-date database and increasing access of people in the voter registration process. Establishing a clear legal framework for this partnership is essential.  An accurate voter database and advanced technology facilitate election management, including determining ballot numbers, polling centers, human resource and budgets as voter registration is basic data for planning. 

Voter education is equally important, as people need to understand the significance of their vote and the democratic process. Not only the EC but also related stakeholders such as media, civil society, political parties, and others should take ownership of voter education efforts. It plays an important role in ensuring free, fair and credible elections. It provides citizens with information about their rights and responsibilities in the electoral process, fostering informed participation. By educating and motivating citizens on topics such as voting procedures, electoral laws, and the importance of democratic participation, voter education programs contribute to building a democratic culture in the country and increase participation in elections. These programs help to prevent integrity issues like vote buying. It is vital for voter education to remain neutral and non-partisan, focusing solely on providing information without any political bias. In many democracies, election management bodies together with civil society implement voter education initiatives, ensuring their fairness and effectiveness.

Budget and resources

Elections are a festival and celebration of democracy, and investing in democracy is essential for better outcomes. While the focus is often on the polling day, the election cycle is divided in three phases: pre-election period, election period, and post-election period. However, the budget for the EC is provided by the Ministry of Finance and is allocated only after the election is announced. This limited funding makes it challenging for the EC to operate effectively throughout the election cycle. In contrast, the independent election management bodies in democratic countries have their parliaments allocate yearly and election budgets. A lack of budget hampers all aspects of the election process, particularly in terms of continuous electoral and voter education, voter registration and other election preparation activities during the non-election period. Logistics management is another big task as elections are considered the biggest logistical event of the country. Hence, human resources and proper management of activities as per election calendar play a crucial role in elections. A well-trained and professional workforce is essential for free, fair and credible elections. 

Polling, counting and results

The most important act of an election is casting a ballot. Ensuring accessibility and security for voters to polling centers, the design of simple ballot and efficient vote counting and result announcement are all crucial aspects of a successful election. It is not ideal for voters to have to walk long distances or wait for hours to cast their votes. Therefore, increasing the number of accessible polling centers or implementing early and advance voting, as practiced in many countries, can help voters to exercise their voting rights.

To uphold the principle of free and secret vote, the ballot paper should be simple. Complex ballot papers can confuse voters, may delay in voting and counting, also may result in a high number of invalid votes and will also be expensive in terms of printing and delivery.  

Our ballot for local level elections and for proportional election systems in provincial and federal level are currently complex, and to improve them, the EC should either increase the duration between the last nomination day and the election day or increase the printing capacity in a short period of time. 

While electronic voting machines (EVMs) are ideal for quick election results, they pose challenges in a country like Nepal, where technology infrastructure is lacking. Issues such as technology management, data security, and the cost of importing and operating EVMs could make Nepal less financially feasible compared to ballot papers for some time. Regarding none of the above (NOTA) options in the ballot, it should serve as a moral obligation for candidates to perform better. However, if NOTA receives the highest votes, it is not economically viable to hold a re-election in Nepal. For out-of-country voting (OCV), the authorities should pilot the initiative in a few countries by determining the local laws and setting up polling centers in embassies and consular offices. 

To ensure the integrity of the electoral process, vote counting is accurate and accepted by all stakeholders. Quick results are possible even with ballot papers if the counting starts at the polling center immediately after the election ends.

Election security 

Credible elections must be free of fear, violence and intimidation. Security during the entire election process is crucial, especially during nominations, election campaigns, voting, vote counting and results announcement. Voters should vote freely; observers should observe without fear and candidates must campaign without risk to them and to their supporters. Election officials must plan and conduct elections independently, and materials must be secure to maintain integrity. Good security needs good planning. It is essential to find potential spots and places that need adequate security. A joint security plan should be developed in good coordination between the election management body and law enforcement agencies, and need to facilitate quick information sharing and decision making at the federal, provincial and local level of all institutions to act to provide adequate security.

Election campaign

In a multiparty democracy, political parties are key components and should be provided with sufficient grounds for their promotional campaigns. There are several ways to create such an environment. The state could provide funds to political parties based on their votes received and seats in parliament, and audit the expenses. It could facilitate access to governmental and private media for these parties and candidates for their campaign message. While these practices of providing media space have been practiced to some extent in Nepal, there is still plenty of room for improvement. Election campaigns often involve misinformation, disinformation, and hate speech. To curb these issues, we need a robust mechanism and process. 

Election observation

The EC, after the election, often states that the election was free, fair, and credible. To substantiate this claim both nationally and internationally, election observation is essential. National and international agencies should be granted permission for election observation as they assess all aspects of the election, including pre-election and post-election periods, not just election day. These agencies play a crucial role in enhancing the credibility of the election process. Nepal has a reputation for good election observation practices, and this should be continued.

Dispute resolution

One of the important components of election integrity is the opportunity to make a complaint or appeal and address these on time. This requires the election management bodies and the justice system addressing complaints without undue delay. In Nepal, the ECN has the authority to address any claims or complaints during the pre- and during election  period. However, after the election result, any disputes that arise are transferred to the court. It is observed that appeals are decided after the term for office is over. For example, in many cases where a writ is filed regarding an elected person, the verdict is often not delivered until after the person’s tenure has ended. Therefore, it is essential to handle the cases on a timely basis.

Political parties, research and review

Extensive research is essential in various aspects of elections, voter registration, voter educations, electoral reform, out of country voting, among others. This research aims to discover the most effective and efficient methods for conducting elections. Consultation and coordination with different stakeholders during the election process and post-election reviews with them are also crucial, as they can suggest necessary revisions in policy and administration. Findings and recommendations from research and lessons learned from these reviews should be incorporated in future election planning. Research and reviews include consultations with stakeholders, changes in the legal framework, and strategic planning. This comprehensive approach is vital for ensuring that future elections are free and acceptable.

In Nepal, the constitution envisioned a multi-party system, where political parties must register with the Election Commission with set criteria for party registration, often requiring a minimum number of party supporters or members. It is also necessary to review the current required number of supporters for party registration. If this number is too high, it can exclude smaller or newer parties. Conversely, if set too low, it may burden the electoral system by allowing registration for parties with limited support.

Purna Chandra Bhattarai is a former government secretary who has gained vital experience and expertise while serving in various ministries and their subordinate bodies, especially relating to social security programs, poverty alleviation, labor market, and employment. He was also part of the Social Security Plan Study Committee, whose report formed the basis for the Social Security Fund. He also served in the National Employment Program Study Committee that helped shape the current Prime Minister’s Employment Program. Here is how he sees Nepal’s social security program. 

Social security

Humans face crises in various stages of their life cycle. And, it is the duty of the state to provide security from risks to citizens who are in economic and social crises for the protection of their human dignity. Social security is an important tool that a state can employ to protect its citizens from various crises. The scope of social security may vary depending on the political system and the concept of welfare state adopted by the country. 

Citizens could face difficulties in maintaining minimum livelihood due to poverty, illness, disasters, disabilities, old age, or other reasons. Under such circumstances, social security schemes can be vital to ease their troubles. That’s why social security and protection are perceived as rights of citizens and as human rights. 

Scenarios 

Take recurring events like floods, landslides, and fire that cause significant financial losses to many people for example. Or consider events like the 2015 earthquakes and the Covid-19 pandemic that pushed a large population below the poverty line. The poverty rate has been observed at 20.27 percent, according to the third Living Standards Survey. Likewise, according to the latest census, 27.83 percent of the population is below 14 years of age, 10.21 percent are over 60 years old, and 2.2 percent are disabled. Similarly, more than six percent of the total female population are widows. Single women and at risk communities need to be covered by the state's social security umbrella. Disasters and crises can strike anyone, anytime, and in any way. Thus, social security is necessary to protect citizens from such risky situations and to guarantee them dignified living conditions.

Nepali context

In Nepal, the concept of social security is formally seen through the Army Welfare Fund (current Employees Provident Fund), which has been established since the Rana regime. It has been a subject of much discussion in Nepali society since the distribution of pensions started with a rate of Rs 100 per month from 1994 (approximately 30 years ago). Currently, various social security programs such as scholarships, daily meals, free textbook distribution, elderly citizen allowances, support for the disabled, Prime Minister’s Employment Program, and more than 80 other social security programs are being implemented in Nepal.

