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NEPAL-INDIA |
Will More Investment Come? Besides dealing with complex political issues during
his Delhi visit, Prime Minister Koirala invited was able to sort out some practical
problems related to trade and investment. But the government will have to work hard back
home before looking for the beeline of the investors By BHAGIRATH YOGI In a high-tech city of India, it was purely a business trip for Nepali chief
executive. Having left behind the political baggage behind in the narrow corridors of New
Delhi, Prime Minister Girija Prasad Koirala had an opportunity to woo Indian business
community in Hyderabad, the state capital of Andhra Pradesh. "You are most welcome to
Nepal as an investor," Koirala said, at a program organized by the Federation
of Indian Chamber of Commerce and Industry (FICCI) in Hyderabad on Friday (Aug. 4).
"Sectors such as hydropower generation, tourism, manufacturing, agro processing and
information technology (IT) are all open for foreign investment in a profitable way."
Added President of the Federation of Nepalese Chambers of Commerce and
Industry (FNCCI) Pradip Kumar Shrestha said, " There are possibilities of joint
investment in many areas in Nepal including IT sector. Nepal and India could grow together
in a number of areas." The Nepali business community was happy to learn that India agreed to waive 4
percent special additional duty imposed on Nepali exports to India. "The decision is
in line with the spirit of 1996 Nepal-India Trade Treaty," said Shrestha. "It
will help boost Nepal's exports to India." The treaty provides duty free access to
goods manufactured in Nepal except those in the negative list such as liquor, tobacco and
cosmetics.
As soon as the initial euphoria was over, Indian businessmen started
complaining about continuous growth of Nepali exports like vegetable ghee into India.
Nepal raised the duty on exports of vegetable ghee from 0.5 percent to 3 percent,
apparently under Indian ëpersuasion.' Consequently, Nepal's exports of vegetable ghee to
India that grew by more than 80 percent to Rs 1290 million in the year 1998-99 declined by
nearly 28 percent in the first six months of the year 1999-00 to Rs 1040 million. Indian authorities later made it mandatory for Nepali food items to be tested
at Patna, Calcutta and Lucknow before entering into their territory as per their new Food
Act. This not only added hassles to Nepali exporters it also added into their costs and
even resulted into waste of materials. The joint press statement issued at the end of
Delhi visit by premier Koirala said India was setting up testing facilities at Gorakhpur
and Raxaul which would help streamline procedures for Nepali food exports to India. The Indian government introduced 4 percent SAD on all the imports to India in
this year's budget. The decision came as a shcok to business community here at a time when
Nepali exports to India were picking up. thanks to the bilateral trade treaty concluded in
December 1996, the decision came as a major shock to Nepali business community. Removal of
SAD will be instrumental in encouraging investment, both domestic and foreign, in Nepal
eyeing at the Indian market, say entrepreneurs. In response, Nepal agreed to allow imports
of Indian vehicles into Nepal on the basis of self-certification by Indian vehicle
manufacturers based on type approval. In the aftermath of the treaty, companies like Nepal Lever Limited (NLL) made
Nepal a base to sell their products in northern India. Another Indian joint venture
company, Dabur Nepal (Pvt.) Ltd. set up in 1989, gained further opportunity after the 1996
treaty to expand its operations. Dabur Nepal products alone comprise of nearly 15 percent
of Nepal's exports to India. Nepal's major exports to India include vegetable ghee, tooth powder, goods
made up of jute, soaps and polyester yarn. Similarly, imports from India include vehicle
and parts, medicine, cotton thread, machineries and rice. Interestingly, Nepal used to
export rice to India till mid-eighties. Of course, there still exist some hassles as in the case of Kodak.
