Nepal’s new constitution sends ‘message of stability’ to investors

The promulgation of the new constitution will convey a message of political stability, helping Nepal attract both domestic and foreign investment, economists have said.

The lack of a permanent constitution had been a matter of concern for foreign investors who wanted to invest in Nepal.

The economists, however, maintained the Tarai unrest must be settled soon to capitalize on the opportunities thrown up by the new constitution.

Madhes-based parties, after abandoning the constitution making process midway, are protesting against some provisions of the new constitution. As a result, a large part of the Tarai has remained shut for the past month.

“The protracted transitional period in Nepal’s politics has ended with the promulgation of the new constitution, which will create an investment-friendly environment,” said Madan Kumar Dahal, an economist.

“Domestic and foreign investments are a must for economic development, and the new constitution will provide a certain assurance particularly to foreign investors whose investment will be required for infrastructure development.”

Economists and private sector representatives said the constitution promulgation alone is not enough to attract investment. Supporting policies, Acts and rules should be put in place.

Given the importance of the Tarai region, which houses most of the country’s industries and provide connection to international trade routes, the unrest there should be ended as soon as possible.

“Tarai is the most important region for Industry and trade. The political establishments must settle the disgruntled voices through dialogue,” said Pashupati Murarka, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

After a decade-long conflict that ended in 2006, the country witnessed another decade of political instability. As a result, the economic growth remained sluggish.

During the last decade, economic growth remained at just around 3-4 per cent, according to the Economic Survey 2014-15. In the last fiscal year, the deadly April 25 earthquake resulted in just 3.04 per cent growth rate, while the growth prospects for this fiscal year look dismal due to delay in the reconstruction process.

“Obviously, the promulgation of the new constitution has conveyed a good message about Nepal in the international arena, but the country may not achieve economically if instability prevailed,” said Dipendra Bahadur Kshetry, former vice-chairman of the National Planning Commission (NPC). “The parties should move ahead by addressing genuine concerns of the Madhes-based parties.”

The economists, however, believe the dissatisfaction in Tarai may not last long once the dialogue begins and the leaders focus on delineated provinces for political activities. When the focus turns on development, there will be competition among the provinces to attract investment, they said, adding that would help prosper the country.

Another former NPC vice-chairman Jagadish Chandra Pokharel said the provinces that could ensure good governance and good infrastructure would attract more investment, leading to prosperity.

“The central government must help the provinces where infrastructure deficit is acute, but the provinces themselves will have more responsibility once institutional structures are re-arranged in line with the delineation of the provinces as defined by the new constitution,” he said.

With the new federal set-up, the provinces will get more rights and they can take decision on most of the development projects and economic issues. The new constitution has also opened more doors for resources collection to the provinces.

The new constitution has allowed them to collect local taxes such as property tax, rental tax, land registration fee, vehicle tax, tourism tax, land tax, penalty, entertainment tax and land tax.

The provincial leadership will be forced to make their provinces more resourceful instead of depending on grants from the center, the economists said.

Currently, district development committees, village development committees and municipalities depend on grants from the center. “As the provinces will themselves take most of the economic decisions, they can also focus on spending the resources on key areas of comparative advantage,” said another NPC vice-chairman Shankar Sharma.

“For example, province-2 can declare the entire province as special economic zone where the industrial base is strong.”

However, there is no clarity on how institutions in the provinces will be restructured in line with the central-level structures, which will be a big challenge, according to the economists.

“Restructuring of revenue generating institutions and the system of providing grant from the centre will be important when institutions are set up in each province,” said economist Bishwombher Pyakuryal. He said Acts and polices should be made compatible with the federal structure of the country.