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			'title' => 'Downtown Housing Company(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<span style="font-size: 10pt;">D</span><span style="font-size: 9.5pt;">owntown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has provided products and services to accommodate the urban middle class by developing high-quality residential properties. Today, Downtown Housing Company is one of the most respected and diversified service firms available with dedicated people who serve a growing client base that reaches far and beyond.</span></p>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Downtown Housing manages the process from conception through completion - an approach that has been perfected over time to exceed the clients’ expectations. Downtown proactively works to ensure every property as once-in-a-lifetime investment opportunity for its clients, giving it the special care and attention to detail that enhances value for living within.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">City View provides clients with the kind of peace and tranquillity they want. Only 38 exclusive apartments (including 2. duplex pent houses) have been built here, with rich and stylish complex.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	 </div>
<div style="margin: 0in 0in 5.65pt; text-align: center;">
	<span style="font-size: 15.5pt;">Guna Colony </span></div>
<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 11pt; letter-spacing: -0.2pt;">E</span><span style="letter-spacing: -0.2pt;">stablished in 1998, Guna Colony Pvt Ltd is a large and reputable company involved in property development. It has already completed properties like Stupa Housing in Sinamangal, Stupa Colony in Buddhanagar, Reliable Colony in Bhainsepati and LP Apartment in Lazimpat. New projects such as Bhainsepati Apartments, BN Apartment and GN Apartments in Gwarko have already been launched.</span></div>',
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			'title' => 'Housing In BirgunjSlow Growth, High Hopes(june 2011)',
			'sub_title' => '',
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			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 14px;"><strong><i>By Bimmi Sharma</i></strong></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">H</span><span style="font-size: 9.5pt;">ousing business may be mushrooming in the Kathmandu Valley. But the story is different in Birgunj. People with diffent backgrounds find it quite normal to live in separate flats and apartments within the same building in the capital city.&nbsp;But such concept of community living hasn’t gone down well with Birgunj locals. They still prefer to stay separate from people of other religion, caste or culture. It is this mindset that is the major impediment for a flourishing housing industry in the city, lament housing entrepreneurs. They complain of having a difficult time implementing the idea of community housing that was first conceptualised here 14 years ago. So far, all Birgunj could manage are three apartment complexes and a fourth one under construction. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nanakchand Ashwani and Shyam Rungta were the first ones to enter the housing business here. They have built two apartment complexes - ‘Ganesh’ and ‘Lakshmi’. These two five-storied apartment complexes have a total of 40 units. The flats at Ganesh were priced at Rs. 900,000 and at Laxmi at Rs 1.35 million per unit. However, these flats remained unsold for a long time. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Eight years after these attempts, Triveni Group constructed a 10-storied apartment complex ‘Triveni Gopal’ in Birta area of Birgunj. Built at a cost of Rs 50 million by Birendra Sanghai of the Triveni Group, the complex has 72 units in total. Sajjan Kumar Chimariya, the manager of the complex says, “Apartment culture is yet to pick up in Birgunj because people are more comfortable with the idea of building houses on their own land and to enjoy complete ownership.” He adds that the project barely managed to recover the investment and did not yield any profit whatsoever. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite the apartments having all facilities including electricity, water, garden, park and security, people find these rather expensive and inconvenient. Out of the 72 flats in ‘Triveni Gopal’, 50 are occupied while the owners of the rest 22 units haven’t started residing here. They rather want to sell their properties. “The country’s volatile situation is primarily responsible for the lukewarm response towards housing in Birgunj,” says Chimariya. He adds, “There is no future for housing business in Birgunj. It’s advisable that the new entrants don’t enter the market here.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">‘Prasanna Apartments’ which came into being a year ago has started getting residents moving in already. Tara Shumsher Rana, a Director of ‘Prasanna’ apartments opines, “The housing business is experiencing a low right now but it has a good future in Birgunj due to the impending development of infrastructure in and around this city.” The construction of Nijgadh International Airport close to Birgunj, Kathmandu-Nijgadh Fast Track Road, Integrated Customs Checkpoint, Birgunj-Thori Road, Birgunj University and a well developed agriculture market are bound to make Birgunj a more attractive place to live. These developments will have a positive impact on the housing industry, opines Rana. His company Prasanna Constructions is in the business of constructing buildings for its clients for 25 years now. Built at an investment of Rs 50 million, ‘Prasanna Apartments’ has 20 flats altogether and costs anything between Rs 3.2-4 million. Of the 20 flats, only thee are remaining to be sold, Rana informs. “Though the present situation is not conducive, once there is political stability and economic progress begins, housing business in Birgunj will definitely flourish,” Rana says optimistically. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle; text-align: justify;">
	<span style="font-size: 9.5pt;">Ashok Kumar Baid, an industrialist who owns Shalimar Cement has joined the housing business and plans to build ‘Kamdhenu Apartment Homes’ using the ‘Kamadhenu’ brand under franchise from the Indian owner of the brand. To be constructed at an investment of Rs 800 million, this 12-storied apartment with 134 units will be ready for occupancy in two years’ time. Each flat in this ‘first apartment complex of international standard in Birgunj’, as the developer calls it, will cost Rs 7-8 million. “Interested buyers will need to pay 20 per cent of the total amount upfront. The facilities include swimming pool, health club, gym, park, garden and provision store,” says Baid. He says he is confident of selling all the units of his project which will come up at Ward 13, Adarshanagar in Birgunj. Like Rana, Baid too is optimistic that housing industry in Birgunj will grow as various developments are taking place in and around Birgunj. He says, “Birgunj is a leading business destination and the development projects being implemented in and around here will definitely benefit the housing industry as well as other businesses.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">‘Kamdhenu Apartment Homes’ will be the fourth apartment complex in Birgunj. The previous three apartment houses have a collecgive investment of Rs 150 million. When the investment proposed for Kamadhenu and some other projects that are in the pipeline are added up, the total investment goes up to Rs. 1 billion. Ashok Kumar Temani, the President of Birgunj Chamber of Commerce and Industry is upbeat about the business potential of apartment complexes. “In the future, Birgunj will be like Shanghai or Mumbai. Once the projects which are being constructed at break-neck speed are completed, we will see skilled workers flocking to this city for work,” Temani predicts. He continues, “These people’s housing requirements ensure a bright future for the housing industry here.” </span></p>',
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			'id' => '376',
			'article_category_id' => '40',
