Diwakar Golchha is a well known industrialist in the Nepali business world. The CA member is the vice president of Golchha Organisation as well as advisor to FNCCI. The Golchha Organisation’s business interests include aluminum, steel, agro based products and export and import of several products of domestic and industrial use. He spoke with Guneshwor Ojha of THT Perspectives on the challenges ahead for the economy. Excerpts:

How do you assess the business and economic environment of the country? What are the biggest challenges today facing trade and industry?

It is obvious that the country’s current business and economic environment is in bad shape. Things have hit rock bottom. The share market has reached its lowest and the banking sector is in serious crisis due to liquidity crunch. People are not buying property and real state has witnessed no investments. The manufacturing sector in Nepal is facing two major challenges. The first is power cuts. This has had a severe impact on industries that operate round the clock. Since they cannot operate in full swing, they are bound to fail because of mounting losses.

The other factor is labour issue. Trade unions are highly politicised and are more interested in political wrangling despite the fact that their wages have increased substantially in the last few years. Daily wages stand at Rs 235 per day from less than Rs 125 about five years ago.

Are these challenges being addressed? What suggestions would you make to tackle these problems?

As an immediate relief from power cut, the government should opt for coal based thermal power plants that generate at least 200 MW of electricity. Gestation period for thermal plants is not more than a year and half, whereas a hydro power plant requires many years to be set up. To overcome the energy crisis, government should focus on thermal and hydro power plants. Labour issues have to do with political parties, so they should make a commitment not to use labour for their political causes and no trade union member should be in the central committee of a party.

There is no immediate solution in sight for the trade deficit. The last decade has witnessed the closure of many factories and many are on the verge of closure. Domestic resource based industries with maximum value addition are the hardest hit as they don’t have a

level playing field against imports. Nepali industries are paying higher taxes compared to similar industries in India which makes imports cheaper. Closure of domestic industries automatically increases the dependency on import. Sadly, government policy is only revenue oriented. Bureaucracy is happier to have Nepal as a finished goods importer than a manufacturer.

The liquidity crisis is affecting the economy. What needs to be done to tackle this?

The present liquidity scenario did not surface just yesterday. The situation has been persistent for the last two years. This is because of the orthodox taxation system prior to 2001. Back then, Nepal had no accounting based taxation system. Government fixed profit on lump sum basis at certain percentage and this continued for many years. Recently, the Anti Money Laundering Act was introduced with NRB issuing over eight directives to several bodies. Yet, what needs to be considered is that corporate houses have always been under the tax system while non-corporate businesses have remained out of the tax net. Non-corporate business communities like wholesalers and retailers

that comprise a major chunk of the economy started withdrawing deposits from banks and investing in unproductive sectors. We have suggested the government provide amnesty to all citizens declaring their wealth with zero tax through the next fiscal year’s budget. This will reduce the fear psychosis and deposits will rise. Such declaration policy has been practiced in India, Sri Lanka and Bangladesh.

What needs to be done to create a more conducive environment for industry and enhancing investment?

Nepal holds potential in many sectors such as hydropower and mineral based manufacturing industries. But it requires political stability and a committed government for creating a prosperous Nepal. Vandalism by cadres of political parties should be stopped immediately. For example, many hydro power projects in the process of construction and implementation are harassed under one pretext or the other. Such disturbances push back projects by eight to 10 years, thus increasing project cost. Therefore, once a project starts, it should run uninterrupted. The government’s decision to mobilise the army for the security of hydropower projects is a welcome move. Security should be availed to all projects sites. Any negotiation with the local people should be held through the CDO or LDO and not directly with the project.

How badly is political instability affecting the economic agenda?

Nothing can move ahead in the absence of law and order. Obviously, peace and political stability are a must for vibrant business and

industrial growth. Once there is law and order, Nepal’s industrial sector can take off. There is a silver lining and there can be a logical conclusion to peace within three months. There is enough room to be optimistic about peace. If the parties fail, that will surely invite untold disaster and no one has realised that yet.

Published on: 26 June 2011 | The Himalayan Times