Types of social security

Social security programs are primarily of three types: first, social assistance; second, social security based on contributions; and third, labor market interventionist programs. Social assistance is provided to individuals and families who are economically and socially vulnerable or do not have access to basic services. This includes cash and in-kind support, social security benefits, primary health care services such as maternity security programs, free basic health care, scholarships, daily meals, etc. The second type is contributory social security and social insurance programs for livelihood protection and protection from risks. These programs provide benefits based on contributions made by relevant individuals and institutions. Such programs include retirement benefits, social security schemes (health insurance, accident insurance, dependent family security, children's education grants, various facilities related to safe maternity), employee provident funds, national health insurance programs, citizen investment funds, foreign employment welfare funds, etc. Third, labor market-related programs are aimed at increasing employment and productivity in the labor market, including skill development training programs such as vocational training, youth self-employment, Prime Minister's Employment Program, food or cash for work scheme, employment support, unemployment facilitation program, etc.

Guidelines

It is the responsibility of the state to support citizens facing difficult situations. Social security is recognized as a human right under Articles 22 and 25 of the International Declaration of Human Rights. Article 34 and 43 of the Constitution of Nepal also include social security as a fundamental right. Article 34 mentions the right to social security based on contributions for every worker, while Article 43 mentions the right to social security as a fundamental right for economically and socially vulnerable, disabled single women, disabled, orphaned children, those unable to fulfill their own aspirations, and backward caste citizens. Additionally, the concept of ‘Leaving No One Behind’ has been adopted as a commitment to inclusive development. Nepal has adopted national commitments to achieve sustainable development through social protection mechanisms, including establishing a nationally appropriate social protection system that helps vulnerable and at-risk communities, and developing resilient, flexible, and effective systems to prevent, reduce, respond to, and build resilience against risks. Nepal has also made international commitments in this regard.

Challenges

The foremost challenge today is to create a common understanding of the need for social security and related concepts. In recent times, all three tiers of government—federal, provincial, and local—have been competing in cash distribution programs in the name of social security. Maintaining a balance between significant political ambitions, the state's unlimited responsibilities, and limited financial capacity is crucial to establish an autonomous, contributory, sustainable, and productive social security plan. Once a social security assistance program starts, the likelihood of its withdrawal decreases significantly. Therefore, it is essential to conduct in-depth studies and analysis before making a decision.

In some situations, lengthy administrative processes have hindered the inclusion of at-risk groups in the social security scheme. These excluded groups include individuals without citizenship, single women, Dalit children, and persons with disabilities. There are also several incidents of some people presenting fraudulent records to take social security benefits.

Similarly, federal, provincial, and local levels have begun implementing identical social security programs independently. Some local levels have even increased the distribution amount of federal grants. Different bodies operating similar programs in the same place are also seen. The Government of Nepal has implemented programs such as the Prime Minister's Employment Program, while provinces have their Chief Minister’s Employment Programs, and some local levels have Chairperson/Chief Employment Programs.

Moreover, another significant challenge in social security and protection-related programs is financial sustainability. Currently, the number of people receiving social security benefits is much higher than before. In fiscal year 2080/81 BS, social security allocation was Rs 258bn. This amount accounts for 14.8 percent of the national budget. The development budget allocated to the social security sector is larger than before.

Another challenge is to make social security contributions-based systems inclusive for all. In addition to the formal sector, informal sectors, self-employment, and foreign employment should also be included in the social security system. Individuals included in this system receive benefits related to sickness, accidents, or disabilities, ensuring security for dependent families and elderly individuals. Making social security a necessity ensures that individuals can benefit, while reducing the burden on the state. In the last five years, there has been no increase in the participation of employers and contributors as expected. Similarly, health insurance programs are also very sluggish. Therefore, special efforts by the state are necessary for contributing to development in this contribution-based social security sector.

Targeted group

Another challenge seen in the context of social security is the identification of targeted groups. Instead of focusing on genuine at-risk groups, social security has become excessively distributive for political gains. This makes it difficult to target social security to the most needed groups. Currently, it is estimated that only around 32 percent of the population benefits from social security and protection programs, while the country aims to include 80 percent of the population in such assistance by 2030 as part of the sustainable development goal.

Effective measures 

It is necessary to prepare social security policies and structures (floor) related to social security in an integrated manner to bring them into a unified system. In addition, it is essential to expand the reach of programs to targeted groups by managing economic expenditure efficiently within the state's financial system. Moreover, it is necessary to develop a system where individuals can manage their own arrangements by increasing participation in social security based on contributions. Currently, around 35 percent of employee expenditure is spent on pensions, and it is necessary to include government employees in contributory pension programs. Furthermore, an integrated registry system is essential to prevent duplicate payments in social security. Similarly, effective identification of the real poor and implementing poverty identification programs is essential to make social security effective. In addition, even though the state encourages programs from time to time, special efforts are required to bring informal sectors into social security.

Social security is a joint venture between the state and citizens. Citizens themselves should be involved in social security by contributing to appropriate structures. Civil society organizations can play a role in advocating for programs related to social security, raising awareness at the grassroots level, and increasing participation. Individuals who do not need social security in society can also contribute voluntarily, inspiring and honoring social organizations. Citizen society needs to raise voice and support for the inclusion of the necessary groups, genders, and communities in social security programs and to advocate for inclusion.

These measures will not only make social security more effective but also contribute to building a more inclusive and resilient society.

Ways to strengthen it

There are three ways to strengthen the social security system: (I) Social assistance: Creating situations for people who are not able to avail themselves of necessary facilities, such as identification of targeted groups, eliminating duplicates, and creating situations for those who cannot avoid. (II) Contribution-based social security: Expanding the scope of contribution-based social security, incorporating those engaged in informal sectors, self-employment, and foreign employment into its fold, and continuously engaging them in contribution-based programs such as health insurance, contribution-based pension, etc., to make them more effective and impactful. (III) Intervention in the labor market: Engaging in employment-based campaigns and programs outside the political sphere to connect employment with skills and the market.

Achieving effective coordination 

The Constitution and the Social Security Act 2075 have entrusted the responsibility of social assistance, especially direct cash transfers for social assistance, to the federal government and the responsibility of implementation to the local level. If poverty alleviation, which falls under the responsibilities of all three levels of government, is to be achieved, then the authority area of all three levels also needs to be expanded. Therefore, it is necessary for the Nepal government to centralize policies, standards, and financial resources for social security in employment-based programs at the provincial level. In order to overcome the crisis in the citizens' life cycle that does not receive political benefits from social security, it is necessary to consider protective measures in the form of necessary protection measures. It is also essential to establish institutional mechanisms for coordination among the governments of all three levels in this regard.

Khim Lal Devkota, PhD, is an expert in fiscal federalism, specializing in public finance, fiscal decentralization, intergovernmental fiscal relations, and legislation. In May 2021, Devkota made a transition into political leadership, winning a seat in the National Assembly (NA). His tenure ended in March 2024. Devkota’s legislative initiatives, including drafting the Legislative Management Bill, 2024, emphasize provincial and local government participation. During Nepal’s transition to a federal republic, he held the esteemed position of the first Vice-chairperson of the Policy and Planning Commission of Bagmati Province from 2018 to 2019. His major task in parliament was the introduction of the ‘Federalism Implementation Resolution Proposal’ and recommendations related to federalism implementation from the ‘Federalism Implementation Monitoring and Parliamentary Special Committee’, of which he was the chairperson. The Prime Minister has repeatedly taken recommendations from this committee. Devkota presents a 10-point blueprint, addressing various federal issues.

Action plan

According to a Cabinet approved action plan to implement federalism, the Inter Province Council meeting should take place every year in March-April. Yet, as of today, there has been no progress in scheduling the meeting. The action plan included a schedule to collaborate with the ‘Policy Research Institute’ to ensure consistency in policy making and law formulation across all three tiers of government. Regrettably, this initiative has not commenced as of yet. Furthermore, the decision was made not to allocate small schemes and programs under the name of conditional grants starting from the current fiscal year 2023-24. However, many small plans and programs have been distributed through the budget speech. The action plan outlined the adjustment of the provincial police force within a year, which has also not seen any progress. It also promised to resolve the issues faced by subnational-level employees by the end of the second week of July 2023, but there has been no visible improvement in their situation.

Committee’s recommendations

The report from ‘Federalism Implementation Study and Monitoring Parliamentary Special Committee’, formed by the NA, if executed sincerely, has the potential to resolve citizen concerns and enhance the governance and federalism system. Recommendations include drafting laws to ensure inclusive representation in state organs and women’s participation in the electoral system, both at federal and provincial levels. The creation of a joint parliamentary committee for federalism, the development and implementation of an action plan based on parliamentary committee recommendations, and the establishment of a decentralization plan to delegate responsibilities to subnational levels are highlighted.