			'title' => 'Growing Housingin Pokhara(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 12px;"><i>Text and photos: Deepak K Shrestha</i></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">With increasing urbanisation and modernisation, the housing industry in Pokhara is gaining momentum though not as fast as in Kathmandu. Along with tourism, education and the health sector, housing is fast becoming an attractive investment prospect for investors here. In terms of population growth and migration, Pokhara is second only to Kathmandu. However, the community housing business has not grown in the same proportion. Entrepreneurs believe that since it is a new concept, people will take time to get attracted to this concept. However, it is already a seven-year-old industry in Pokhara, with two companies already in it while other two are preparing to enter the fray.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Annapurna Developers Pvt Ltd (with the brand name ‘Fishtail Residency’) and Pokhara Homes Pvt Ltd have started operations already in Gharipatan of Pokhara Sub Metropolitan City. These companies claim to provide facilities at par with the housing complexes in Kathmandu such as good roads, water and power availability as well as health club. This has attracted buyers who have the means and desire to live in such housing complexes. Besides these, Road Show Real Estate Pvt Ltd and Gandaki Real Estate Pvt Ltd have entered this business recently. While the Road show has its project at a location called ‘Deep’ that is in the Ward No 16 of Pokhara Sub-Metropolitan City, Gandaki has its project at Lekhnath Municipality under the brand name ‘Lekhnath Dream Colony’.&nbsp;Investors claim that the consumers have shown significant interest lately for buying such property.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While renowned contractor and industrialist Surya Bahadur KC is the investor for Pokhara Homes Pvt Ltd, Dhruba Kumar Shrestha, Kalu Gurung and Bindu Kumar Thapa are the investors in Fishtail Residency, Road Show and Gandaki Housing respectively.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Pokhara Homes started building houses on 70 ropanis of land about seven years ago but faced adversity for the first few years. Tej Baniya, the Operations Manager of the company said, “We started doing good business only about three-four years ago.” A total of 54 houses were built under phase-I out of which 52 have been sold already. “We are starting phase-II in the next six months which will have 32 units,” Baniya informs. The company sells two-and-a-half-storied bungalows, complete with five bedrooms, built on 8-10 annas of land. Baniya claims that each house costs Rs 9-9.5 million just for the construction. He further says that the mere announcement of phase-II has attracted 17 bookings already. Pokhara Homes is also constructing 20 colonies and 14 separate houses near Chorsanghu in Pokhara. The houses and apartments in this area will be less expensive than the ones in Gharipatan.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">All housing companies in Pokhara are conducting business with prior approval from the authorities concerned – i.e. municipality and Pokhara Valley Town Development Committee. “Due to close proximity of Gharipatan area to the airport, we are not allowed to construct buildings higher than two-and-a-half-stories,” says Bhupendra Shrestha, the Marketing Director of Fishtail Residency. The company which started work about four years ago on 21 ropanis of land has already sold 40 of the total 66 units constructed. The buyers have already started residing in 30 of these units, each one a two-and-a-half-storied, four-bedroom bungalow costing over Rs 10 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Gandaki Real Estate Pvt Ltd that was primarily dealing in real estate holdings thus far has started constructing housing units on 81 ropanis of land in Talchowk of Lekhnath-8. The company has a target of building 30 units within a year, each unit occupying 5.5-8 annas land and priced between Rs 9 and 15 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Suman Kumar Gurung, the Pokhara Branch Manager of Road Show Real Estate said that a total of 108 units will be constructed in Deep of Pokhara-16. The units built on 5-9 annas are targeted at the upper and middle class consumers. The housing complex will have kindergarten, tennis court, swimming pool, cable television, telephone and power generator among other facilities. </span></div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">The stakeholders of Pokhara’s housing industry include locals as well as the rich from the capital. Nepal Army’s retired general Pyar Jung Thapa and Galaxy School’s founder Gita Rana have already bought properties in the city. Besides the established businessmen, the newly rich people as well as&nbsp;retired soldiers of foreign armies have shown tremendous interest in Pokhara’s community housing units. Gurung says, “Peaceful environment, security and a modern lifestyle is attracting retired professionals immensely.” He adds that the housing industry in Pokhara has a great future because the very name of the city rings a bell in people’s ears since it is considered ‘heaven on earth’. Political instability, the Central Bank’s endless directives and lack of investment climate have affected the housing sector as well. But the housing entrepreneurs remain optimistic that the flourishing housing business outside the Kathmandu Valley will be provided encouragement by the government.</span></p>',
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			'title' => 'We Need To Reinvigorate The Real Estate Climate (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bijay Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">Chairman and Managing Director</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">CE Construction Pvt Ltd<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we can't expect the individuals to completely stop building independent residences.</div>
<p>
	&nbsp;</p>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">You have been in the housing industry for some time now.&nbsp;Where do you stand currently? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Real Estate is our core strength but at the same time, we have been operating in other sectors as well. We have a wide range of properties in different locations in and outside of Kathmandu and our ultimate objective in the real estate is to serve the mass. Currently, the housing sector is experiencing a slow growth. Different stakeholders such as the government, regulatory body, financial institutions, developers, investors and individual buyers are somehow responsible for the slow pace of the housing industry.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The NRB has relaxed lending for the housing sector recently. How big is the relief? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	It has definitely provided relief to some extent. But the impact is yet to be seen because there is a liquidity crunch in the market and the banks have a problem maintaining credit-to-deposit ratio. We need to work very hard to regain a prosperous real estate climate.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">As the banks are shying away from investing further in this sector, how do you plan to take your projects forward?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We have been using different financial tools on a project-to-project basis and the major portion of our cash flow is coming through sales. There are basically two categories of buyers the speculative investors who intend to sell the property at later date at higher prices and the end users who really want to settle in those homes. Both types of people seem quite reluctant to invest in this sector at the moment because of political uncertainty and unclear policies. We are working hard to come up with innovative tools to cater to both the categories. At the same time, we are introducing attractive packages for the buyers. Project management being our strength, we periodically map our project execution plan, assess the risks and the uncertainties and act accordingly. Even though the banks are going through a difficult time, they have been extending cooperation towards us because of our credibility. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The interest rate has tremendously increased increasing the cost of housing development and eventually the price. Thus the properties are now beyond the general public's affordability. What do you suggest to tackle this problem?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, the housing sector is reeling from the impact of the interest hike, however, it is minimal. The projects are usually funded through equity, borrowings from the financial institutions, credit from the vendors and subcontractors and most importantly, from sales. In general, the share of bank funding in a project is about 30 to 45 per cent of the base cost. Of the sales price, the share of bank funding is only 25 to 35 percent. So, the interest hike of 5 per cent has an impact of about 1.25 to 1.75 per cent on the sales price. The developers should be willing to absorb that from his profit in view of this difficult time. Therefore, the slaes price need not go up just because the interest rate has gone up. In order to continue with the planned projects, the developers will have to resist hiking the price and be content with lower profit. This is the best strategy till the buyers are in wait and watch mentalality. The impact on sales is not because of the price of the product itself but due to the interest on loan which buyers take from the financial institutions. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Don't you think that the houses and apartments are priced unnaturally high? