Every thing cannot be expected from a single year’s budget. Still, budgetary measures play very important role as they create or destroy investment climate. What the private sector expects from the forthcoming national budget is corrections on various budgetary and other measures introduced in the past. The most important are:

Duty drawback procedures: It was quite abruptly that in last year’s budget the Finance Minister changed the procedures for providing facilities under the duty drawback system. This has sent wrong signals to the domestic and foreign investors. The private sector wants them corrected in the coming budget.

Reforms suggested by donors : Nepal has been blindly accepting so-called reform measures suggested by the World Bank. These very suggestions are made to other developing countries as well. So, they are not country-specific. While other countries have been going slow on implementing these suggestions of the World Bank and holding extensive discussions on these matters with the private sector, banking institutions and academics, before implementation, Nepal has been implementing them as soon as they are received. If this practice is continued, it is going to cause tremendous contraction in the economic activities in Nepal. The recent example is the abrupt change in the Nepal Rastra Bank’s guidelines for monitoring the commercial banks. The revised guidelines are very conservative.

Being a landlocked country, Nepal’s industrial units frequently face a situation of temporary cash crunch due to transit bottlenecks. With the new guidelines, such units are always at the risk of being blacklisted in the banking system. The banks have to make unnecessary provision for loan losses, thus restricting their operational capabilities. Similarly contractionary is the guideline about the limit imposed on the banks to invest less than 100 % of their core capital in manufacturing sector, a sector which includes all sorts of units - from a cement manufacturer to a bakery. I do not think the combined core capital of entire banking units in Nepal exceeds Rs. 5000 million, a figure which would not be sufficient just for setting up a single large scale cement factory. The message, thus, from this arrangement is that Nepal does not want investment to come, and that it wants a trade dominated economy, not an industrialized one. Therefore, this is a very important area in which the private sector wants the coming budget to make necessary corrections.

In addition to the corrections of past mistakes, the private sector also wants the following new measures to be started with the coming budget.

Setting up EPZ’s : The need for Export Processing Zones (EPZs) has long been realized. This budget should at least make a start for setting them up. Feasible places for such zones have been already identified. The budget should formalize them. Similarly, those units located elsewhere, other than EPZ, but exporting 80% or more of their products should be granted export-oriented industry status. Such units should be declared customs-free areas and unnecessary strikes, slowdowns etc. should be banned there. Such arrangements are not new. Many other countries have these arrangements in place and they are quite happy with the benefits.

Preparation for WTO : Nepal is heading towards WTO, but I do not see if the government has taken any measure to be prepared for the situation that is to come as a result of Nepal becoming a member of WTO. Neither is there any such arrangement in the pipeline. WTO requires massive changes in our laws, enactment of additional laws and measures to reduce our transaction costs to improve labor efficiency to protect us from dumping.

I am sure that the priority before the captains of industry, the political elite, the bureaucrats, civil servants and all those in a position to alter the fortunes of the country, would be to provide positive stimulus to the economy so that it could meet the aspirations of the downtrodden people and provide them the opportunities to work with dignity, and earn a decent wage. You would like that your economy is efficient, productive and capable of generating wealth for overall development across all regions of the country. You would also like your country to develop her natural resources, and use her agricultural lands in an eco-friendly manner, so that in the quest for economic well-being, you do not harm the environment. On these points there can be no debate. Nobody would disagree that these are desirable objectives to pursue, and whether in India or Nepal, these are the goals we would need to strive to achieve. These are, in fact, the minimum expectations that any nation would have for the well-being of its people.

However, to make it possible for nations such as ours, to use the opportunities of globalization advantageously, requires some significant changes in the way we manage ourselves. I am aware that during the four decades that Nepal had controlled economy, businesses were never encouraged to be competitive in the global market. Most of Nepal’s enterprises had limited capacity, and were operating with low levels of technology. Understandably, they were neither efficient nor competitive. Therefore, when in the 1990’s the country introduced steps to integrate with the global marketplace, many businesses could not adapt to the needed changes, because of the suddenness with which the environment they were used to got altered. Doing business and competing with the world market was a challenge that the business community had accepted, but they were greatly encumbered in their efforts by the procedures and practices that were in vogue. When industry sought support from the regulatory environment, it emerged that many of the laws and rules that governed business, as well as the working traditions and practices, were still rooted in the past. Besides organizations had to compete in a global environment without the same facilities and the infrastructure available to leading global players. In such a situation, it was quite obvious that industry in Nepal had to run so much faster, just to keep pace with their competitors from the rest of the world. Likewise, during the initial years of liberalization, when entry and expansion of capacity were decontrolled, there was a euphoric reaction, and many industries set up shop: often relying on the traditional approaches to the management of resources and people. After these initial years of tribulation, businesses have realized that to meet the challenges of global competition, they have to systematically, and consciously work their way out of these and other disadvantages that bedevil developing countries such as India and Nepal.