Though the issue of export of Kodak photography paper to India could not surface in the
official talks the issue was raised during unofficial talks. Sources said it met with
strong opposition from the Indain officials. Set up with an investment of US$ 4.8 million,
Kodak Nepal Pvt. Ltd. (owned jointly by Eastman Kodak in the US and Kodak India) has
already closed down its operations in Nepal after India refused to provide duty free
access to it saying that it was not a manufacturing product. The plant had the capacity of
producing 22 million square meters of photography paper worth Rs four billion. "Kodak may be a test case for Nepali exports to India. If Kodak closes
down its operations, it will have negative impact on other potential investors," said
an analyst. Nepal's exports to India stood at around 1.55 billion Rupees in 1990/91,
which has rose to more than 33 billion rupees in the first 10 months of the fiscal year
1999/00. Similarly, imports from India have rose from 7.32 billion in 1990/91 to nearly Rs
18 billion last year. Nepali private sector too is working hard to tap the opportunities created by
the treaty. During the Prime Minister's visit, the FNCCI and Confederation of Indian
Industry (CII) signed on an agreement to further promote Indian investment and joint
ventures in Nepal. Both the chambers agreed to help ensure proper implementation of the
Treaty of Trade and to work together in the areas of corporate governance,
information technology and other services, human resource development, productivity and
quality and environment. FNCCI and CII had signed a memorandum of understanding in
February 1995 in New Delhi and formed a joint task force to present a report to the Prime
Minister of Nepal and India. In Hyderabad, FNCCI and Federation of Andhra Pradesh
Chamber of Commerce and Industry signed on an agreement on extending cooperation on IT and
agricultural business in Nepal. Of course, some members of Nepali business delegation expressed
dissatisfaction over the treatment toward them by Nepali and Indian officials in New Delhi
during the visit. Rajendra Kumar Khetan, Vice President of the Federation of Nepalese
Chambers of Commerce and Industry (FNCCI) said the Indian officials did not attach much
importance to Nepali business leaders during the visit. They had to be confined meeting
Secretaries of different Indian Ministries. Businessmen also complained that Nepali officials did not discuss the issue
of hassles they were facing at the Calcutta port. "Our officials should have also
raised the issue of operations of multi-modal tansport after the Inland Container Depots
are constructed," said R. B. Rauniar, chairperson of the Transport and Transit
Committee of the FNCCI. " The situation is something like double clearance of our
cargo, one at Calcutta and the other at our bordering point which had added to our
hassles. At the same time there is a need to establish our ownership on the goods that are
in the transit," he said. Officials say the government has already taken up such issues at the proper
level."We are hopeful that such issues will be resolved through dialogue at the
officials level," said Chandi P. Shrestha, spokesman at the Ministry of Industry,
Commerce and Supplies. Despite such hitches, experts say Nepal should move ahead with a broad vision
in mind to tap vast opportunities created in the aftermath of the 1996 treaty. From the
investment point of view, India is the single largest investor in Nepal. At present, there
are nearly 170 Indian joint venture projects in Nepal with a total investment of about Rs
24 billion. Nepal offers several opportunities for investment. These related to
agriculture and agro-based industries, textile and wearing apparel industry,
manufacturing, construction, tourism, services, mineral-based industry and energy
industry. The Nepal government has already identified a number of projects under
Build-Operate-Transfer (BOT) basis. Foreign investment could also come in the form of
equity participation or procuring full ownership of the state-owned enterprises being
privatized. "Since our market is small, foreign investment won't come here unless
they can be sure about their access to a larger market (read: India)," said Mahesh
Kumar Agrawal, former President of Nepal Chamber of Commerce. "Nepal should also look
into promoting bilateral relations with India in the areas like hydropower, tourism and
information technology." In March 1997, the Indian government announced a Nepal specific investment
policy, under which investments from India up to Rs Irs 250 million could be made directly
under a Fat Track basis. Recently, this limit has been increased to Irs 1500 million. "These positive developments substantiate the facts that there are
enormous opportunies for the businessmen of India and Nepal to come together and
cooperate," said A. S. Kasliwal, Past President of FICCI. "Indian industry would
be happy to share its knowledge and expertise in the industrialization process of Nepal.