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">When we talk about the price of the housing products, one needs to take into account the basic components: the price of the land as well as the cost of the building and infrastructure. So, in the current context, developers can only play with the land price as the other two components are easy to calculate. We ask the buyers compute the price of the above mentioned components of our units and let them sum it up. As far as the land price is concerned, buyers can check the price in the project neighbourhood. Our price turns out to be 20 to 25 per cent less than what the buyers come up with after such calculation.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Since the buyers are getting the finished product, they save in the hassles that they may otherwise go through when they build their house on their own. If you assign monetary value also to these hassles, the houses that you buy from a developer are much cheaper than what you will have if you construct it on your own.&nbsp;In our case, it is even cheaper because we are the single real estate solution provider- we buy the land ourselves which saves in the service fee of the broker, we do in-house designing, we ourselves are the contractors and we buy local material in bulk and import many branded materials through our trading division. In comparison, individual house owners building their own house have to buy all these on their own in retail. In that process they end up paying higher for everything. And quality is the further value addition when you buy from a developer because the developers are equipped with resources like manpower, equipments and construction technology.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">It is said that apartments are not much preferred by Nepali people. Therefore, a lot of apartment units from the developers are lying unoccupied. How do you view this?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">&nbsp;This is very true but at the same time, we do need to understand that any change takes time. Currently, a number of units of completed apartments are either still unsold or unoccupied even if they are sold. Therefore, progress of many projects is slowed. However, this slowdown in the progress is not only due to inadequate sales but also due to lack of fund as bank lending is curtailed. Many developers fear that if they borrow at high cost and finish the units but they remain unsold for long, they may have to incur very high maintenance cost for such apartments.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	However, we in CE are trying to complete all our projects on time to send a positive message across. Presently, the criteria for the buyers selection of a property are: the credibility of the developers and the physical status of the project. Buyers are comfortable in buying finished products because it is like buying any other commodity. Counselling as well as other marketing tools might not be that effective at the moment as compared to putting on sale the finished product.<br />
	 </div>
<div style="text-align: justify;">
	No matter how the people at present may view the apartments, the apartment projects are viable because the price that the buyers of such apartments will be paying will be lot cheaper when compared to the upgraded lifestyle that the buyer can enjoy in such apartments. It is just a matter of time before people shed their inhibitions about buying apartments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">What are the required measures to improve this sector?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.05pt;">First of all, the country needs to assess whether real estate is a need for us or not. If yes, all the concerned parties including the developers need to extend their full cooperation. To gain the confidence of the buyers, I have different recommendations to my colleagues. Those who have not started their projects must have a thorough plan to work out the cash flow before they start the project. They must also have a full proof marketing plan. As for those who have started their projects, their primary responsibility should be to complete the sold units fast and meet the contract conditions as well as reschedule construction of unsold component of the project based on cash flow and sales forecast. This strategy will not only help win the confidence of the buyers and investors but also that of the financial institutions.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: -0.15pt;">The average age of a building is around 50 years. What will happen to those living in the apartments and individual houses developed by housing developers after this time period? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The age of a building depends on the technology used to build it. The property is insured against earthquake, fire or any other kind of damage. If something happens during the lifetime of a building, either a community housing or an apartment building, it will usually be compensated through insurance.&nbsp;Once the building's lifetime expires, the law clearly states that the ownership of the property will be ascertained on a pro-rata basis. You have two options - either to rebuild the property with the same proportion of ownership or if all the flat owners of a particular property agree to sell it, they will get the sales proceeds divided amon themselves on a pro-rata basis. If the property value grows tremendously during the lifetime of the building or afterwards, the owners will have the option to demolish and come up with a different product. For example, it can be a commercial complex or any other product that may yield higher return. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Is there an issue with the ownership of the flats? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Well, there is no issue whatsoever at all regarding flat ownership. Once you buy a flat, you get an ownership certificate from the Land Revenue Office. When a building is complete, the municipality and the department of urban development and physical planning inspect it and issue the completion certificate. It then recommends the Land Revenue Office which issues you the certificate of ownership.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">How long will it take to change the housing culture from independent houses to community living in flats and condominiums ?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we cant expect the individuals completely stopping to build independent residences on their own. This is because housing projects will not be able to meet the individual requirements of all the people.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Tell us something about your ongoing projects? </span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">CE's current housing projects include: Vinayak Colony (176 units of independent houses) in Bhaisepati, Grande Towers (529 High-End apartments) in Dhapasi, Veena's Residency (76 units independent houses) and Harmony Housing (74 units independent houses). Similarly, we have recently completed Vinayank Colony-phase 1 in Bhaisepati, Rio Apartment in Kupondol and The Retreat Apartment in Bijayshwori. We are also coming up with two affordable independent housing projects in Sitapaila and Budhanilkatha.</span></p>',
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		'Article' => array(
			'id' => '374',
			'article_category_id' => '40',
			'title' => 'Developers-built Housing Market Is On The Rise (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Om Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">CEO and Chairman</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Comfort Housing Pvt Ltd</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher prices. And they will continue holding as long as they have the capacity to hold.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you evaluate the housing industry at present?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I started my career as a developer and we are the pioneer in promoting community living concept in Nepal and real estate as an industry. My aim is to establish this as a professional institution because this is a very large industry where everyone can be adjusted. Human life does not exist without real estate because any building, whether it is hospital or a theatre or a residence, belongs to this sector. So, this sector should be developed in a proper way. When we compare Nepal with any other country, our urbanisation is largely unplanned. Housing industry is dependent on three elements - government, individuals and the developers. Our government has a different agenda and the government people are not bothered about well managed urbanisation. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you look at the future of this industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal's 15 per cent population live in urban areas whereas the global urban population today is 50 per cent. By 2030, our expected urban population will be around 30 per cent while the global urban population will reach 70 per cent.&nbsp;According to a survey, in Nepal, we require nearly 270,000 housing units annually. In 10 years time, one million units will need repair and maintenance. Likewise, within the Kathmandu Valley, we will have a deficiency of around 40,300 units every year. So, it has a bright future and huge potential. On the other hand, secondary transaction is equally important. In my opinion, in community living, there is 10 to 15 per cent secondary transaction. The secondary transaction also generates revenue for the government.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can the housing sector be revived from the current problems, such as the restrictive rule of Nepal Rastra Bank?</strong></div>
