With Covid-19 cases subsiding in the recent months and the government lifting most of the restrictions, economic activities have gained momentum and businesses and industries are now trying to operate normally. The new coalition government led by Prime Minister Sher Bahadur Deuba also tabled a replacement bill in the parliament to revise the budget introduced by the previous KP Oli-led government through an ordinance. Minister for Finance Janardan Sharma not only trimmed the budget size by cutting funding to many projects that were introduced without any preparation but also revised some tax rates that will affect the private sector.
Sagar Ghimire of New Business Age talked to Vishnu Kumar Agarwal, president of the Confederation of Nepalese Industries (CNI), an umbrella organisation of manufacturing and service industries in Nepal, to understand how industries and businesses have been performing in recent months, the private sector’s response to the budget and the ambitious ‘Make in Nepal-Swadeshi’ campaign, among other business and economic issues. Excerpts:
The new government has presented the replacement bill to revise the budget introduced by the previous government. Don’t you think that this delay in the budget process would have an affect on its implementation?
Normally, the implementation of the budget should start from Shrawn (mid-July). That is the ideal scenario. The government spending facilitates the development of the country. It will also ensure that the amount allocated for development spending would be spent on time. But these are abnormal circumstances due to the change of government which decided to bring in the replacement budget. We hope that this kind of abnormal situation does not occur again.
The new budget has been talking about a production-based economy. Principally, the right things have been said in this budget. For example, the private sector will become the driver of the economy. But we also have to see how they will implement this budget. It’s going to be a big challenge for the government. The government has set an ambitious target of 7 percent economic growth for the current fiscal year despite losing two months in the budgeting process.
Is CNI happy with the revision of the budget? Are there any provisions that are of concern for you?
There are mainly two controversies in the budget. One is related to the import of motorcycles. Another is related to the import of steel. The government has announced a 50 percent waiver on excise duty on bikes assembled in Nepal. This is a good policy. It would have been much better if they had announced it earlier and provided some time before implementing this provision so that others could have been motivated to set up such assembly plants in the country. The government has also increased the excise duty on imports of motorbikes with an engine capacity higher than 125cc. This is not the right time to raise the tax on two-wheelers as we are facing the Covid-19 pandemic. People do not want to use public transportation during the pandemic. There is a health safety protocol in place that requires social distancing. Motorcycles are not a luxury product anymore. It has become a product of necessity. So, the government should not have increased the excise duty on motorbikes which would lead to a rise in prices.
In the case of the steel industry, promoting backward integration is a good thing. Again, the government should have provided a time window. They could have said, "We are going to introduce this policy from next year or after one year or after two years.” This would have allowed time for old businesses to upgrade their facilities for backward integration.
In the last fiscal year, the government could not achieve its revenue collection target. Now it has raised the revenue collection target. Since businesses contribute a big portion of the revenue, do you think it would be achievable this year?
If we do not have a third wave of the Covid-19 pandemic, we will be in a better position to achieve the revenue target. It also depends on the liquidity situation of banks. There should not be a pressure on liquidity in the banking system that drives up interest rates. If these two preconditions are met, there should not be a problem in meeting the revenue target.
But interest rates are likely to go up this year. How would that affect the private sector?
Interest rates have a direct impact on industries. If they get loans from banks at lower interest rates, they can then sell their products at much more competitive rates and can also upgrade their production. They are able to lower their costs. It also puts industries in a better position to make additional investment or expand their projects. Lower interest rates also fuel demand all over the economy. Recovery in the demand side also leads to higher economic growth. So, the interest rate is one of the most important components in order to boost demand and to ensure that businesses and the economy are doing well.
The global health emergency has lasted over one and a half years and the pandemic is unlikely to go away anytime soon. How are the businesses and industries performing nowadays?
Barring a few sectors like tourism, aviation and hospitality which have been hit severely by the pandemic, there is some semblance of normality. Some MSMEs are said to have been affected due to working capital or cash flow problems and the losses they have incurred during the pandemic and subsequent lockdowns imposed by the government. Unless the tourism revives, other sectors dependent on travellers will find it hard to recover. Otherwise, more or less, I see the economy coming to its actual form. It should not be a big problem. I am making this comment on the assumption that the third wave of coronavirus will not come or hit us severely.
Looking at the present scenario, it is less likely. Generally, the graph of Covid-19 cases follows India. India is on a vaccination drive. So is Nepal. Though I am not a public health expert, I think the third wave can be avoided. But, it would be safe to say that businesses, except for a few sectors like tourism and aviation, will be able to return to pre-pandemic levels if we are not hit again by the third wave. Things are now coming back to normal. We will now put our efforts towards industrialisation and improving the condition of industries in Nepal.
How beneficial have the government’s reliefs and facilities introduced through fiscal and monetary policies for businesses hit by Covid-19 been?