Moreover, the report suggests organizing training and public awareness programs on federalism, democracy, and the rule of law from the central to local levels. It also emphasizes the need for equal and easy access to state services, the safeguarding of the rights of marginalized communities, and the creation of a trustworthy environment to combat violence, abuse, and discrimination against vulnerable groups. Implementing fundamental rights, including social security, dignified living conditions for senior citizens, and the guarantee of human rights, is considered essential. To maintain consistency within the administrative system and the spirit of the federal democratic republican governance, the report suggests forming a high-level administration reform commission chaired by the prime minister. It advocates for a legal and policy framework to ensure that the chief executive officer of the local level is not below the undersecretary level. Discussing matters in sectoral thematic committees before presenting bills in parliament is recommended to maintain consistency in laws across different government tiers.

Reform in electoral system

It is crucial to change the electoral system, including the numbers. For this, the number of members of the House of Representatives (HoR) should be reduced from 275 to 165. The proportional electoral system should be abolished. Issues of inclusiveness should be included in the first past the post-electoral system. For this, constituencies should be determined based on rotation by determining the number of seats for women-women, Dalit-Dalit, etc. to other disadvantaged and marginalized sections and communities. It is necessary to follow the same tools as the HoR in the provincial assembly. This reduced the number of provincial assemblies from 550 to 330 only. The reduction in the number of members of HoR and the provincial Assembly will bring great relief to the government system, which is said to have become expensive.

There is another tool to make the parliament more precise. Those elected from the proportional electoral system in the HoR need to move to the NA. In such a situation, the 165 members’ HoR should be based on a first past the post electoral basis and 110 numbers NA in the proportional electoral system. But the procedure of electing the members of the NA from the provincial assembly and local-level representatives should be kept as it is. Both the methods discussed here will establish political stability in the country. Due to the mixed electoral system, no matter how popular the party is, it has been proven that no party will gain a majority in the HoR. Therefore, under any condition, reforming the electoral system is an urgent need of the country.

Strengthen NA

In order to simplify this governance system, it is also necessary to have a provision that the NA will do the work of the HoR in the absence of the HoR. If such a provision was written in the constitution, the 27 bills that became inactive due to the expiration of the term of the HoR would not have fallen to zero. 22 bills pending in the HoR, and five bills approved and sent by the NA became inactive due to the end of the term of the HoR. The bills will never be inactive. The accountability and responsibility of the government towards the Parliament also increased. Through the multiplier channel, there will also be improvements in the overall service delivery provision as well.

The role of the district coordination committee has not been effective. Although the constitution gives the role of monitoring and coordination, this committee has not been able to be effective due to a lack of financial resources and working staff. In the situation where the officials of this committee are also questioning its justification, it is better for the country to go for the cancellation of this committee. It also helps in the credibility of the governance system. Federalism, which is said to be expensive, is also relieved.

Many other parts of the governance system need to be reviewed and improved. Like, the constitution has given the right of state power to the sub-national levels. But leave the matter of state power. Even the rights related to the police force included in the exclusive list in the constitution have not been transferred to the province. The federal government has intervened in the jurisdiction of the subnational level. Important laws including the civil service bill have not been enacted yet. In fact, the subnational levels have not been able to feel the government.

Fine-tuning fiscal federalism

In Nepal’s federal system, the revenue part is highly centralized. This problem may have occurred due to the customs-based revenue system. But something more could be done regarding the revenue rights of the provinces. The sub-national levels have made no effort to increase internal revenue. The constitution stipulates that the volume of fiscal transfers received by the sub-national level shall be in accordance with the recommendations of the National Natural Resources and Fiscal Commission. But the commission does not have much of a role in other grants except fiscal equalization grants. Laws designed to weaken the commission must be amended. But more importantly, the commission must move forward in accordance with its rights.

As per the basic principles of grant distribution, the share of fiscal equalization grants should be increased in proportion to the gross domestic product (GDP) or budget side. But the ratio of fiscal equalization grants being distributed to the sub-national levels has been declining while the ratio of conditional grants has been increasing unexpectedly. Meanwhile, in the name of conditional grants, small programs and projects have been sent to the sub-national levels, creating an unnecessary burden for them.

Activating intergovernmental bodies

Nepal has adopted a unique approach to address issues related to federalism implementation by creating various intergovernmental coordinating bodies, such as the ‘Inter-province Council’, ‘National Coordination Council’ chaired by the prime minister, ‘Intergovernmental Fiscal Council’ led by the finance minister, ‘Province Coordination Council’ led by the chief minister, and ‘Sectoral Committees’ led by sectoral ministers. However, these bodies have not operated as smoothly as envisioned, with the Inter-province Council, for instance, not convening for five years. These intergovernmental coordinating bodies were established to ensure policy consistency, prevent conflicts, and resolve disputes through mutual agreement.

Nepal has witnessed numerous people’s movements for democracy, development, peace, and stability, resulting in frequent changes in the governance system and seven different constitutions in a short period. In contrast, countries like the United States, Switzerland, and India have maintained stable governance systems with their respective constitutions for many years. The instability in Nepal’s governance system hampers the country’s development and stability, making the activation of the inter-governmental relations mechanism crucial for achieving development, prosperity, and good governance.

Fine-tuning administrative federalism

According to the constitution, more than half of the workload is designated for local and provincial governments, yet many organizational structures remain unnecessarily centralized. The federal level has a high number of employees, with approximately 49,000 positions created and 40,000 retained. Despite an estimated need for 68,000 local-level employees, only 24,000 have been adjusted. During the adjustment, it was conveyed that there was a shortage of 24,000 employees at the local level. The law stipulated self-arrangement for the shortage. Provinces were tasked with managing a minimum of 9,000 employees independently.

However, avenues to address the staff shortage were obstructed, with no federal civil service law enacted for seven years, hindering provincial legislation. Although Provincial Public Service Commissions were established, they failed to deliver anticipated outcomes. Restructuring the entire bureaucratic system, including institutions, is imperative, as the principle of functional allocation is not being effectively implemented.

At the federal level, there is currently an excessive number of departments, with more than half of them being redundant. These unnecessary departments, along with unreasonable commissions and institutions, should be abolished to streamline and optimize the government’s functioning. Addressing personnel concerns, the federal level is burdened with an excessive number of staff, with over half of them being unemployed. Proper procedures should be implemented to either remove the unemployed personnel or redistribute them to subnational levels where their skills and expertise can be utilized effectively.

Revisit provincial structure

Central politics heavily influences provincial governance, leading to instability mirrored from the central power coalition. This situation not only undermines the autonomy envisioned in the constitution but also fuels public dissatisfaction, questioning the legitimacy of the provincial structure. Addressing this issue requires a comprehensive overhaul of the provincial system. Two potential models for ensuring stability have been proposed. The first model, akin to the German system, advocates distributing government leadership based on election results to ensure consensus and stability. The second model, similar to the Swiss cantonal system, suggests direct election of the chief minister by the people, holding them accountable to the Provincial Assembly.

Regardless of the model chosen, it is imperative to streamline the number of provincial ministers, reduce the excessively large provincial assembly, and transition to a direct electoral system for better representation. Ultimately, stabilizing the provincial government is crucial for fostering public trust and ensuring effective governance.

International practice

Nepal can take examples from many nations following federalism like India and US but here are two examples. When examining Switzerland’s parliamentary structure in comparison to Nepal, both countries have a bicameral system. In terms of rights and authority, both chambers in Switzerland hold equal standing, whether it’s related to government formation or legislative matters. In contrast, Nepal’s Upper House has no role in government formation. In the legislative procedure, its role has also been neglected. Switzerland’s local governments have full autonomy. They are responsible for local economic and infrastructure development and service delivery. The mentality of Nepal’s federal government is so poor that it wants to handle local tasks itself.

Germany operates on a bottom-to-top federalism model, unlike Nepal’s top-to-bottom approach. Even with the German population being three times larger than Nepal’s, the country operates with just 15 ministries whereas it runs into dozens in Nepal. There has been a nice separation of power. We need not look far to witness federalism in action; Switzerland and Germany provide a valuable example.