<div style="text-align: justify;">
	A number of factors affect the housing market. They are: government policies, financial institutions, building materials, building technology, households, land prices and the real estate agents. We have different policies coming from the government and the Nepal Rastra Bank (NRB). There are a few aspects in the government policy that need to be addressed immediately.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">First is&nbsp;the capital gain tax rate that is 10 per cent for any transactions within five years and five per cent after five years. Thre is difficulty for people to afford 10 per cent capital gain tax. So, when the people sell the property in the secondary market, they report transaction figure to the government, they show a lower than the actual figure. This ultimately affects government revenue. For example, if I buy a property for Rs 10 million and sell that in a year-and-a-half for Rs 20 million, then my capital gain is Rs 10 million. And from that Rs 10 million, I am expected to pay Rs 1 million as capital gain tax to the government.&nbsp;To avoid such taxes, people are showing Rs 12 million on paper though the actual transaction is for Rs 20 million. This way, the government is losing revenue. Once the property is liquidated, the money is normally deposited in the bank. But while depositing the money in the bank, you have to show the source of the money. Hence, only Rs 10 million can be deposited. The rest Rs 8 million remains out of the system. This is one of the reasons for the current liquidity crisis.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Second, while buying land of more than Rs 3 million, it is mandatory to declare income source. This is the other concern that needs to be addressed immediately.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Housing must be recognised as an industry so that the revenue goes into the state coffers. The NRB limitation has now been relaxed and a new loan portfolio category - home loan - has been created as well. I think the banking sector too should have a positive attitude towards housing industry. There are three different perceptions among the banks - some say that the real estate is an industry and profits can be made from this. That’s why they have made investments in this sector. Others say that the real estate is a future industry and they need some experience in this sector. So they have made limited investments. There are yet others who regard as a very risky industry. Therefore, they have made very small investment in this sector.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	We are currently at the bottom of the real estate cycle. To recover from such a state, these government policies and the perception of the banking sector towards this industry should change.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Though the NRB has relaxed lending, some of the housing developers say it is yet to make its impact in the market. Why such slow response?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher price. And they will continue holding as long as they have the capacity to hold. Some investors are keen on recovering the principal amount if they are not in a position to make profits. Some other investors are willing to liquidate even at a loss so that they may not need to continue bearing the financial burden. We are at a stage where even if we can't make profits, we have to liquidate the property. Our strength will be tested in mid-July because there will be pressure from banks. Our inventory holding capacity too will get revealed. Today, if you can sustain yourself, you will emerge winner but if you can't, you will have to liquidate to get the return on interest and principal. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>When the bank's investment was curbed, how severely were your projects affected? How did the companies manage to take their projects forward?</strong></div>
<div style="text-align: justify;">
	As per the data from the government authorities, fiscal years 2007-08 and 2008-09 witnessed the highest number of new projects registration while 2009-10 had very few and in 2010-11, there are no new projects registered at all. The projects approved in the past are making progress, but some of them are progressing very slow or they have downsized.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">An investor will definitely look for maximum returns. But people do not have much confidence in the real estate industry at present. So people are not putting in money. Similarly, banks are also not investing which is why this industry has slowed down.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">One indication of low sales of apartments is that Nepalis are not much attracted towards group housing. What should be done to assure them that such houses are better than individually constructed residences?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I personally feel that people have gained more confidence in group housing now. A decade ago, this concept was very new. Today, a number of developers have entered the market with their projects because the concept has been accepted by the people. The success or failure of a project is a different issue altogether. The concept of community living has been largely accepted by the Nepali people. Now, the percentage of owner-built houses is declining while the developers-built housing market is on the rise. In developed countries, all the people buy houses from developers only. Once you are very rich, then you may want to go for custom-built houses.<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">People complain that the developer-built houses and flats are unreasonably priced. How can the price be brought down to make the houses affordable for more people?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">In my opinion, the prices of the developer-built houses are reasonable at present. Therefore, the prices are not going to come down from what they are. Though some investors and developers may sell their property at even lower price than what it is at present, that will be only in case of financial distress. The land purchased by the developers was very expensive in the first place. The interest on the capital borrowed is very high. Similarly, there is a high uncertainty cost. Besides, human resource cost is getting expensive by the day. In all ways, if you compare with yesterday's price, today's price is at the same level. But the expenses have certainly increased. So, the developers have cut down on their profit. They are at a point where they can't come down any further in price.&nbsp;</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>that means there is no plan to build more affordable housing?&nbsp;</strong></div>
<div style="text-align: justify;">
	It is true that developers are not coming up with affordable housing. As a developer, we should come up with low priced products targeting the wider mass. While we at Comfort Housing are planning to come up with affordable housing, some colleagues in&nbsp;inthis industry have already brought such products to the market. So, the products will come to the market as per the demand in the market. The problem is that while the people have low budget, they have a high value house in their mind. They should also know how much they can afford and what they will get within that.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Commercial and residential housing projects are centred in few cities, mainly in the capital. Why are developers not interested to take such projects in the semi-urban areas and small towns?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Well, the concept has changed now. I had started a project in Dharan a long time ago. At that time, the community living concept was not popular. The migrant population of Kathmandu is 39.6 per cent. Everyone wants to own a house here as Kathmandu is the capital city. That is why developers are mainly concentrating in Kathmandu valley. Now that the peace process has progressed to some extent, development outside the Kathmandu valley is bound to take place in a year or two. The land prices in all the commercial towns have gone up like anything and that is one of the indicators. Even in the Kathmandu valley, the projects have come up in the suburbs. Our urban area is expanding by 4.6 per cent every year. Today, three to five kilometres periphery of the ring road is also considered urban area. So, the developers are going beyond the ring road and that is why we see a lot of housing projects centred within this belt. I feel that we should go further beyond that. We should focus on the development of suburban areas so that we can minimise the load on the carrying capacity of the city.</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The Supreme Court recently declared null and void the rule that required all transactions above Rs. 5 million to be made through bank. How much relief would it provide to the industry?</span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Not much because the problem is more with the worry and suspicion the people have about the situation tomorrow. They are not sure what sort of new charges may be levied then. However, this ruling by the Supreme Court will help to some extent.</span></p>',
