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Once bitten, twice shy

Promotion of investment friendly environment, special incentives to manufacturing units and adequate protection of domestic and foreign investments were some highlights of policies and programmes for the current fiscal year announced by Nepal government this month.

world Updated: Jul 20, 2011 23:29 IST
Utpal Parashar

Promotion of investment friendly environment, special incentives to manufacturing units and adequate protection of domestic and foreign investments were some highlights of policies and programmes for the current fiscal year announced by Nepal government this month.

All sound very nice on paper, but ground reality isn’t very promising.

An unfinished peace process, political instability, inadequate economic reforms, lax security, power shortage and labour unrest are affecting investments in key sectors like hydro-power and tourism.

Take the case of India — Nepal’s largest trade partner and source of foreign investment. Huge investment potential notwithstanding, investments from India to Nepal has declined by two-thirds to a mere $25 million in the past five years.

The figure for the previous five years was $70 million. Although signing of the peace accord in 2006 that ended the 10-year-civil war was expected to usher in a new dawn of investments and development, data show that nothing of that sort has happened.

In a function this week to launch a guide for Indian investors planning to do business in Nepal, outgoing Indian Ambassador Rakesh Sood expressed concern at the declining trend in investments despite the Himalayan nation having enough potential to attract investors.

Indian firms are the biggest investors in Nepal accounting for 44% of the total FDI coming to the country. More than 24% of the 1900 approved proposals for foreign investment belong to Indian companies.

Manufacturing, banking, insurance, telecom, education, power and tourism are the areas that have attracted bulk of the investments and most major Indian companies have a presence here. Nearly 150 Indian joint ventures are operating in Nepal as of now.

Hydropower is one sector where Indian investment could prove crucial in Nepal’s development. Survey lincenses have already been issued by the Nepal government to 28 projects with capacity to generate 8250 MW. But all is not rosy in this front.

Indian projects are getting targeted by ruling Maoists, the latest instance took place in May when three buildings of GMR Group were burnt down at the 900 MW Upper Karnali project site. The incident dampened enthusiasm of not just Indian investors but those from other countries as well.

While government’s assurances will take time to materialize, industry bodies like Confederation of Indian Industries, Federation of Nepalese Chambers of Commerce and Industry and Nepal India Chamber of Commerce and Industry have started efforts to lure more Indian investors.

But for wary Indian firms, Nepal has become a case of once bitten, twice shy.