Conclusion

The effective implementation of federalism hinges on several key factors like constitutional stability, oversight mechanisms, inter-provincial coordination, electoral system reform, and limitations on prime ministerial tenure are essential for aligning governance with citizen expectations and fostering political stability. Strengthening the role of the NA, optimizing administrative and fiscal federalism, human resource management, and revisiting provincial structures are vital for efficient governance and resource utilization. Moreover, public awareness and participation, along with continuous review and improvement mechanisms, are crucial for ensuring transparency, inclusivity, and accountability in the federal system. By addressing these aspects comprehensively, the nation can embark on a path of sustainable development, prosperity, and social justice, fulfilling the aspirations of its citizens while adapting to evolving needs and expectations.

Badri Kumar Guragain is the Chief Executive Officer (CEO) of National Cooperative Bank Ltd (NCBL) with over 16 years of experience in finance, budgeting, planning, management and consulting. Currently, he is pursuing PhD in risk management of financial cooperatives in Nepal. He has also been awarded with ‘Prabal Janasewashree Chaturtha Shreni’ by the President of Nepal for his contribution in the cooperative sector.

Guragain, in this cooperative blueprint, has presented a report on the cooperative sector on four dimensions—present condition, challenges, way forward and the outcome. 

Introduction

Cooperatives occupy a foundational tier in Nepal’s financial ecosystem, focusing on empowering and supporting impoverished communities. They primarily serve individuals lacking skills, capital, and land, who constitute the cooperative’s target demographic. Despite receiving training, resources, and credit assistance, businesses within these communities often operate at a modest scale and face vulnerability, necessitating additional support such as insurance provided by cooperatives. As these businesses gradually expand and thrive, banks, the subsequent component of the ecosystem, extend their services to accommodate them. Thus, the primary goal for cooperatives is to empower poverty-stricken communities, ensuring their sustainable growth and development.

Production-driven

Cooperatives ought to prioritize production-driven initiatives to effectively contribute to the economy, functioning as a genuine sector. However, in Nepal, cooperatives often charge the highest loan interest rates. This contradicts the cooperative ethos of cooperation and undermines its true essence. To rectify this, cooperatives should focus on establishing a presence in marginalized areas and empowering residents with lower interest rates, subsidies, resources, and skills. Achieving this necessitates an alternative channel for resource provision, as cooperatives cannot rely solely on their deposits. Therefore, capital from the Youth and Small Entrepreneurs Self-Employment Fund which has around Rs 20-25bn, along with the 4 percent lending allocation by banks for deprived sectors (total around Rs 200bn), could be utilized. 

Mission drift

The ongoing crisis in the cooperative sector stems from past mismanagement and misuse. Historically, cooperatives have been community-oriented enterprises. However, there has been a decline in the spirit of community and cooperation within these entities. Factors contributing to this include management practices centered around promoters, marginalization of member roles, disregard for legality and due process in favor of individual interests, restriction of meaningful member participation to secure personal assets, and a shift towards individual benefit rather than collective financial gains. Hence, there is a misalignment between the intended purpose of cooperatives and their actual utilization—a mission drift.

Regulatory bodies

It is said that cooperatives rely on self-regulation, but as they grow in size and turnover, the need for an effective regulatory body becomes unavoidable to safeguard members’ savings and trust. Presently, the cooperative sector is overseen by a group of civil servants within the administration, yet the effectiveness of this regulation and monitoring is hindered by inadequate coordination in managing the detailed internal affairs and financial risks of cooperatives. This suggests a need for structural modifications—a second tier regulation system. Certain services offered by the country’s banking sector and financial cooperatives are similar in nature. However, differences in regulatory provisions create challenges. In cases where regulatory systems are weak, there’s a heightened risk of financial misconduct and tarnishing the reputation of the entire sector.

Youth and skilled human resources

The cooperative sector faces a shortage of skilled human resources, largely because the younger generation is not drawn to it. Additionally, existing employees often lack even basic knowledge of cooperative norms, values, and principles. This suggests that skilled individuals may not be attracted to the sector due to inefficiencies in employee selection, training, career development, service provision, and working conditions. As institutional governance weakens and the sector’s reputation declines, employee turnover rates escalate, contributing to high migration from the cooperative sector. It appears that cooperative organizations have made minimal efforts to enhance the capacity of their current workforce.

Community spirit

Cooperative business operates on principles distinct from individual entrepreneurship and open-market dynamics, prioritizing collective interests and common needs. However, there’s been a departure from upholding fundamental norms and values such as self-reliance, accountability, democratic management, equality, justice, and solidarity, with some businesses operating beyond the organization’s intended scope. The responsibility for self-regulation has been neglected, and cooperative education has been reduced to mere formality. As a result of inadequate coordination among cooperatives, the collective spirit inherent to cooperatives is diminishing.

Asset/liability analysis

The organization needs to conduct a thorough analysis of the costs associated with resource collection and the profits generated from its operations. This analysis should include an examination of financial sources such as share capital, funds, deposits, and the ratio of external debt. It appears that the cooperative sector is encountering challenges due to insufficient analysis. Specifically, cooperatives are grappling with a liquidity crisis, primarily stemming from their practice of investing in long-term loans and fixed assets using short-term deposits.

Direction

Cooperatives must avoid functioning as parallel banks. Reports from the National Planning Commission and other institutions pinpoint regions with high poverty rates and less resources, which cooperatives should prioritize. They should refrain from extending loans to financially capable individuals who can readily access funds from traditional banks. By concentrating efforts on underserved areas and directing resources to those truly in need, cooperatives can fulfill their intended purpose more effectively.

Way forward

The government should take the lead in returning depositors’ money in installments, prioritizing the poor and needy, especially those with relatively small amounts (less than Rs 500,000) that are crucial for their livelihood. As a first step, the property of cooperative management teams and employees should be frozen. To facilitate these payments, the government can introduce various schemes, such as tax-free funds. An amount of around Rs 10-15bn would be sufficient for this purpose, which can later be reimbursed to the tax-free fund investors by auctioning off the property of those responsible for mismanaging the cooperatives.

Result

Understanding the true essence of cooperatives and addressing all mismanagement issues while aligning with the aforementioned directions will lead to a reduction in multidimensional poverty and an increase in per capita income. As we approach graduation from Least Developed Countries (LDCs), access to loans at lower interest rates and subsidies from the World Trade Organization may diminish, potentially resulting in inflation, given our import-dependent market. However, a thriving cooperative sector can bolster locally-produced goods, meeting domestic demands and mitigating these challenges.

Bishow Parajuli brings four decades of experience in development, humanitarian affairs, diplomacy, fund raising, and management in several countries in Asia, Middle East and Africa, including World Food Program (WFP) Headquarters in Rome as Chief of Staff and Director, Resource Mobilization and Government Relations. He has served as WFP Representative and Country Director to India, Yemen and Egypt and United Nations Development Program (UNDP) Representative in Myanmar and Zimbabwe.

Food security is a pathway to peace, with rising food insecurity a trigger for instability and conflicts. Ensuring access to adequate nutritious food for everyone is an important part of a country’s responsibilities for the wellbeing of the citizens. The government must, as a priority, increase its support to agriculture development and strengthen livelihood opportunities to improve food security. In this write-up, Parajuli assesses the global and national scenario of food security.

Food security is national security

Increased land use for agriculture and rapid rise in crop yields over the years has resulted in massive increase in food crop production worldwide. Despite this, there are 850m people who do not have access to adequate food and some 345m people face high levels of food insecurity. Conflicts, climate change and supply chain disruption are causing food prices to constantly rise globally, and poor households are unable to access food, facing threats in their dietary needs and nutrition for their children. 

With continued decline in household food production, more and more Nepalis are forced to buy food, and the country is moving towards increased dependence on imports. This is a concerning trend in a country where 60-70 percent of the population are supposed to be engaged in agriculture. Nepal stands high in the global hunger index, with 36 percent of children stunted. Close to a million-hectares of land is estimated to be left fallow due to shortage of manpower because of migration of youth seeking employment abroad and movement of people from the hills to the Tarai. 

Crisis on farmers

Year after year, farmers are worried about delayed rainfall due to changes in weather patterns and are unable to plant paddy crops on time. The shortage and high prices of fertilizers and availability of seeds is a recurring issue every year despite farmers raising the alarm about being unable to fetch reasonable prices for their produce, making crop farming less and less attractive. 

Most worrying is the lack of meaningful support to farmers and comprehensive interventions to increase local production, productivity and impactful programs.