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		'Article' => array(
			'id' => '373',
			'article_category_id' => '40',
			'title' => 'Developers Need To Be Transparent To Win Public Confidence(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Ashoke SJB Rana</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">President</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Nepal Bankers’ Association</span></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How does the banking community look at the overall prospect of the housing industry?</strong></div>
<div style="text-align: justify;">
	When we interact with Nepal Land and Housing Developer’s Association (NLHDA), they put forth their arguments why the housing developers should be encouraged. Their point is that it promotes infrastructure development that the government has failed to provide such as water, electricity and other facilities that come along with housing standards mentioned in the building code. So, I think this is very positive. It is only the speculative side we need to be wary of.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How much have the banks invested in this sector?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">Our estimate is that the banks have invested in average of 25 percent of their loan portfolio into this sector. However, this is an average only. I think that the NRB has put the cap at the right time to prevent the bubble from bursting. We were afraid that the share of housing industry in the total loan portfolio of the banking system might go higher because of the asset price bubble expanding till last year. If you can get regular income and recover your investments in 15 to 20 years, it’s good to invest in this sector. But when the price of the property and the development cost increases and the return comes around in 50 to 60 years that is not economically viable. The mortgage in the west is done usually for 15 to 20 years. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How will the banking sector benefit with the improvement in housing industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">One of the major aspects of the housing industry is infrastructure development. The NRB has welcomed this because that means value addition but it also wanted to control the speculative part. People were buying property on credit or with loan hoping the price would go up and they would he able to sell it for profit even before paying the entire price. And that was the dangerous part of the entire chain.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>A lot of housing and apartment units are unsold. In this market situation how confident are you of the banks recovering the loans they have given to this sector?</strong></div>
<div style="text-align: justify;">
	The NRB has recently changed its directive and allowed&nbsp;home loans of up to Rs 6 million to be considered as normal loan. This means people who want to buy a house can borrow up to Rs 6 million from the bank and manage the rest from the equity. High-end apartments cost around Rs 10 to 15 million. So, this loan amount is sufficient. There should not be any problem to recover such loans.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>As an investor, what kind of policy reforms do you think are required to improve this industry?</strong></div>
<div style="text-align: justify;">
	I think a little bit of transparency on the part of developers has to come. Just like the banks disclose about their capital, deposit, liquidity ratio and investment, the real estate developers too need to make certain disclosures to the public. The big fear is that the investors might be putting in money where the developers have not put any. It could be all borrowed. Investors want to know the strength of the developers. I think some kind of transparency and disclosure from developers can give confidence to the banks and the individual buyers.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0.15pt;">Till recently there was a rule which made it compulsory that all payments exceeding Rs. 5 million in a real estate transaction be made through a bank. Recently the Supreme Court declared that such a rule was illegal. What is your comment on it?</span></strong></div>
<div style="text-align: justify;">
	That provision was there because banks felt that dealing in cash is an expensive proposition. We try to encourage use of cheques. It has been now ruled out and it is unfortunate. I don’t think that the real problem was with payment through bank. The problem was with the disclosure of income source. Even if someone comes with cash, they still have to disclose the income source to the Land Revenue office while getting the transaction registered. I don’t think it is a meaningful ruling.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What are the requirements for granting loans to individual buyers of apartments? What is the current trend?</strong></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment. It’s not a project loan where there may be an implementation risk that the borrower may not implement the project in time. It’s about buying a home that the developer constructs. The bank has to properly evaluate the developer to minimise the implementation risk. So, I think the housing loan is a very structured product. I think that for the banks, it is an easier loan to recover.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	The risk is only when an institution is exposed high on the speculative side of real estate business. If the exposure is not high, the institution may be stuck with a project or two for sometime, but that will not impact much in the overall health of the bank.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is your suggestion to the real estate developers?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">We need to separate the good developers from the others, some of them may not be financially sound. The public should find out who the serious developers are and distinguish them from the inexperienced ones. There are developers who have no engineering knowledge and only believe that it is like a real estate transaction. If there are people who are trained engineers and have business plans like the ones from CE construction, it gives confidence to the entire sector. I think we need to support these people and ignore the others. <br />
	</span></p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;"><br />
	</span></p>',
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			'title' => 'Real Estate Sector Must Develop Professionally (june 2011)',
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			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bhaskar Mani Gyawali</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Executive Director-Banks and Financial Institutions Regulation Department</span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Nepal Rastra Bank</span></span></div>
<div style="text-align: justify;">
	<span style="font-size: 11px;"><br />
	</span></div>
<div style="text-align: justify;">
	The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own houses. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What actually does NRB want in the investment of commercial banks in the housing industry?</strong></div>
<div style="text-align: justify;">
