Some critics have argued that this is equivalent to surrendering our country´s sovereign right to change economic policies and tax structures. We disagree. The critics are stretching the argument a little too far. We can always change polices and tax structures but what BIPRA means is we will have to be ready to pay a price for our unpredictability and inconsistencies. When people make investments in a foreign country, they do so after reviewing the existing policies and tax structure. It is therefore only logical that the state in effect underwrite any losses caused by changes in those policies/taxes. Let´s also bear in mind that this kind of risk coverage will not be exclusively for Indian investments as the Industrial Policy, which is yet to be finalized, has already proposed similar provisions for all Foreign Direct Investment (FDI).
For a country that chronically suffers from lack of industrial investment and attracts little, if any, investment from abroad, it is only prudent to try to attract more FDI through policy reform. In this regard, BIPRA will go a long way in building the confidence of Indian investors in the Nepali market. But let there be no illusion that this alone is going to attract foreign investment. There are at least two other key areas where we have to make massive improvements to lure FDI. First, we have to increase our power generation and ensure reliable power at a competitive price (a price cheaper than on the other side of the border). And, second, we have to reform our labor market, making it virtually free from strikes for industries and businesses involving FDI. If we succeed in doing these things, we will provide a solid platform of predictability in three critical areas -- power, tax and other policies, and the labor market. It´s only then that we will be able to attract sizable amounts of foreign investment.
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