Financial sector needs stable policy: Experts

The government has recently unveiled the budget for the upcoming Fiscal Year (FY) 2023/24. However, the budget has faced criticism from various quarters including the private sector organizations such as the Federation of Nepalese Chamber of Commerce and Industries (FNCCI), the Confederation of Nepalese Industries (CNI), and the Nepal Chamber of Commerce (NCC). These organizations express dissatisfaction, asserting that the budget only partially addresses their demands. Furthermore, industrialists and businessmen have voiced their concerns, highlighting the challenges they face due to unstable policies, despite the inclusion of certain industry-promoting programs in the budget statement. A roundtable discussion organized by Nepal Republic Media shed light on the significance of the upcoming year's budget. Dr Ram Prasad Ghimire, the revenue secretary at the Ministry of Finance, emphasized its impact during the discussion. Notable participants in the discussion included Revenue Secretary Ram Prasad Ghimire, Chandra Prasad Dhakal, president of the FNCCI, Vishnu Agrawal, president of the CNI, Rajendra Malla, president of the NCC, and Angdorji Lama, senior vice president of the Federation of Contractors’ Associations of Nepal (FCAN). Here are some excerpts from the discussion:

'We did not get payment from the government'

Ang Dorje Lama, Senior Vice President, FCAN

We are currently experiencing a distressing period in history. There is recession, factories are not running, and construction business has stopped at the moment. All these businesses are facing the problem of payment. We have not received due payment from the government.

The price of diesel was Rs 70.80 during tender bidding before the outbreak of Russia-Ukraine war. Now, we have to pay up to Rs 180. The price has been reduced to Rs 155 per liter recently. What this means is that when buying 1 liter of diesel, an additional amount has to be paid from our personal finance, though the government has a monopoly market in buying and selling diesel. The government charges Rs 40.50 per liter each. The government neglected the distress of entrepreneurs during the unforeseen price hikes and they should have addressed it.

Due to this reason, difficulties have been added to the construction business. This has also affected the cement factories. Only 30-40 percent of the total capacity is running. Only a handful of rod industries are in operation. The main reason for this situation is linked to the construction business.

Construction business is one area that has the potential to allow millions of workers to work within Nepal who have gone abroad for employment. As there is no construction work, the problem of unemployment is increasing.

The Ministry of Finance complains that the capital expenditure is dismal. On the other hand, the government has stopped the payment of the work done already. Now, the finance minister is saying that the project was not completed on time. Generally, the projects are not completed on time. The main reason for that is that 3-4 project managers are changed within a year in a two-year project. The government should give full authority to the project manager after specifying the period for completion of the project. If not, the government should be held accountable.

Regarding others, the Prime Minister is replaced every year, and as the government leadership changes, the manager is also replaced. It is difficult to think of the extent of damage such instability can inflict on a project.

'Lack of stability in economic policy poses a problem'

Rajendra Malla, President, NCC

It is well known that the country's economy has contracted. Some businesses have closed. Revenue is also decreasing by 20-22 percent. The government has to mobilize internal and external loans to meet its recurrent expenditure. All this is happening because there is no stability in the economic policy. Economic policy is changing in our country in 3-3 months. If something is not done in that period, it is customary to change it in 6-6 months. As soon as the leadership changes, another thing happens. There is a challenge in the economy because of the lack of stability in the economic policy.

To keep the economy running, the government had to come up with an incentive scheme. No plan could be found in this budget to cover the cost that the industrialists and common people are facing. This made the budget like the proverb ‘tail stuck as the elephant enters (Hatti Ayo Hatti Ayo Fussa)'.

On the positive side of the budget, the EIA will be done within 30 days. As for the production and export of herbal products, this should be done quickly. There was no opposition on the economic agenda. Looking at the interests of the country, everyone should have one voice.

Our country should pay special attention to agriculture, tourism, water resources and IT. In terms of agriculture, by promoting and consuming local products, access should be expanded so that online gateways have herbal products and export them directly. There should be a working environment without intermediaries. We should pay attention to what can be exported to the world by making the country independent.

If there is investment in public private partnership, then the business loss of the hydropower sector can be controlled. Hotels should be extended to the provincial and local levels. Efforts should be made to increase the stay time and expenses of the tourists who came to Nepal by promoting the concept of home stay, promotion of local cultures, and local resources.

This time 9-10 thousand students are being produced in the field of information technology. How shall we best use them? Attention should be paid to that. However, the economic indicators are negative not only in Nepal, but all over the world. Lessons should be learned from what the big neighboring countries are doing.

Now everyone is suffering from economic recession. The government had to study what was the reason. This is the biggest problem. Now the problem faced by industrialists and traders is the bank interest. In the past, the interest on loans taken at seven and a half percent has reached 14-15 percent. This has led to a massive change in consumption patterns. There is a state of confusion about what to eat and what to wear. One will be sick and tired by paying the bank interest.

'Budget fails to provide solution to lift ailing economy from recession'

Vishnu Kumar Agrawal, President of CNI

The private sector of Nepal is going through a problematic situation at present. Due to the slowdown in the economy, the morale of the industrialists has dropped significantly. On the eve of budget formulation, we suggested bringing a budget and policy program to boost it. The government has included only limited issues raised by the industrialists in the budget for the next fiscal year.