	The NRB wants real estate and housing business to develop as a true industry. In this sector currently, a huge amount is invested from the banks, the developers and the general people. Concentration of such a huge amount in a single sector affects other sectors too.&nbsp;The NRB wants this sector to surge professionally. There will be investment as required and the transparency and honesty has to be maintained at the highest degree.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Is the investment in the housing industry feasible for the banks in Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own house. But we thought the trend of unnatural price hike driven by the investment for profit from money borrowed from the bank wouldn't be sustainable. Therefore, the NRB has put a limit for bank investment in this sector. However, it does not mean that the banks should not invest in this sector. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The NRB recently relaxed the cap it had imposed on bank lending in the real estate sector. Why was the NRB late in realising this sector's potential as an industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">What was happening in the past was: people were buying land with the help of bank borrowing and selling the same land to others for profit who in turn, were borrowing from the bank to pay for the purchase and selling the same land further for profit. It formed a never-ending chain that resulted in land prices being unnaturally hiked. The NRB is against such practice. We believe the real estate sector should develop in a professional way.&nbsp;Lending for purchasing real estate properties meant for personal use should not be stopped if the buyer of such property has enough income to service the loan obligations.&nbsp;Such real estate lending is to buy land for constructing personal residence, to construct a residential house on&nbsp;the borrower's land and to buy houses or flats in the community housing projects. So, we recently issued a directive to remove loans up to Rs 6 million from the category of the real estate loan. If the banks do not invest in houses and apartments, the people's right to have their own house will be a mere dream. In the long run, old houses will need to be replaced and with the increase in population, more people will need houses. We have not tried to discourage investment into this sector and that is why we relaxed the lending.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can you say that the real estate loan provided to under a new name 'home loan' would not result in similar adverse consequences as in the past?</strong></div>
<div style="text-align: justify;">
	The loans up to Rs 6 million have been removed from the category of real estate loan. This loan is provided by banks depending on the borrower's ability to pay back the instalments. Previously, the real estate loans went mostly for the speculative business of land plotting that created undesired consequences. But the home loan is not speculative and will not create problems.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>&nbsp;The developers complain that the NRB has been hurting their business by introducing adverse policies. What do you have to say about it?</strong></div>
<div style="text-align: justify;">
	Well, considering the demand of the real estate developers, we removed the loans of up to Rs 6 million for the purchase of apartments and houses from the category of 'real estate loan'. But the developers are demanding that this limit has to be lifted further. We believe that Rs 6 million is a huge amount of money and higher than required by an average Nepali to purchase a house. So, it is not possible to lift this limitation any further.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The Supreme Court recently nullified the earlier rule that required all the real estate transactions exceeding Rs. 5 million in value to be through a bank. What is the view of NRB on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The verdict of the Supreme Court is equivalent to law and we respect the decision. Cheques, cash or any other methods are just the instruments of payment. Looking at the international practice of making payments, it is difficult to say that payments through cheques would create problems and cash wouldn't.&nbsp;We recommend that transactions should be made through any other method other than cash. And a cheque is safer, simpler and easier. This is the intention of the banking system around the world and the NRB's wish is no different.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong>What are the possible measures that the NRB can initiate or facilitate for the smooth growth of the housing industry?</strong></div>
<div style="text-align: justify;">
	We have now brought the home loans of up to Rs 6 million under the category of personal loan. This indicates that the NRB wants this business to develop and move ahead in a healthy way. With the time and demand, there will always be room for necessary amendments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the current status on loan recovery from the housing industry?</strong></div>
<div style="text-align: justify;">
	The banks have to recover any lending within the stipulated time period. We have received information that the loans are being repaid.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the total investment of the banking industry in this sector? Do you see further investments coming into this sector in the coming years despite its present precarious position?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Currently, the total investment in this sector is Rs 97 billion which is 18.9 per cent of the total investments made by commercial banks. The real estate and housing sector is a growing business and there must be further investments in in this sector also in the future. The past practice of using bank's money to speculate on the real estate should not be there. However, to fulfil the people's need for houses and apartments, there must be further investments pumped into this sector.</span></p>',
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	(int) 7 => array(
		'Article' => array(
			'id' => '371',
			'article_category_id' => '40',
			'title' => 'Urban Infrastructure Development Has Failed To Keep Pace With Urbanisation (june 2011)',
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			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 12px;"><strong><span style="line-height: 120%;"><br />
	Shivahari Sharma</span></strong></span><span style="font-size: 7pt; line-height: 120%;"><br />
	Deputy Director General</span><span style="font-size: 7pt; line-height: 115%;"><br />
	Department of Urban Development and Building Construction<br />
	<br />
	<br />
	</span><strong><span style="font-size: 9.5pt;"><br />
	How safe are the buildings constructed by housing developers in Kathmandu?<br />
	</span></strong><span style="font-size: 8.5pt;"><br />
	The housing companies that want to construct community housing get license only after fulfilling a few procedures. First, the developer should get a planning permit from the Town Development Committee (TDC) based on regulations and by-laws. Next, the developers plan and design buildings and apartments which are later approved by the Department of U</span><span style="font-size: 8.5pt;">rban Development and Building Construction (DUDBC). The approval is subject to fulfilling the requirements of the National Building Code on safety, power supply, fire hazards, other possible disasters and structural design. Following that, the project, if big one, must pass Environmental Impact Assessment (EIA). If it is small one, it must pass the Initial Environmental Examination (IEE). EIA is approved by the Ministry of Environment and IEE from the Ministry of Physical Planning and Works. Then the site map is passed by the concerned municipality or VDC. The housing and apartment complexes have been properly designed and approved. So I don't think they are unsafe. We have our monitoring mechanism in place. But we feel it is not adequate. So, we are in the process of strengthening it. We have planned a third party monitoring system which means outsourcing the job as we have human resource constraint.&nbsp;The pace of urbanisation in the last decade in the capital has been tremendous because of the conflict. However, the growth is largely a haphazard one and urban infrastructure development has failed to keep pace with that of urbanisation. I feel infrastructure development in the city must be able to meet the pressures of migration and rapid urbanisation and such infrastructure development should be carried out by the metropolitan city and local bodies.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Could you tell us more about your monitoring mechanism that ensures the housing companies adhere to safety standards? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">We do have our own in-house monitoring mechanism. However, monitoring of the environmental compliance has to be done by the concerned ministry as well. Similarly, adherence to the planning permit is evaluated by the TDC. The size of open space, size and number of units, ground coverage and some others aspects are specified in the planning permit. The monitoring by the division office of DUDBC has not been extensive due to resource scarcity.&nbsp;So, we are instituting a system of third party monitoring next year to evaluate the level of compliance. This will make the process more transparent.&nbsp;We have found cases where constructions have begun even before the approval.&nbsp;However, it has been tightened now and we have taken actions against such practices. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Do you have plans to limit the number of projects that come to you for approval?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">With the fast pace of urbanisation, there is a huge demand for housing.&nbsp;The competition is still not adequate in community living and group housing. The target buyers of such housing should be the middle and lower income groups. But at present, the housing companies have targeted only the higher income groups. The main reason behind this is the high land price and complex land management system.