One of the great tragedies of many developing countries in this region has been that we have remained inward-looking for far too long and have thereby attained the vision of the proverbial frogs in the well. Tariffs were erroneously viewed as the permanent solution to the problem of trade imbalances and rising imports. Because of this, our nations remained protected and our domestic customers were obliged to buy the goods and services churned out by our un-competitive organizations. Progressively, the systems and procedures that should have impelled enterprises into becoming more efficient and less wasteful grew more sloppy, lethargic and prone to corruption and mis-governance. There were no incentives to improve or to serve people better. Our customers had no choice but to accept whatever was being dished out to them. Vested interests grew around the inefficient and unproductive enterprises. The focus was never on producing goods and services of world-class quality at affordable prices. Marketing was never a part of the repertoire of managerial skill aimed at serving customers better. Instead, tariffs and licenses became the levers that were used to keep domestic competition under check, thereby encouraging misadministration and inefficiency all of which ultimately sapped the nation of the strength to build its sinews in preparation for times of greater competition. It is not as if our entrepreneurs and businessmen were any less capable than their counterparts anywhere else in the world. I would even go the extent of suggesting that in many ways our entrepreneurs possess competencies, which make them capable of excelling in competitive enterprises in any part of the developed world. So why is it that they have difficulties succeeding in this part of the world? The answer obviously lies in the fact that we have allowed ourselves to become inefficient, unproductive and entirely uncompetitive, through the pursuit of misplaced policies and approaches. The time has now come for making a clarion call to galvanize all those involved in formulating the principles of progressive enterprise. Encourage domestic industry to become efficient, productive and world-class. There is no denying that this is just the time to design policies that take into cognizance some of the benefits offered by the easy movement of investment capital guided by the need to earn attractive rate of interest. At the same time sustained growth in the context of globalization will require changes in the style and content of economic management and that should include a careful monitoring of the sources and terms of foreign inflow of capital. These and many more steps need to be introduced to make enterprises capable of being so competitive even domestically, that they can easily take on anyone else, who might gun for the same base of customers. Even the agricultural sector, which greatly supports the efforts of industry, needs to be brought out of its dismal state. The application of sound agro-centric policies can propel agricultural production, quality and marketing to levels where agro-exports provide yet another basis for growth and development.

As powerful accelerator of economic growth and development, Foreign Direct investments (FDI) are serving to transform nations and help them meet their social objectives, which I mentioned earlier. Globally, Foreign Direct investment has been growing in size and quantum, and has been largely instrumental in fuelling the process of globalization of South Asian economies. A case closer home is that of China, where the quantum of the FDI has gone up steadily with remarkable benefits to their economy. The only way to attract such investments is to create and articulate opportunities, which point towards the possibility of earning attractive rates of return. Not only most of the investing agencies view the opportunity to be an attractive one to make, which surpasses the internal hurdle rate, there must also be an assurance of political, social and economic stability, so that there is high probability that the returns would accrue after the investments are completed. The nation that seeks such investments needs to manage the process of marketing itself, and of using the investments efficiently and effectively. Besides, there has to be openness, transparency and integrity in the dealings at all levels. These are the minimum prerequisites for attracting FDI. Such investments could work wonders for the development of infrastructure in Nepal, including in the harnessing of abundant water resources, for the generation of cheap electrical power that can further serve as a shot in the arm for the economy.

I wish to dispel the fears that some have expressed, in that globalization is synonymous with exploitations. I am of the view that it is much easier to exploit those who are economically deprived, rather than those who are exposed to variety of wealth creation opportunities. Thus real challenge before us is of making our society free from the ills that emerge from illiteracy, corruption and a mis-management of resources. We also need to do away with a lack of sensitivity and apathy towards the needs of all of our citizens. If we keep the well-being of all at the back of our minds, I am quite confident that the concerns of those who provide for the needs of others can be addressed and serviced more effectively, and in the shortest possible time. It may be a fact that today globalization opportunities may be unevenly distributed, with the more developed nations having better infrastructure, and easier access to resources, making it easier for them to forge ahead. However, it is now an accepted fact that globalization also implies global interdependence. This requires all nations to progress collectively, which is why the world today cannot afford to miss the opportunities of raising the standards of living and the competitiveness of nations across the world.

To conclude I would like to emphasize that globalization is an inevitable process that is integrating economies across the globe. There is no way in which we can resist these positive developments that have the power to reduce poverty, stimulate growth, and better the lot of all. Despite any misgivings that we might harbor in our hearts, it is imperative that we do not miss the boat. Just as China and other in South East Asian countries have demonstrated, it is possible to transform our economies and make them more market-driven, competitive and capable of attracting Foreign Direct Investment.