SDGs

At the historic UN General Assembly Summit in Sept 2015, 193 member countries (including Nepal) agreed to transform the world with a 2030 agenda, focussing on Planet, People, Prosperity, Peace and Partnership. This agenda which came into effect on 1 Jan 2016, aimed at the successful delivery of 17 Sustainable Development Goals (SDGs) by 2030. With seven years left for the completion of the Global Goals, will Nepal be able to achieve any of these 17 goals, including the elimination of all forms of hunger?  

At a recent Food Security Summit Plus 2 in Rome, Prime Minister Pushpa Kamal Dahal stated that “It is important that we address the bottlenecks in every sector for making a leap towards zero hunger”. He also stressed, “Transforming the food system is crucial not only for food security but also for the realization of all Sustainable Development Goals”. The PM is right—food security is affected by at least 11 Sustainable Development Goals. There is an urgent need to translate the PM’s statements into action with leadership, commitment, program activities and financing, so that all bottlenecks in improving food security to achieving zero hunger are addressed. Unfortunately, there is more talk than action. Frequent changes in the leadership in the Agriculture Ministry at the political level makes matters worse. 

Government commitments

The budget for 2023/24 makes a commitment for a national campaign for self-reliance in agriculture with an increase in food production from 10.7m tons to 14m tons and a reduction in import by 30 percent by the end of 2024. This is clearly unrealistic, within the time frame and in the absence of inadequate budget allocation, shortage of key agricultural inputs, lack of irrigation facilities and plans to mitigate weather challenges. 

The Agricultural Development Strategy (2015 to 2035) developed to modernize agriculture and promote agricultural growth, focussing on production, processing and marketing was a game changing plan. The PM’s Agriculture Modernization Program is linked to the strategy covering a 10-year period ending in 2023. There have been serious challenges in implementation of the program along with poor alignment with the country’s move to a federal system. With serious reviews there are opportunities to learn from these efforts to improve future strategies and interventions. 

Challenges and threats

The timely availability and high prices of fertilizers and seeds is a recurring problem. High interest rates and difficulties in accessing financial support limits farmers’ ability to enhance diversification and increase productivity. Climate change with increasing shifts in rainfall patterns such as delays in rainfalls, high intensity of rain during a short period and reduced or localized limited rain, is a rising threat to agriculture and food security. These trends are emerging all over the Tarai, the food basket of Nepal. In July/Aug 2023, there were reports of extreme weather and a long period of dry spells. It is understood that some eight districts in Tarai have suffered from delayed rain with an overall estimated shortfall in paddy of 15-20 percent in 2022/23. Over dependence on rainfalls and absence of irrigation facilities makes agriculture highly vulnerable. 

In absence of reasonable returns and unattractiveness, less and less youth are engaged in the agriculture sector, who continue to seek employment abroad and move from the hills to Terai, also causing serious shortages of labor and families are leaving their lands fallow in hill regions. It is reported that there is close to a million hectares of land uncultivated in the hill districts. There are also increasing reports of animals such as monkeys, wild boars and elephants’ threats to food crops in various parts of the country, most probably due to the animals’ habitats being encroached upon. An updated national strategy to deal with this menace and support to farmers is desperately needed.  

Our crops situation

It is estimated that Nepal currently produces 10.5m tons of cereals (5.5m tons of rice, 2.7m tons of maize, 2m tons of wheat and around 0.3m tons of other crops such as millets) with an estimated supply gap of around 2m tons of paddy for this year. The decline in production and consumption of traditional foods such as millets and maize and increasing consumption of rice and an increased import of grains to supplement domestic production are of concern with the risks of over dependence in import and mismatch efforts against the climate adaptation strategy. 

Besides high costs of agricultural inputs, low productivity in all three major cereal crops (Paddy (2.9 mtn/ha), wheat (2.2 mtn/ha and maize 2.25 (mtn/ha)) have drastically reduced farmers’ profitability. Furthermore, with a decrease in farm sizes, there are challenges in the economy of scale in modernization and corresponding profitability of farming in Nepal.  

Neighbor support

India is the main source of supplies of food commodities to Nepal. When India announces restrictions on global food exports, there is obviously concern about sudden food price rise at the local markets across Nepal, in absence of price stabilization measures established in the country. It is often the case that even in most cases of export ban, India makes special consideration for close neighboring countries such as Nepal, and regular supplies are maintained. Meanwhile, consumers are obliged to pay higher prices due to speculative steps by the traders and in the absence of government intervention. 

Millets (Kodo, finger millet and bajra) are nutritious and are adaptable to harsh climates and grow well in the mountain regions under rainfed conditions, but its cultivation is reported to be declining. 2023 was declared as the international year of millet. Nepal should have taken advantage of these international and regional efforts, (particularly by India) to promote millet cultivation and their use in our diets. There is continued concern among farmers that various existing government programs are not working with multiple shortcomings in implementation. The absence of a credible monitoring and impact assessment system makes it difficult to formally measure specific outcomes and value additions from these programs. 

Supporting vulnerable communities 

The WFP in Nepal’s recent survey findings indicate that about 4.26m people eat insufficient diets. There are also region-wide disparities in household food consumption, with the highest level in Karnali Province consuming an inadequate diet (22.5 percent), followed by Sudurpaschim Province (16.9 percent). Overall, 45.4 percent of children between six to 23 months of age did not meet the minimum recommended dietary diversity, with the highest level in Karnali (52.3 percent), Sudurpaschim (51.7 percent) and Lumbini (51.4 percent). The survey also indicates decreased income among the daily wage laborers. Given that nearly 70 percent households are depending on the market as their main sources for food, continued rise in food prices and decrease in income is resulting in extreme negative consequences for poor and vulnerable households for their food security. 

A nationwide government run program provides school meals to students up to middle school levels in all government schools. This program provides only Rs 15 per student per day, which is inadequate for an impactful intervention. I was glad to witness recently in a school that funds allocated for school meals were supplemented by additional contributions from the municipality. Such measures should be introduced across the country. There is support through Food Management and Trading Company in far western food deficit districts such as Kalikot, Humla, Jumla and Dolpa to subsidize transport of rice for sale to poor households. Unfortunately, there are reports of major problems in availability of rice for poor households from these programs due to irregularities in supplies. Perhaps encouragement and support for consumption of locally grown food crops would be more effective than supplying rice at subsidized rates 

Success stories 

Despite the lack of adequate efforts to promote agriculture there are several success stories, predominantly due to individual and private sector engagements. The growth in dairy and poultry industries supported by the government are commendable. Visits to several milk collection centers and conversations with many dairy farmers in Nawalparasi, show impressive levels of government support and costs sharing arrangements, and increased private sector investments has led to significant improvement in milk production, processing and marketing, with the nation reaching close to self-sufficiency in milk. Unfortunately, dairy farming is being threatened by non-payment of money owed by the Dairy Development Cooperation and others to hundreds of thousands of dairy farmers. Similarly, sugarcane farmers have repeatedly raised their concern on nonpayment of dues owed by the sugarcane millers for several months, repeated over many years, with an increased dependence on import of sugar.  

There has been good growth in the poultry industry, in vegetable farming, piggery and goats farming, with successful efforts by individuals, who have returned from working abroad, with increased self-reliance on these products. 

The way forward

The central government, in cooperation with the provincial authorities, develop and implement ambitious plans and increase the budget, along with establishing strong leadership and governance structure to lead the agricultural sector. It is now an opportune moment for an independent and comprehensive review of the Agricultural Strategy and new phase of PM Agricultural Development Program to help increase production, productivity, processing and marketing of food crops, adaptation to climate change, and expansion of livestock, poultry, fishery, horticulture, olericulture and medicinal plants based on different agro-climatic zones. 

Develop a resilient and sustainable agriculture sector by promoting new opportunities, access to finance, and innovation for small-holder farmers, with climate information and preparedness. There should also be extensive efforts to increase national adaptive capacity to address widespread climate concern and delayed rainfall by promoting various adaptation and mitigation measures such as expansion in irrigation facilities, cultivation of indigenous rainfed crops, and diversification of livelihoods. 

Create resilient and food security solutions by protecting and improving the livelihood of vulnerable communities with safety nets and employment. Existing govt support programs need to be reviewed for their impact and accountability. There should also be a mechanism to update the list of households and Communities who are recipients of assistance. 

Develop and adapt a food system approach to ensuring food production, with supplies and access guaranteed at all times to everyone. There must be a strong governance structure to coordinate implementation and review, and to monitor the progress in program deliveries/outcomes and impacts with measures to mitigate failures or redirect unsuccessful programs, without political interference.