&nbsp;Unless the land price comes down, this market cannot become competitive. Rather than controlling, this sector needs regulation through set standards. There are flaws that need to be corrected so that this industry will improve. The demand was affected after tightening of the housing loan. Last year’ inflation in the land price also affected a number of housing projects. In 2007-08 and 2008-09, there were a lot of new projects which took license but now we hardly have any takers.&nbsp;At present, the average cost of apartments is around Rs 6.5 to 9 million. However, some companies have recently introduced flats for around Rs 1.7 million. When the price comes down to around Rs 0.8 to 1 million, we can have housing for the masses.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">After the recent relaxation by Nepal Rastra Bank in the control in housing loan, we can expect that the number of new projects may increase. Until 26 October 2010, 59 projects were given license and now there are 18 new projects in the process of acquiring licenses. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">It has been observed that the process of issuing licence is rather lengthy and the companies need to visit numerous authorities in this connection. What is being done to simplify it?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">This is also a big issue raised by the private sector. We have discussed about the one-door licensing process in the ministry. The process can be simplified but for now, they must visit four different authorities.&nbsp;EIA and IEE fall under the purview of a separate unit. Planning permit and map approval can be brought under one unit. They are currently under the purview of municipalities and TDC offices. But the existing law has to be amended first for such changes to take place.&nbsp;Developers have also demanded a change in the parameters for EIA and IEE. Their view is that the housing projects facilitate managed urbanisation and do not harm the environment much. We have discussed that too in the ministry and sent a proposal to the Ministry of Environment for consideration on this. It is true that the current procedure is time consuming but if all the requirements are met by the developers, it won't take much time.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">The geologists say the geology of Kathmandu is not suitable for constructing high rise buildings. Why then has the department given licenses to construct tall apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Nepal lies in 11th most risky area of the world in terms of earthquake. Kathmandu is located in one of the world's most seismically active zones. But let's not forget that despite frequent earthquakes in Japan, they have so many skyscrapers. Therefore, high rise apartments will not pose a major threat if appropriate design is made, the building code requirements are fulfilled, soil tests and geological studies are conducted properly and quality constructions materials are used. The important thing is that the specific local conditions of the construction area have to be considered while giving planning permit.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">People are concerned about the safety of the apartment buildings that are approved by the department. What is your evaluation of the safety in these apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">&nbsp;Going by the designs that are presented to us, I don't think people should be wary. The private sector has invested a lot of money in their projects. If something goes wrong with one particular project, it is bound to affect other projects as well. With the kind of massive investment they have put in, they wouldn't want to make it unsafe. With the current speed of urbanisation, there won't be an alternative to high rise apartments in the near future.&nbsp;So, it's imperative that the safety measures are of the highest standard to win the confidence of the general public. We have checked the designs for the apartment buildings and feel that they are safe enough. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Why isn't there an inter-departmental coordination for developing infrastructure like electricity supply, road, sewage and drinking water?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Somewhere along the line, the inter-departmental and inter-ministerial coordination is missing. But the scenario has definitely improved now and there is no haphazard digging like in the past. If a maintenance work has to be done, prior approval from the road department must be taken. The problem is that one department does not trust the other's work. And a lack of discussion about the matter hampers the cause further. We also don't have a regulation unit for urban infrastructure in cities. We have proposed a town development corporation which will look at the local bodies and the planning unit in Kathmandu. However, the proposed bill is yet to be passed by the parliament. The proposed bill has proposed the formation of Kathmandu Valley City Development Corporation which will include five municipalities of the valley as well as the VDCs in the suburbs. We believe that if such an authority existed, coordination would definitely be improved.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">By when do you think the city development mechanism will come through? How long will people have to continue to bear unmanaged and haphazard urbanisation? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">There are plans for Kathmandu but they have not been implemented yet. A clear policy regarding land use is not there. After the formation of the national urban and housing policies, we prepared the draft of the bill and sent it to the relevant ministry. The policies are there but it does not have ownership in the absence of the physical development act. First of all, the land must be managed in order to ensure urban planning. For example, if someone decides to build a house in the middle of a field he would want to take the road, electricity and other infrastructure to the house. If there is a physical development act, it will prohibit the construction of a building in the farmland and deny the basic infrastructure for such land. We have also prepared the draft for an act on real estate business and regulation and sent it to the parliamentary committee. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt; line-height: 115%;"><br />
	If that gets passed, the buying and selling of property can generate revenue for the government besides providing security to the buyers. The present haphazard situation is due to the absence of a proper law that would ensure a proper control mechanism. We want that the growing cities should not suffer the same fate as Kathmandu. There should be decentralisation of services and opportunities so that development can be spread throughout the country in a balanced proportion. The government is working towards it and we can certainly hope that there will be positive changes soon. </span></div>',
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The housing companies that want to construct community housing get license only after .....',
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	(int) 8 => array(
		'Article' => array(
			'id' => '344',
			'article_category_id' => '40',
			'title' => 'Nepal’s Trade Ratcheting Imports',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><i>By Pinaki Roy</i></span></div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> Nepal signed the Trade and Investment Framework Agreement (TIFA) with the United States recently which paves way for the promotion of more comprehensive trade agreements between Nepal and the US in the future.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; line-height: 115%; color: rgb(237, 28, 36);">*</span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The second meeting of Nepal-Tibet Trade Facilitation Committee (NTTFC) – a bilateral talks forum – is being held in Kathmandu from May 8 to 10. The main focus of the talks will be to cut the ballooning trade deficit with China by taking maximum advantage of zero tariff on imports from Nepal offered by China.