There was a great serendipity in Nepal’s market-oriented reforms of the economy last week. After a three-decade-long interval of stalled economic reforms, the coalition government of the two largest parties in Parliament—the Nepali Congress and the CPN-UML—took a bold step in further liberalising the Nepali economy. An unusually long cabinet meeting held till midnight last Friday came up with a decision to issue four key ordinances designed to improve the business environment within the country. The government plans to organise an investment conference, perhaps realising that presenting tangible incentives would only attract investors. A fortnight ago, I had emphasised ‘the power of economic reform’. Now, the state seems to have unleashed a portion of that power.

Proposed legal reforms

Four ordinances related to business environment improvement and investment promotion, good governance and service delivery, land management and public investment management encapsulate the amended provisions in at least two dozen business, tax and foreign exchange-related laws.

The biggest intended departures include: Nepal’s technology and software entrepreneurs can now legally invest abroad, non-resident Nepalis get more economic rights, and the bureaucracy must now clear the files from their desks within a week. This is critical given the lack of policy coordination among the ministries under the same government, between the ones trying to promote businesses and those responsible for environmental protection. The complaints delayed clearance for environmental impact assessment (EIA) and land acquisition for industrial and development projects were considered major repellents to large investments.

It would be impractical to expect these fringe legal amendments to revolutionise the country’s business environment overnight. However, the growing trust in the reform-oriented liberal economic paradigm in the government that normally stood for achieving socialism is notable. First, it must be appreciated that these bold reform measures are taken up by the government headed by Prime Minister KP Sharma Oli, with a socialist ideological orientation.

Second, Nepali Congress General Secretary Gagan Thapa appears ready to defend the initiative as a liberal reformer. Thapa is a key architect of the proposed changes as a member of the 10-member joint mechanism of two ruling parties reportedly assigned to put the Nepali economy back on the growth track. It would need a performer to pursue through its implementation. Further, an effective deflector is imperative as these essentially open market-oriented policies are bound to face criticism from the advocates of state socialism.

Expanding reform debate

The liberal economic order can thrive only in a liberal democracy that promotes meaningful debates. Such debates are expected to be more right since policy shifts of this magnitude are conceived, legislated and implemented. As prime beneficiaries, the electorates have every right to know what to expect from these reforms, how the benefits may be delivered to them and for what cost. Perhaps most parliamentarians need to be educated about possible benign outcomes of liberalising the economy and opening up the markets.

For obvious reasons of transparency, awareness and policy predictability, the government should have chosen to route it through the regular legislative process in the parliament instead of issuing it as an ordinance. Nevertheless, the ordinance must also come to Parliament to become a stable law, which, in turn, should be an opportunity for deeper deliberations on the merits of the amendments made and their scope of implementation in due spirit. Implementing the announced policy reforms is bound to face roadblocks and a lack of wider political ownership.

Foreign investment in agriculture

Antithetical economic arguments, such as allowing foreign investors would harm the interest of domestic farmers, whereas the free import of agricultural produce wouldn’t, have failed to commercialise and harness the benefits of export potential.

Out of imports worth $15 billion, about one-third are agricultural products ranging from food grains, vegetables, fruits, meat, poultry, dairy products and high-value processed and packaged items like chocolates. Such a high volume of imports could only be offset by economies of scale, a predictable market and a sustainable product supply chain. Export possibilities could also be explored if surplus quantities are produced. This is possible only if adequate investment is made in commercial-scale production, building cold storage facilities for an off-season price advantage, product sorting and standardisation, ensuring sanitation and phytosanitation and branding and marketing.

For example, major resistance to foreign investment comes from poultry and dairy farmers. However, these are the sectors that would have benefitted from large foreign investments in processing, branding and exports. In the absence of value-added industries, poultry farmers always risk price uncertainties and dairy producers often face milk holidays and receive payment for their basic milk at the mercy of the buyers.

A small move from the government in January 2021, on the eve of the investment conclave, proposed marginally removing that hurdle by allowing foreign agricultural investment if the investing firms exported more than 75 percent of their products. This, too, was challenged in the court of law. A Supreme Court verdict nearly two years ago, in March 2023, upheld the government’s move to remove the investment restriction in the sector.

The court concluded, “the opening of foreign investment will not have any negative impact on indigenous agricultural enterprises, farmers and indigenous agricultural industry, and domestic resources will not be flown out of the country and no loss or damage to the nation would occur.”

The proposed amendment in the law allows foreign investment in ‘agricultural technology’ which can have very flexible interpretation while formulating related bylaws. Technology may mean everything from a sorting machine to the application of artificial intelligence. If Nepal has any immediate possibility of industrialisation, it must be agricultural that is input-based. Import substitution and export promotion to reduce trade deficit should also begin with agro-products.

Therefore, all reform-oriented policy changes must make Nepal’s agriculture the gravity of potential investment. This should be the core of Nepal’s economic activities, from manufacturing trade to employment generation—for at least a few decades.