There should be measures to bring fallow lands into cultivation. Supporting small farmers on agriculture inputs, technical know-how and marketing of their produce will be critical. In this connection, there must be an increased effort in enabling women’s engagements in the production processes and increased value addition and engagement of private sectors. 

The key to successful improvement in the agricultural sector will require effective coordination and implementation of essential program activities, besides good policies, programs, and sufficient financing. There must be efforts to revisit Technical capacity within the agriculture sector to make sure the current structure and technical knowhow is capable of responding adequately. 

Seek partnerships to enhance agricultural sector productivity. India and China have extensive experiences in transforming their agriculture from food deficit to food surplus nations; much can be learned with expanded exchanges, cooperation and partnership with these countries. The WB/ADB and key bilateral donors and the UN system can offer specific know-how and funding support as needed. 

Ramesh Kumar Hamal is the former chairperson of Securities Board of Nepal (SEBON) and an entrepreneur with decades of business experience in international markets as well as in Nepal. An engineer by profession with a degree in Electrical Engineering, he obtained an MBA degree in International Business Management and Finance from the Asian Institute of Technology, Thailand. He has over 30 years of senior management experience in the public and private sector enterprises, primarily in international markets. He is currently the founding partner of Omstone Asia, the developer and the operator of the 5-star Dusit Thani Himalayan Resort branded and managed by Thai hospitality chain the Dusit Thani, Thailand.

In this write-up, Hamal shares his insights on the capital market and entrepreneurial ecosystem.

Capital market importance

Nepal aims to achieve the Sustainable Development Goals and (SDGs) to become a middle-income country by 2030. To achieve this growth aspiration, Nepal must close its vast infrastructure gap. According to the World Bank, the Infrastructure Investment needs are estimated at 10-15 percent of GDP or $3bn annually. A credible and vibrant capital market could help address this investment deficit. Securities markets play an important role in promoting economic activity by un-locking and providing a mechanism for efficient mobilization of scattered savings, liquidity management and risk diversification. A credible and vibrant securities market could play a catalytic role in creating a conducive investment environment and a viable exit strategy for the domestic and international institutional investments inflows (infrastructure bond trading); all of which could play a transformative role in the growth of Nepal’s economy.

Reforming capital market

In recent years, the capital market has made important improvements and has seen encouraging signs of development with fundamental regulations in place, online trading and banking and in the real sector companies listing. However, major room for improvements seem obvious in the areas of maintaining international standard corporate governance protocols and compliance; effective surveillance to identify and root out market manipulating practices; and in the areas of market and product diversification, including the operationalization of the commodities exchange market, specialized investment funds, and appropriate derivative instruments, to help maintain the market stability and provide hedging instruments for investors.

Vast improvements in regulatory capability

A world class capital market is one that stimulates investor confidence, has breadth and depth in terms of product offerings, is characterized by the highest levels of integrity, has a sound regulatory framework, a transparent disclosure and accountability regime, and is fair, robust, and is an efficient market place. To achieve this status, firstly the regulator should have a greater degree of autonomy with legislative amendments. The government should take up this as a matter of urgency. This should then be followed up by digital capability enhancement including the operationalization of the “Automated Market Surveillance System (AMSS)” to monitor the market activities in real time and to establish the market confidence by implementing zero tolerance policy on detecting and penalizing all forms of market manipulating practices. A standard reporting system should be strongly implemented for all the market participants and the listed entities. It is equally important to improve the governance, technological capabilities and its professional operations at the stock exchange to establish higher credibility and fairness in the integrity of the market transactions. After all, the stock exchange in any market is the front-line regulator and the custodian, therefore integrity of the exchange is always at the forefront of a well-functioning and a credible capital market.

Entrepreneurial culture

The entrepreneurial culture is the bedrock of economic growth and development. It fosters the growth of enterprises, stimulates innovation in product and services and most importantly empowers the youth to become job creators rather than job seekers. To develop a thriving entrepreneurial culture, the government should work immediately on the inclusion of the entrepreneurial development curriculum right from the secondary to the college and university education. This coupled with the availability and a vibrant ecosystem of funding such as venture capital and private equity for the early stage start-ups financing is critical for Nepal to leverage the potential of entrepreneurial development.

Empowering SMEs

Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90 percent of businesses and more than 50 percent of employment worldwide. In emerging markets, most formal jobs are generated by SMEs, which create seven out of 10 jobs. However, access to finance is a key constraint to SME growth. SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises. 

Studies have shown that only 10 percent of SMEs have a chance to survive more than five years. SMEs serve as a source of entrepreneurial skills, innovation, employment and the competitiveness in pricing. Given these facts, it is important for the government to create a conducive ecosystem for the SMEs that primarily comprises early-stage financing avenues, a vibrant capital market with a separate SMEs platform at the stock exchange, and a potent venture capital market.

Separate SME platform at stock exchange

Given that the access to finance is the most critical factor for the SME’s growth and generally the survival rate of the SMEs is low, it becomes imperative that SMEs growth is powered by financing avenues outside the conventional banking system which provides collateral based lending. Angel investors or venture capital therefore become the critical sources of funding for the SMEs growth, and this alternative funding is contingent on the existence of a vibrant capital market that facilitates viable and dependable exit mechanisms for the angel investors. This is where capital market plays an important and a catalytic role in the SMEs domain. Furthermore, crowdfunding via IPO is another important source of financing for the growth of SMEs. A separate SMEs platform at the stock exchange would first and foremost address systematically the high volatility at Nepal’s stock exchange by way of separation of large and small companies in different baskets and indexing. Secondly, the separate SMEs platform would make it feasible for the small companies for listing and raising of growth funds.

Internationally compatible SMEs platform

Study of the South and South East Asian emerging markets’ SMEs platform at stock exchanges shows that there are three critical elements of regulatory mechanism for an attractive SMEs platform; a) low cost of listing and yearly renewal fees; b) reducing risk exposure for small and unsophisticated investors in the course of IPOs (note the survival rate of SMEs is low); c) internationally compatible exit mechanism that facilitates dependable and viable exits for angel investor or venture capitals. With these in mind, SEBON in May 2023 submitted a new regulation to the government for approval of a separate SME platform at Nepal Stock Exchange (NEPSE). Capital market of Cambodia that is only 10 years in its evolution already has such a separate platform for the listing of small companies. It demonstrates that Nepal’s capital market in its three decades of operation is already lagging behind. The government should take up this matter urgently in approving the proposed legislation.

VC and PE for entrepreneurial growth

In recent decades, venture capital (VC) and private equity (PE) have emerged as critical sources of funding for entrepreneurial ventures in developing nations. VC and PE investments play a vital role in fueling innovation, fostering economic growth, and supporting the development of vibrant startup ecosystems. These two alternative financing avenues act as catalysts for entrepreneurial activities for startups and growth oriented companies that may not have adequate collateral or credit history. They fuel innovation in products and services and play a vital role in driving economic growth and stimulating job creations. VC and PE investments bring not only financial resources but also managerial expertise and strategic guidance to portfolio companies. Investors often have extensive industry experience and networks that they leverage to support the growth and development of the companies they invest in. This knowledge transfer enhances the capabilities of entrepreneurs, improves corporate governance practices, and builds managerial talent within the local ecosystem.

In order for Nepal to create an enabling environment for the VC & PE ecosystems, the government should undertake with priority four important reforms: a) Implement a “tax pass-through system” for PE/VC funds; b) create a fast-track ‘ease of entry’ mechanism for foreign VC and PE investors and operators, and enable a hassle-free exit mechanism such as IPO’s; c) through legislative and regulatory changes allow foreign investors’ participation and access to the secondary market in the stock exchange; d) provide tax incentives to attract large global institutional and individual angel investors.

Potential of VC and PE

The growth of PE and VC in India presents a compelling narrative. From $11.5bn PE & VC investments (domestic and FDIs) in 2014, PE and VC investments have grown to $61.5bn in 2023. In 2021-22 alone India’s PE and VC landscape witnessed over 1,500 deals with over $100bn in investment value. It is worth exploring the reformative forces that propelled this majestic progress in just a decade, so the lessons could be learned for Nepal to transform its own PE and VC landscape. 