Let me begin with legal development, and its relation with economic and political development. Legal development must be seen as important on its own as a part of the development process, and not merely as a means to the end of other kinds of development, such as economic development. It is extremely important to get this point fully accepted, since there is a well established tradition in development studies and policy making to concentrate exclusively on economic expansion. For example, much harm has been done in the assessment of political development by asking such misleading questions as: "Does democracy help to facilitate development or hinder it?" The champions of "Asian values" have tried to make of much their belief that a negative answer to this question is empirically justified. The fact is, of course, that there is no convincing empirical evidence at all which indicates that democracy slows down economic growth (it does not seem to have any clear influence on economic growth one way or the other), but there is plentiful evidence that democracy does strengthen social security and the prevention of economic disasters. But more fundamentally, the question is wrongly posed, since it tends to overlook the fact that democracy is a constitutive part of the process of development itself. The case for democracy does not have to be indirectly established through its contribution to economic or some other kind of development. The same applies to legal development. The conceptual integrity of development requires that we value the emergence and consolidation of a successful legal and judicial system as a valuable part of the process of development itself, not just for the way it may aid economic or political or some other kind of development.

The causal connections are also important in assessing the contribution of legal development to other types of development. It is hard to understand the history of economic change, for example the rise of capitalism as an economic system, without acknowledging the role of non-economic influences, among which legal changes figure prominently. Let me pause here a bit to recollect how capitalism came into being and became such a successful system. Capitalism did not emerge until the evolution of law and order and the legal and practical acceptance of property rights had made an ownership-based economy feasible and operational. The efficiency of exchange could not work until contracts could be freely made and effectively enforced, through legal as well as behavioral reforms. Economic expansions are hard to plan without the needed trust in each other’s plans and announcements and the required confidence that agreed arrangements can be relied upon. Investment in productive business could not flourish until higher rewards from corruption has been moderated, and in this too, legal and behavioral changes played their part. The financing of businesses could not run smoothly until credit institutions had developed, and borrowers were standardly inclined to repay loans, rather than absconding away. Similarly, labor productivity demanded educational arrangements, often arranged by the state; the powerful forces of learning by doing and on-the-job training had to build on the base of institutional education provided by schools and colleges, often run by the state or the local authorities. In these developments too, legal reforms that gave citizens the right to free public education and forced them to accept the duty of sending their children to school played a critical part, as elementary education became both a legal entitlement and a legal obligation of the parents.

It is not hard to point to many other ways in which legal change has facilitated the expansion of Western capitalism. Those early foundations of economic development called for legal and other developments of specific kinds, and these demands have expanded over the years as the early forms of capitalism have given way to reformed arrangements involving social security, unemployment compensation, public health care, and other constituent parts of contemporary western economies.

Similar diagnoses can be made about the process of economic development elsewhere in the world, even though the balance of concentration has sometimes varied over the regions. For example, land reform, according to all evidence (including the World Bank’s research in this field), played an unusually crucial part in the high growth rates and shared economic expansion in East and South-east Asia, from Japan, Korea and Taiwan all the way to the very dissimilar economies of China and Thailand.

The development of education has played a momentous part in Asian economic expansion. This is, of course, spectacularly so for Japan, where the educational priorities and the rights of citizens and residents against the local authorities to provide school education assumed a leading role in the initiation of rapid economic expansion. For example, between 1906 and 1911, education consumed as much as 43 per cent of the budgets of the towns and villages, for Japan as a whole. In this period in Japan, the progress of elementary education in particular was most rapid, and the recruiting army officers noted the remarkable fact that while in 1893 one third of the army recruits were illiterate, already by 1906 there was hardly anyone who was not literate. By 1913, though Japan was economically still quite underdeveloped and very poor, it had become one of the largest producers of books in the world publishing more books than Britain and indeed more than twice as many books as the United States. To a great extent the fast economic expansion of East and South-east Asia has drawn on the lessons of these experiences, particularly through the arrangements associated with the enhancement of human resources and skill. These developments were at once social (they deal with education and other social opportunities) and economic (they influenced economic performance), as well as legal (they were associated with creating a pattern of rights and duties which influenced the lives of citizen).

Another interesting area, which has come into prominence very recently, is India’s sudden and rapid success in the development of computer software (India has become the second largest software producer in the world, behind only the United States). This process has been facilitated not only by the earlier expansion of technical education in India, but also by the comparatively flexible legal arrangements that govern these businesses compared with the much more rigid regulations that apply to more traditional commerce and industrial production, in which progress has been much slower.