It will also help reduce the trade imbalance between the two countries by re-export to
Indian markets as has already been witnessed in recent years." Industrialist Banwari Lal Mittal, who accompanied Koirala as a member of
business delegation, said investors need quick decision and clarity in our policies. The
Indian investors were also concerend about secutiy situation here, he said. Time is running out for Nepal. "India has already taken off in terms of
development and we are only being pushed in the sidelines. If we don't wake up we will
turn into a forgotten island," said Mittal. "So, our policy makers, bureacuracy
and businessmen all should think seriously and work with broader vision in mind." The areas of economic cooperation that have already been identified are yet
to be exploited for mutual benefit. On the water resources front, Nepal and India signed
on Mahakali treaty in 1996 and agreed to preparet he detailed project report of
multi-billion dollar Pancheswor project within six months. Even after four years the DPR is yet to be finalized. Similarly, Nepal is yet to ratify the Power Trade Agreement (PTA)óthat was
initialed by junior Ministers of Nepal and India in 1996ófrom her Parliament. "Nepal
should pass the PTA without further delay if she is serious to attract investment in the
water resources sector," said Dr. Ram Sharan Mahat, former Minister and a Nepali
Congress lawmaker. The Snowy Mountain Engineering Corporation of Australia, that has received
permission to develop 750 MW West Seti hydropower project, is yet to enter into any such
arrangement with Indian buyers even after two years. But looking at the huge power deficit
in India, it can be assumed that India will agree to buy electricity from Nepal, albeit on
its own terms. According to latest studies, power deficit in northern India (bordering
Nepal) stands at 9,600 MW and is expected to grow to 20,800 MW by 2010. Nepal and India initialed the Power Trade Agreement (PTA) in 1996 with a view
to facilitate private power developers to sell the electricity generated in Nepal to
Indian State Electricity Boards. But due to differences of opinion between the ruling and
opposition parties on whether it should be ratified by a simple majority or two-third
majority, Nepali Parliament is yet to endorse the agreement. "We are trying to
develop a consensus among different political parties and hopefully, will get it endorsed
by the Parliament within this on-going session," said Khum Bahadur Khadka, Minister
for Water Resources. On the agriculture front, Nepal and India could work together to tap
potentials offered by silk, coffee and floriculture, among others. "Potentail Indian
investors are concerned about our mechanism and strategy for raw matrial
organization," said Dr. Dev Bhakta Shakya, managing director of Agro-Enterprsie
Center at the FNCCI. "For this, we have to mobilize our farmers for mass production
with the help of the private sector." Another potential area of cooperation between Nepal and India is information
technology. By choosing Hyderabad, also known as Cyberabad, (earlier, Koirala was supposed
to visit Banglaore but had to cancel his visit in the last minute due to tense situation
there) as his only destination out of Delhi, Prime Minister Koirala has indicated that he
is serious to develop the sector. Unfortunately, no official, either from the Ministry of
Science and Technology or from the National Planning Commission responsible for IT, were
accomodated in the official delegation. "If Nepal wants to develop IT, we should seriously look at Andhra
Pradesh," said Allen B. Tuladhar, Chief Executive Officer (CEO) of Unlimited Software
Network Pvt. Ltd., a member of the Nepali business delegation to India. "As we
don't have highly qualified manpower as demanded by software production companies, we
should focus on IT enabled services." According to Tuladhar, Nepal should piggyback on India as Japan did on US in
the aftermath of the World War II. "We should make it clear that we are no competitor
to India. The thing is there is prettyr much room for us to to grow together." While Chief Minister of Andhra Pradesh (also known as CEO of AP Inc.) N.
Chandra Bau Naidu made presentation to the Nepali delegation, most of the members were
taken aback to see that his vision, mission statement and work plan surpassed even a well
known corporate entity. Equipped with Vision 2020, Naidu said he wanted to transform the
lives of 80 million people in his stateóa predominantly agricultural stateóinto a modern
society within ten years. Naidu has adopted noble ideas like providing Rs 20,000 to a private company
for every single employment it generates and reimbursing 75 percent of the costs involved
in manpower training. " In case of Nepal, our prime attention should be on
developing our human resource to meet the growing need of different levels of IT manpower.
For this, the governmetn must take a lead," said Tuladhar. "Think Big," said Naidu, while making his presentation. If Nepali
leaders and businessmen could think big and work together inviting foreign
investment, enhancing local capability and raising the living standards of people
would no longer remain merely a dream. |
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editor: spotligh@mos.com.np |