When we go deep down into the budget and look at the tax structure, we feel that there have been a lot of changes. The government has included in the budget statement to some extent the promotion of industrialists. Looking at the tax structure in depth, the budget of the next fiscal year has not been able to encourage private sector investment. It seems that the government is only interested in increasing the tax revenue. The government should have increased the tax revenue along with the tax scope but it did not seem to do so. The government did not think it necessary to increase tax collection by increasing business.

The government has now increased taxes to discourage business. This is very much wrong.

The land acquisition process required to open a new industry in Nepal is very complicated. Although some simplifications are being made in this budget, it is not enough. It seems that other countries have greatly facilitated land in order to attract foreign investment, but in our country, we are facing a lot of problems due to the increase in land prices. The time has come for the government to prepare an environment for doing business by providing land on lease for a limited time to private sector industrialists. If this is not done, industry and business cannot flourish in Nepal. If the government wants to promote the industry, it has to ensure stable policies and laws.

The government needs to make two types of arrangements for raw materials and readymade goods. There was a system where the import of finished goods was cheap and the import of raw materials was highly taxed. This also causes problems from time to time. We have made a separate list of finished goods and raw materials. We had a lot of hopes and expectations to be addressed in this budget, but unfortunately none of those issues could be addressed. The government should have come up with schemes to encourage industrialists who are in crisis due to economic recession. It seems that this issue has not been addressed through the budget.

'Need to protect domestic investment'

Chandra Prasad Dhakal, President, FNCCI

Some suggestions given by FNCCI on the eve of the budget are included in the budget. The Federation's official opinion on the budget is made public only after studying the financial bill in depth. During the construction of the industrial estate, the federation raised issues such as land acquisition, environmental impact assessment, and balance of payments. The budget has addressed them with priority.

The government has introduced policies and programs to promote exports. These things are certainly positive. The budget has addressed the issue of consuming domestic products even if we have to pay 20 percent more. The main point of the private sector was that policies and programs to get out of the current economic contraction should be addressed through the budget, but the budget did not address these issues properly. Looking at the budget in detail, it seems that the facilities and concessions given by the previous economic act have also been cut through the next year's budget. In the budget of the next fiscal year, it seems that the tax imposed on the stock market and real estate is being imposed in a biased manner. It does not seem fair to have a provision to pay taxes later on the merger of banks and financial institutions.

The provision of trying to bring the concessions given during the merger of banks and financial institutions back into the scope of taxation is not so fair. It is equally necessary for the government to protect and promote domestic investment as well. The government needs to have a stable policy and legal system to promote not only foreign but also internal investment. If the government's policies and programs change every year, industrialists cannot invest with confidence. Therefore, it is necessary for the government to promote a stable policy. Land acquisition is the biggest problem for any development work in Nepal.

The government should be able to provide minimum royalty for any land. After providing land on lease to an industry and establishment, they bring in investment and create employment opportunities.

Therefore, it seems that the government should create an investment-friendly environment by revising policies that cause unnecessary suffering and problems. The government should seriously listen to the suggestions given by the industrialists. Even the implementation aspect of the good policies brought by the government is weak. The government should show vigilance to implement the provisions in the budget.

'One year's budget cannot address all problems'

Dr Ram Prasad Ghimire, Secretary of the Ministry of Finance

What we need to understand is that one year's budget alone cannot address all kinds of problems. We have had structural problems since long ago. Many problems occur in different periods. All these types of problems cannot be addressed in one year's budget alone. Whether or not the next fiscal year's budget moves toward addressing the past is of great significance. In the current context, there is no doubt that the economy of Nepal should be made operational. It is said that the problems seen now can be solved only through the budget. It does not mean that problems and challenges cannot be solved. Currently, the external indicators of the economy are improving.

We adopted policies to improve the external sector economy. It has now shown some signs of improvement in the economy. The private sector is the largest contributor to the economy. It seems that the morale of the private sector has fallen due to the difference in understanding about the budget and economic law. It seems that they talked about FPO and merger. No discounts and concessions last forever. They are designated for a limited time only. This topic is also based on 'Sunset Law'. The government has not done anything to dampen the morale of the private sector. The government has been adopting policies and plans to protect and promote the private sector. It should be understood that the main feature of the budget of the next fiscal year is that the budget is to accept the current problem. Since the budget speech, the initial problems and complications have been openly discussed. Only after accepting the problem and moving forward can there be the solution.

The government has made necessary policy arrangements to increase capital expenditure in the next fiscal year's budget. It is not that there was no capital expenditure in the current fiscal year compared to last year. Compared to last year, the capital expenditure has increased to some extent, but the current capital expenditure is not enough. It is true that the capital expenditure has not been in proportion as it should have been. Land acquisition, environmental impact assessment and other topics have been addressed in the next year's budget. Some of the topics of the Economic Act that came with the next year's budget have been brought as plans. I don't think it will have much effect on such matters as these matters are governed by 'Sunset Law'. Taxes should also be levied at multiple rates based on needs. There is also a problem because we do not have extensive knowledge about the subject of multiple tax rates. We have felt the need to have two rates rather than multiple rates.