It has been two months since Prime Minister Pushpa Kamal Dahal spoke with the Nepal Army to plan the “miraculous revival” of the long-dead Hetauda Textile Mill and other irredeemable industries such as the Biratnagar Jute Mill, the Gorkhali Rubber Industry, and the Butwal Spinning Mills. As we await further developments on this plan, we must question the feasibility and logic behind reviving the Hetauda Textile Mill.

The Hetauda Textile Mill faced substantial losses for failing to compete with the cheaper and more preferred imported goods available in the market. This consequently forced its foreclosure in 2000 and liquidation in 2013 due to immense financial challenges. It had been accumulating losses amounting to Rs230.5 million, with nearly half incurred in the fiscal year 1998-99.

The Hetauda Textile Mill is a classic case of ministers announcing projects to fulfil populist agendas. Its name has been exploited to garner constituencies’ support and tickets to secure votes. Various ministers have hinted at re-operating this mill on different occasions: 2008-09, 2012, 2016, 2018 and 2022, and now in 2024. This industry was long dead before it was liquidated, and the then government tried to breathe life into it by creating artificial demand from security forces, public officials, civil servants and other government agencies. It had no competitive edge and was bound to shut down. The residents of Hetauda seemed elated when this populist move was announced.

Backed by former Finance Minister Janardan Sharma, the Armed Police Force, the Hetauda Industrial Estate’s Chief and other officials, alleged corruption and fake demand creation marred the illusory promise to create more jobs. It also entailed bringing back an incompetent industry the market had rejected. Economist Chandan Sapkota, back in 2008, reminded us how governments create a fake demand and supply, use the created goods among themselves, and lead to a clear waste of resources in one sector and a shortage of resources in the other to fulfil their political agenda, just like what had happened in the Soviet Union when it invested in its railways and manufacturing sector.

Returning to the most recent announcement, it’s interesting that the Army—traditionally tasked with military-based primary roles like protecting national security and independence, rescuing citizens and protecting national parks/wildlife reserves—is now venturing into non-military-based activities. This isn’t the Army’s first rodeo, as they already operate educational institutions like schools and medical colleges, emulsion plants, petrol pumps, sell bottled water and are also infamously known for being contractors in road construction businesses. In a move reminiscent of a true business house, the Army is set to expand its operations by establishing its own clothing line. One might question if this aligns with the primary duties and core responsibilities of the national Army. While the Army is already under the scrutiny of the citizens for its unorthodox involvement in business ventures, it is planning to add new ventures under its belt.

The Army conducted a feasibility study and produced a report that estimated the staggering Rs1.93 billion needed as the preliminary cost of the revival of the Hetauda Textile Mill alone. The Task Force claims to turn a profit after nine years of re-operation but to break even, it requires a substantial operating cost of Rs7.020 billion. Although many experts go against the idea of the military dipping their toes into non-military-business activities, this venture is bound to fail as Hetauda Textile Mill is mainly targeting the Army as its primary customer. This industry will face an uphill battle to survive in the competitive free market.

If it weren’t for state/military-backed deep pockets, the industry would not have a slight chance to survive, especially when more attractive and cost-effective alternatives are readily available for the consumption of the general public. Even the study conducted by the Army states that the lack of market promotion was one of the major reasons for this industry's downfall. So, if they decide to cater to the security personnel, this industry will fail again. Not only does the reoperation of this industry risk taxpayers losing money on multiple fronts, but it also prompts a reevaluation of the Army's role and the need for their interjection in business ventures.

The Army has been actively lobbying to amend the Nepal Army Act 2063, which bars them from investing in mega projects—such as banking and hydropower sectors—and restricts them from investing money as a promoter from its welfare fund in business ventures. The Army has been trying to amend this provision, as they have drafted a bill to revise this law, legally allowing the NA to invest money from its welfare fund in business activities as a promoter. The welfare fund has now amassed more than Rs82 billion, but the Army raises concerns over the insufficiency of bank interest as a sustainable source of income, hence their interest in higher return-giving investment opportunities.

This raises concerns about the allocation of funds intended explicitly for national defense. One wonders if it's time to reconsider the Army’s annual budget and reevaluate its size if this is the direction they have decided to venture in rather than giving them one more sector to invest in. A pertinent question of whether the nation aims for a professional military or one operating as a corporate entity should be considered.

The state's deep affinity with its businesses is apparent when reviving industries without foresight, hindering the free market. The loss-incurring trend in state-owned enterprises (SOEs) makes it hard to justify their existence and reoperation. According to an IMF report published in May 2023, the SOEs in Nepal that are mostly operating on losses have now amassed assets worth 51 percent of the total GDP, whereas their liabilities account for 33 percent of the GDP in 2020-21. Where private enterprises have excelled, shown operation efficiency, and provided goods at reasonable prices in a competitive market, the existence of SOEs that incur losses becomes harder to justify for citizens and economic sustainability.

The challenges faced by government-owned entities highlight the potential benefits of privatisation. When these entities struggle financially, it impacts the government's income and creates additional financial pressure. Assessing the current state of ten industries reveals a nuanced perspective on their viability and contribution to the ongoing economic resurgence. As we examine the operational dynamics, it asks important questions about the role of SOEs in shaping the economic trajectory in the coming months/years in economic development terms.

The argument advocating for SOEs rests on the argument of self-sufficiency and reducing dependence on imports, as stated by ministers on various occasions. The government had already invested around Rs618 billion in SOEs. In a recurring and unsurprising fashion, the government persists in overlooking its past mistakes, as evidenced by its plan to invest more despite previous failures. The government is oblivious that almost every industrial SEO in Nepal is a financial black hole. No matter how much investment you pour into it, you will not get anything in return. Injecting additional funds into what is increasingly viewed as an avenue of burning through taxpayers' money is seemingly absurd.

There is a better and more effective way of revitalising the industrial sector in Nepal. Privatising existing entities could be the answer. It involves transferring ownership and management of these entities to private companies. This shift aims to enhance their efficiency and competitiveness, potentially increasing profits and reducing the need for government financial support. Additionally, privatisation can lower the risks associated with the government's financial exposure to these entities, minimising the chances of financial crises. By privatising, we can create a more dynamic and sustainable economic environment, ensuring that resources are used efficiently and businesses operate effectively in the private sector. It’s high time we accepted a new era of economic resilience, ensuring taxpayer funds are not haphazardly invested in failing industries and private businesses operate effectively in a competitive market.