The Alternative Investment Fund (AIF) Regulations, introduced by the Securities and Exchange Board of India (SEBI) in 2012, have significantly shaped the market trajectory for PE/VC investments in India. These regulations brought much-needed clarity and structure to the industry; they categorized funds into two main groups: Category a) which focuses on start-ups and SMEs and Category b) encompassing both PE funds and debt funds. This regulatory shift indeed transformed the very fabric of private equity operations in India. The framework it provided addressed the diverse nature of investments: startups thrived, and larger PE funds diversified their portfolios. Secondly, India swiftly addressed political and regulatory uncertainties, rose rapidly from 142nd in the World Bank’s 2014 ease of doing business rankings to 63rd in 2022, implemented a “tax pass-through system” for PE/VC investment funds, eased the FDI entry and exit mechanisms. 

Diversified and vibrant economy 

An internationally compatible and viable ecosystem for venture capital and private equity markets that foster and empower entrepreneurial culture, facilitates multiple avenues of non-banking financing for the SMEs and start-ups, and a thriving and credible capital market with a robust SMEs platform provides the foundation for the creation of a diversified and vibrant Nepal’s economy. The current building blocks of Nepal’s economy is akin to a single engine aircraft. The above ecosystem would provide that second engine to power the Nepalese economy to the next level and to avoid the risk of a failure. In all these, establishing a true meritocratic culture of work, that transforms the culture of glorification to the culture of performance, is the most important building block.

Brigadier General (Rtd) Keshar Bahadur Bhandari, PhD, is a defense and security analyst. He is credited for drafting the first national security policy document of Nepal. He also served as a military advisor to the UN mission in Afghanistan and Pakistan. His recent book ‘National Security and the State–A Focus on Nepal’ was  published in 2022. 

Given the existing multifaceted national security scenario, one can assess that Nepal is at a crossroads; if not salvaged on time, the nation is likely to face challenges to its very existence. These multidimensional challenges could come in many forms and from different fronts. Bhandari presents a 10-point insider regarding national security. 

Challenges

The glaring incompetence in the management of state affairs has led to a serious deficit in good governance. Rampant corruption and economic insecurity have emerged as major national concerns. The political landscape is marred by a lack of adherence to democratic principles, constitutional protection, and proper state management based on constitutional guidelines. Moreover, there are pressing challenges related to the protection and preservation of national history, traditions, culture, religion, language, education, and social values. The nation grapples with foreign influence and passive interventions that compromise established good practices in state affairs and national values. Additionally, the risk of transforming from a young nation to an old one with projected liabilities looms large, further exacerbating the precarious situation. 

All these added together develop a threat to national existence which is not yet perceived by the establishments. Nepal can learn the priority of existence from Israel. 

Completion of NSP 

There is a pressing need to review the existing law, policies, and rules and regulations related to every aspect of the National Security Policy (NSP), so that it can be implemented. An unimplementable NSP is just a dumb piece of paper as it is now. That is why we need to reform, refine, modify, and add new inputs to complete the NSP. 

To fortify national security and streamline decision-making processes, it is also imperative to empower the National Security Council (NSC) with executive authority in critical matters of national interest. This would involve appointing the National Security Advisor (NSA) as the member secretary of the NSC, thereby making them the primary security advisor to the executive head. To ensure the prominence of the NSA’s role, a protocol should be established designating them as a senior minister. 

Furthermore, the NSA would be entrusted with the responsibility of leading the National Security Council Secretariat (NSCS), which would serve as an oversight body for the coordination and implementation of the NSP across various ministries and departments. 

Balanced foreign policy 

To salvage the nation from single-country dependency and dominance, it is crucial to cultivate amicable relations with larger neighbors while safeguarding national interests. Simultaneously, seizing the opportunity presented by UN peace efforts is essential. 

Aggressive participation and diplomatic engagement at the UN headquarters can provide the nation with leverage, allowing it to articulate and protect its interests on the global stage. 

We must also adopt specific and separate policies for our neighbors, and country-specific policies with the rest of the world based on the non-aligned policy.

‘Reengineering’ the state system 

Nepal’s state management system has gone beyond the point of being reformed and restructured. Trying to reform and restructure the system cannot bring the country back on track. Before things turn worse, we must ‘reengineer’ the state management system to bring the nation back on a proper track. Sooner we realize this need and take action, the better it will be for the nation. 

Potent deterrence 

Nepal must develop a potent deterrence capability in areas of core security—effective strike back and counter terrorist capability (Special Force, Rangers, Anti terrorist force), and develop effective intelligence, legal system, laws and order capability, public awareness, and response mechanism. Through credible deterrence capability, we can win the confidence of our neighbors by assuring them that no harm will ever come from Nepal’s soil to their national interest. Thus it is crucial for Nepal to build credible deterrence armor and diplomatic armor to earn the trust of our neighbors.  

New dimension on security thinking 

The Himalayan/Trans-Himalayan region and South Asia as a whole is a volatile geography of the world. India, a rising global military and economic power, harbors enmity with China, another super power and economic power, and they have gone to war in the past. The pre-existing negativity and historical enmity between India and Pakistan have become a festering non-healing problem, and they have fought several wars in the past. The border disputes of India with China and Pakistan have become a non-resolvable chronic problem and border skirmishes and stalemates have become a regular feature. These issues have made the region volatile, thus making South Asia an unsecure region. 

To resolve acute security problems for good, some bigger initiative is required to bring India and China closer, so that they can work together to achieve their  national aspirations and other greater interests. The national aspiration of India is to become a super power and become a permanent member of the UN Security Council. The national aspiration of China is to expand its economic power unresisted world over, become secured from containment efforts of the US and the Western powers, and take Belt and Road Initiative (BRI) connectivity to India’s market through Nepal. 

China and India are the second and fifth largest economies and third and fourth powerful countries by military strength rankings in the world. Therefore, their aspiration is not unjust. 

In the 21st century, economic considerations are poised to take precedence over defense and other geopolitical issues. The prioritization of economic interests is seen as a deterrent to engaging in warfare, as nations recognize the interconnectedness of global economies. Defense and economy are expected to be complementary rather than conflicting priorities. 

A significant shift in global dynamics could occur if China and India collaborate and align their interests, potentially becoming the largest economy and military power globally. This alliance could expedite the realization of the Asian Century, where Asia, driven by the economic and military prowess of China and India, could exert substantial influence and even dictate global affairs. 

In this envisioned new world order, India’s aspiration to become a Permanent Member of the United Nations Security Council (UNSC) may find greater feasibility by aligning with China, rather than relying on the support of the US. Given Russia’s proximity to both China and India, such alignment could provide India with increased leverage in achieving its national aspirations on the global stage. 

China and India 

Nepal has the best of the relationship with both its neighbors, India and China. Like a small lynchpin could couple two big machines to generate heavy power, Nepal can play a role and act as a lynchpin between India and China to bring them closer and ally them together for bigger economic and national interests. Nepal could take initiative for a 50 years of Tri-party ‘Peace and Friendship Agreement’ between India-Nepal-China; and if it happens, it will bring a strategic paradigm shift in the global history. In this scenario, India and China will be at the center stage of making global decisions. 

The problem between India and Pakistan will become a none-issue because of the China factor, and the enmity between them will die down. This will make the volatile Himalayan region and the whole of South Asia safe, establishing a stable regional peace. This will expedite the “21st Century becoming Asian Century”. Nepal as well as all of the South Asian nations will benefit and prosper from the unfathomable economic development. 

The catch point 

Hypothetically, the US and Western powers would neither allow China and India to align and cooperate, nor would they let the two nations go to war. If China and India were to align and cooperate, they together would become the world’s first economy and military power, and would dictate the global term which would be against the interest of the West. And if they were to go to war, both being nuclear states, it may trigger a greater war if not world war. The possible use of Tactical Nuclear Weapons cannot be denied—which again the West will not allow this to happen. 

Because of their geo-politics and domestic political compulsion, India and China by themselves cannot take such initiative on their own, despite knowing its great benefit. Therefore, some acceptable third party is required to take such an initiative. Nepal is best suited for this role. 

Doable 

Nepal should take initiatives like ‘Track One and a Half Diplomacy’ and ‘Track II Diplomacy’ followed by ‘Track I initiative’ in sideline meetings in opportune time. For this, some acceptable group of people or the most acceptable trusted individual by both the countries would be suitable. Political parties may create such groups of people. Regarding an individual of credible national stature, no one would be better and suitable than the erstwhile king Gyanendra Shah. The establishment can nominate him giving such a mandate, or he himself can take such an initiative. 