I appreciate the government’s efforts to help these sectors. Fiscal policy has helped these sectors by freezing interest payments for one year. In the budget for the current fiscal year, the government has also announced that it would come up with a relief package to revive the tourism sector. There is also a refinancing facility from the central bank which has also helped businesses during this critical time. Many businesses and industries have benefited from this facility which has helped them to overcome the impact of the pandemic. But, there are very few people who have been able to take advantage of business continuity loans. This has been introduced in the current fiscal year also. It’s not as effective as the refinance facility for businesses.
CNI has launched an ambitious ‘Make in Nepal-Swadeshi’ campaign with an aim to bring 1,000 industries into operation every year. How has the response and progress been llike so far? Has the government supported your initiative?
There has been a good acceptability rate for this campaign in the government. This has not only become a campaign of CNI but also of the broader society. Everybody is now talking about a production-focused economy. The campaign will benefit the overall economy. CNI has come up with this campaign in collaboration with various government bodies. There is government participation in the campaign. We have signed a memorandum of understanding with the government. Over two and a half dozen industries have already enrolled in the Swadeshi campaign. The Make in Nepal- Swadeshi campaign is gaining momentum, and everybody is going along with us.
It is an ambitious campaign because we are talking about improving the industrial environment of Nepal, focusing on establishing more industries and creating more jobs. But we are trying to do our best in this campaign.
We need to make a lot of policy interventions. Putting all these things together, then we can see the change in the old process. There are some positive developments towards an industrial-focused economy. Even bureaucracy and politicians are now talking about this agenda. There is a commitment to work towards this direction. They are not just concerned about revenue like in the past, but also want the country to be industrialised. They are making efforts to attract domestic and foreign investment.
FNCCI has launched a similar campaign called ‘National Economic Transformation 2030’. The government has been implementing its five-year 15th Plan. You have the ‘Make in Nepal-Swadeshi’ campaign. They all have almost similar goals or objectives. Don’t you think all of you should have worked together rather than come up with separate campaigns?
That all stakeholders are thinking in the same way means that there is a growing convergence of interests. The government, bureaucracy, other organisations and political parties are now thinking and working in the same direction. That is the kind of awareness and consensus which is very important. There might be differences in the approaches taken, but the ultimate objectives remain the same. If the ultimate objectives are the same, it does not matter who is doing it. We all are in the right direction. When the goals are the same, it is better for the campaign or the economy even if we are doing it separately. It would not impact the achievement or the results of the goal.
There are several legislations that either need to be introduced or revised to create a favourable environment for doing business in the country. But private sector organisations like CNI do not seem to have put such legal reform on its priority list. Why is this?
We have identified the laws and regulations that need to be drafted, amended or scrapped. We have identified nearly three dozen legislations that the government needs to work on. We are closely looking at the interventions that are required and we will soon start the campaign. We will be soon doing workshops on interventions with the government. Through the media, we will also try to create awareness about the importance of the need for legal reform. Due to the pandemic, it started a bit late. We are soon going to start this campaign of policy intervention.
Some industrialists are complaining about the electricity tariff dispute with the NEA over dedicated feeders and trunk lines. Where do you stand in this row?
Those industries which have not used the electricity should not be charged with it. It should be charged on the basis of the readings of the time of day (ToD) metres. Whatever electricity is used by industries, they should be asked for the tariff.
Infrastructure was a key priority for CNI which organised summits to foster dialogue and the importance in bridging infrastructure gaps. Did that help in boosting investment in infrastructure development?
We were able to create awareness on the importance of infrastructure in the overall development of the country and how it impacts the common people. There are a few things that we have been constantly talking about. One is public private partnership. We now have the act as well as regulations governing projects under the PPP model. Now we are lobbying with the government to start the PPP process not only in the Investment Board of Nepal or Ministry of Finance but also in other ministries and government agencies.
Our efforts have helped to create awareness on the importance of investment in infrastructure. Similarly, bringing the PPP act and regulations was quite fulfilling for the CNI. We also have an infrastructure cell here in CNI which is focusing on bringing changes in the infrastructure scenario of Nepal.
The private sector had said that the introduction of the Labour Act and Social Security Act would help to improve labour relations in the country. Why is there now reluctance from some quarters to enroll in the Social Security Fund?
There are some grey areas in SSF about the liquidity as well as concerns about what would happen if contributors signing up for the scheme remain unemployed later or want to withdraw the money. Some contributors have doubts as to whether or not they will get reasonable or competitive returns from the SSF. We are trying to bring clarity to SSF through discussions with the government and the employees.
Lately, there has been a degree of unity among private sector umbrella organisations like CNI, FNCCI and NCC. How will this relationship/partnership move forward?
There has been quite a development in the thought process of all private sector organisations. We have been meeting now, discussing issues and trying to find a common agenda together. This is a good indication. We will be working closely in order to address the issues of the private sector also in the future.