Conclusion 

If the above hypothesis could be proved wrong by making the tri-party agreement happen, which is feasible and very tempting—the game is won. Therefore, Nepal has to think big and act big and try to make it happen. Maybe Xi Jinping and Narendra Modi, in their first thought, could be reluctant to make it happen. On this, they may have to take risks in their domestic politics, but also have the opportunity to make history. 

Prakash Kumar Shrestha, PhD is currently executive director of Economic Research Department, Nepal Rastra Bank. He has the responsibilities of macroeconomic data compilation and publication, monetary policy formulation and economic research as well as the role of economic adviser.

Despite various policies to attract FDI and tremendous potential in Nepal, the inflows of FDI in Nepal has remained comparatively low. Here is everything to understand on FDI—the problems and the solutions.

FDI in legal documents

As per Nepal’s Foreign Investment and Technology Transfer Act, 2019, foreign investment encompasses share investment in the form of foreign currency/reinvestment from the earnings thereof, loans in the form of foreign currency or capitalized assets, machinery, equipment on lease finance, foreign currency raised by Nepali companies issuing bonds and debentures in other countries with the prior approval of Nepal Rastra Bank, and investment by foreign institutions in listed companies in the secondary market.

‘Technology Transfer’ is also considered a foreign investment, which includes foreign technical consultancy, management and marketing services, trademarks of foreign ownership, goodwill, technological rights, specialization, formulas, processes, patents, or technical know-how of foreign origin. Similarly, the use of intellectual property such as patents, designs, specifications, formulas, processes, and technological knowledge, assignment, user’s licenses, and franchising is also considered foreign investment as technology transfer.

Importance and role

Since Nepal lacks enough financial resources for its development from internal sources, FDI can be a vital source of investment in the economy necessary for production and accelerating economic growth. FDI often brings managerial expertise and best practices, which can improve the efficiency and effectiveness of domestic firms. More importantly, FDI can help Nepal access international markets, opening doors for its products and services, which is essential for its economic growth.

Existing situation

As per the NRB survey, FDI stock in Nepal stood at Rs 264.3bn as of FY 2021/22, which is about five percent of GDP of that fiscal year. As per the UNCTAD’s World Investment Report 2023, Nepal received FDI inflows of $65m in 2022, compared to $722m in Maldives, $3.5bn in Bangladesh, $3.6bn and $49.3bn in India in the same time.

Moreover, there is a significant gap between approved FDI and actual net FDI inflows in Nepal. Between 1995/96 and 2021/22, total actual net FDI inflow stood at around 36.2 percent of total FDI approval, though Nepal has been receiving FDI from more than 57 countries. The NRB survey has found that the average return on equity of FDI companies is more than 14 percent.

Potential areas 

Nepal has tremendous potential in hydropower, tourism, herbal products, and mining industries. Nepal’s rich cultural heritage, stunning landscapes, and adventure tourism attract travelers worldwide. Investment in hotels, resorts, and eco-friendly tourism infrastructure can yield substantial returns. Nepal’s hydropower potential is immense. FDI in hydroelectric projects can contribute to energy security and export opportunities.

The IT sector has experienced remarkable growth. FDI in software development, IT services, and outsourcing can thrive. Export-oriented industries can leverage Nepal’s preferential trade agreements. Investment in hospitals, clinics, and educational institutions can address local needs and attract medical tourists and students. Rich biodiversity has endowed Nepal with a wide variety of herbal plants possessing significant medicinal value. Moreover, Nepal is endowed with a variety of mineral resources such as limestone useful for cement industries, iron, copper among others.

Legal provisions 

Nepal started attracting FDI by opening up its economy in the mid-1980s with the adoption of economic liberalization policy. Accordingly, many market and private sector-friendly policies and legal provisions have been enacted for the promotion of FDI.

Currently active legal frameworks for FDI include the Foreign Investment and Technology Transfer Act, 2019, Industrial Enterprises Act, 2020, Foreign Exchange (Regulation) Act 1962, and Public Private Partnership and Investment Act, 2019. There are related bylaws to these acts to govern the FDI inflows. FDI inflows have opened several sectors. FDI of below Rs 6bn is approved by the Department of Industry and the FDI above Rs 6bn is approved by the Investment Board.

Recently, the government has further simplified the process of approving foreign investments of up to Rs 500m through the automatic route. Investors are allowed 100 percent repatriation of profit from foreign investment and tax rebate for a certain period for various industries such as hydro, manufacturing, mine-based, infrastructure, and tourism sectors.

Constraints 

Continuous political instability and frequent changes in government over the years have created uncertainty and deterred potential foreign investors. Political unrest, including protests, strikes, and disruptions, can undermine investor confidence and discourage long-term investment commitments.

Nepal also faces challenges related to regulatory uncertainty, bureaucratic hurdles, and inconsistent enforcement of laws and regulations. Complex and cumbersome administrative procedures, as well as delayed decision-making processes, make it difficult for foreign investors to navigate the business environment and obtain necessary approval. Concerns about security, stability, and the rule of law can dissuade foreign investors from making long-term commitments and deploying capital in Nepal.

Next is a weak implementation of provisions mentioned in legal documents to attract FDI. Despite the government’s efforts to establish a one-point service center for investor convenience, there have been complaints about its effectiveness. Still, there is a lack of integration of approval of FDI with the tax system, the compliance of which is taking much time and has to pass through the complicated procedures. Tax policy changes frequently and supersede other sectoral policies related to FDI.

Basic infrastructure like road connectivity and reliable electricity supply are still weak, making the economy expensive. Poor infrastructure hampers business operations, increases costs, and reduces the attractiveness of Nepal as an investment destination. Nepal’s small domestic market size limits the scale and scope of investment opportunities for large-scale foreign investment. There are also several non-tariff difficulties to reach the neighboring countries’ market.

Lastly, Nepal is prone to natural disasters, including earthquakes, floods, and landslides, which can disrupt business operations, damage infrastructure, and cause economic losses. The risk of natural disasters adds to the perceived risk profile of investing in Nepal.

Necessary strategies 

First, it is necessary to maintain a stable macroeconomic environment with fiscal discipline, low inflation, and exchange rate stability as well as enough foreign currency reserves in the economy, which also demands political stability with strong institutions.

Second, predictable regulatory frameworks and effective legal systems are essential to protect investors’ rights and ensure the rule of law.

Third, adequate infrastructure, including transportation networks, energy facilities, and telecommunications systems, is critical for attracting FDI. Governments should prioritize infrastructure investment to improve connectivity and reduce the costs of doing business for both domestic and foreign firms.

Fourth, access to a skilled and educated workforce is a key determinant of FDI attraction. Nepal needs to invest in education and vocational training programs to enhance the capabilities of their labor force and meet the needs of modern industries.

Attracting FDI

Governments can offer various incentives to attract FDI, such as tax breaks, subsidies, and preferential treatment for strategic industries. Corporate income tax rate should be comparatively lower than the neighboring countries. Also, Nepal must actively promote themselves as attractive investment destinations through targeted marketing campaigns, investment forums, and networking events. Government agencies, investment promotion boards, and industry associations can play a vital role in showcasing the country’s potential and facilitating business matchmaking.

Nepal needs to penetrate into the vast market of neighboring countries—India and China through balance and strategic economic diplomacy with them. Some old laws also need to be amended or replaced by new laws. Nepal needs to be attentive to catch the changing value chain dynamics in the neighboring countries.

Our private sector should also be dynamic and proactive to network and attract foreign investors in joint ventures. The business environment should be amicable so that investors feel secure and safe. The government needs to improve the investment climate, streamline regulations, and strengthen governance and institutions eliminating corrupt practices.  

Players 

Attracting FDI requires the active participation of multiple stakeholders. Primarily, the government must adopt a proactive approach by implementing appropriate policy and legal frameworks, fostering a conducive environment for investors.

Additionally, the central bank and banking institutions need to maintain robust capabilities to manage the inflow of FDI effectively. Government agencies, such as the Investment Promotion Board and overseas embassies, should play an active role in disseminating information and highlighting the potential opportunities to potential foreign investors. Moreover, the private sector should actively seek partnerships with foreign investors, contributing to the overall effort to attract and retain FDI.   

Risks 

Despite several benefits of FDI, if it is not used properly to generate foreign currency through promoting exports, repayment of FDI in the future may become challenging. FDI projects may have environmental and social impacts, including pollution, habitat destruction, displacement of communities, and violation of labor rights. FDI may displace local industries that are unable to compete with FDI firms. Hence, FDI should be promoted strategically by minimizing likely risks.