</div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While these developments may sound all good, analysing the state of Nepal’s foreign trade over the last <img align="left" alt="" border="2" height="450" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover1.jpg" vspace="1" width="350" />decade or so presents a bleak picture. It’s unfortunate that Nepal has very few products at present that hold any promise of competing in the international market. Add to it the dismal environment of domestic business in the country and the chances of reaping tangible benefits from any agreement in the near future look extremely slim. Nepal’s faltering export scenario has been unable to check an unsustainable trade deficit. The eternal power shortage, fragile law and order situation and transportation woes are among the main impediments to the development of export-oriented sector. These erode the confidence of the private sector. With dwindling confidence of the investors, let alone foreign direct investments, Nepal can’t expect to see domestic investment in the foreseeable future either. In short, Nepal’s economy is in dire straits with grim hope of the growth of export-oriented industries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Escalating Trade Balance</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">During the first eight months of the current fiscal year 2010-11, exports have increased to Rs 43.24 billion, an improvement by Rs 2.99 billion over the same period last fiscal year. Meanwhile, imports increased to Rs 252.88 billion, an increase by Rs 4.61 billion over the same period. The trade deficit amounted to Rs 209.64 billion, an increase by Rs 1.61 billion. Imports are expected to continue to increase in more or less the same pattern it is following so far. This indicates that trade deficit is expected to further widen in 2012. Due to some major foreign currencies getting weaker, Nepal’s exchange rate is expected to appreciate which will make exports costlier abroad. Besides, the impact of rising inflation rate in Nepal is likely to make exports more uncompetitive in the next year. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The agriculture sector in Nepal has remained under-developed, with a very low productivity level. At the same time, the industrial sector suffers from a host of uncertainties. The inefficient structures of these important sectors of the economy have not only reduced the competitiveness of the economy but also resulted in a limited production base. It is far below the consumption needs of the people. As a result, Nepal depends heavily on import trade for meeting its large and varied needs. Despite a marginal increase in exports, the painfully slow growth of imports during the last decade doesn’t augur well for the country. Besides, most imports are confined to non productive and consumable items like vehicles, petroleum products and gold that does not directly contribute to economic activities. Therefore, it is an alarming situation and a challenge for the policy makers.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Infrastructural Bottlenecks</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The export sector is still plagued by the same problems that have adversely affected the entire economy. Supply-side constraints such as intermittent blockades, labour disputes, access to technology and credit, virtual absence of trade facilitation measures, lack of human capital, power outages and road transport among other infrastructural bottlenecks are eroding Nepal’s competitiveness in the international market. These factors also result in preventing diversification of its export basket. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Large gaps exist in trade efficiency based on indicators such as the cost incurred for the trade and number of days taken to close the deal. Infrastructures like roads, ports, information technology and communications network and other logistics, transit facilities, cross-border connectivity and customs facilities are also in short supply. Nepal is yet to enhance the capacities for trade strategies and negotiations, trade and investment finance and other capabilities related to export. The trade-related institutional, human resource and supply-side limitations constrain Nepal to take advantage from trade by meaningfully participating in multilateral and regional trading systems. Considering the problems, the new initiatives on Aid for Trade (AFT) could help overcome the problems and open up new trade opportunities for Nepal. But again, the said constraints could also impede the country from qualifying for such Aid. Structural reforms and infrastructure investments to reduce transportation and transactions costs are the key to improving the external competitiveness of Nepali products.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Limited Export Items</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Another feature of Nepali export is its limited items of export. As major export items like carpets, garments, pashmina and handicrafts are produced mainly in labour-intensive industries, the impact of trade on employment is considered significant. Vegetable ghee along with the products mentioned above constitute a significant part of Nepal’s total export. This indicates high dependency of export on very few products. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In the second half of the 1990s, the growth of export was higher than the growth of import reflecting a positive impact of adopting the liberal economic policies. However, this trend did not continue for long and experts attribute this primarily to the impact of the decade long conflict. Though the competitiveness of the export sector had increased in the early days of the liberalisation period, the policies were rendered ineffective during the conflict and the post conflict transition. As a result, the share of import to GDP has been far greater than that of export for the last decade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The progress in export has been slow due to a number of national and international events and circumstances. The 10th Plan had emphasised on identifying new exportable products of comparative advantage and improving their quality and export volume. It advocated rectifying the procedural hindrances to product-wise and country-wise diversification of foreign trade. It also looked at enhancing the competitiveness of the trade sector in harmony with the regional and multilateral agreements. The Plan envisaged strengthening institutional capacity of the government, non-government and the private sectors to enhance collection, processing and dissemination of information relating to export promotion. To make foreign trade simpler, more reliable and cost effective reforms were recommended in the areas of laws, regulations, policies, procedures and facilitation. It also recommended that organisational and managerial efforts be strengthened and export promotion prioritised in a coordinated manner. The Plan also talked about mobilising Nepali diplomatic network abroad in promoting foreign direct investment (FDI), export, and the economic interests of the nation so as to accelerate the industrial development and the expansion of export trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Quality Certification</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal already imports almost seven times more than it exports. The growth prospect of exports and the industrial sector look as gloomy as ever. Most constraints that we face today are non-economic ones. It has been increasingly realised that market access alone does not guarantee flourishing of international trade. Nepal, like any other LDC, lags in trade capacity due to non-availability of sufficient number of exportable products on the one hand and the quantity and quality of available products to meet standards of the importing countries, on the other. Nepal’s trade is faced with constraints on supply side in terms of development of testing and certification facilities, accreditation of laboratories and mutual recognition of test and certification in facilitating trade. The improvement of laboratories and testing facilities in Nepal has, for example, remained an important agenda in Nepal’s trade with India, its largest trading partner. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Trade Barriers</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal still pays a very high tariff to access major markets on the one hand and on the other, duty-free and quota-free initiatives have yet to prove fruitful due to hurdles imposed by non-tariff barriers. Non-tariff barriers (NTBs) in the form of regulatory requirements, quota restrictions, administrative procedures and rules of origin (ROO) are of major concern. Due to their technical complexity and non-transparent nature, they are the most difficult barriers to overcome. Standards-related NTBs such as sanitary and phyto-sanitary (SPS) restrictions act as major impediments to Nepal’s exports. Several instances have shown that process of discussions amongst the exporters and importers which results in better information sharing can itself help address more than half of such problems. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite Nepal gaining enhanced market access into the developed countries, it cannot take advantage from it until the government and the private sector join hands to expand and diversify the country’s exports. Trade is governed, to a large extent, by trade regulations and related administrative procedures. More often than not, the entry and exit from the market as well as the volume of trade rely on the transparent and simplicity of trade and administrative procedures. A study reveals that submission of unnecessary documents, administrative hassles at custom offices, additional detention charges and untimely delivery of goods increase the cost of transaction in formal trade. These activities and procedures enormously affect the trade affairs. Ultimately, it discourages the business fraternity in carrying out their businesses freely and fairly. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">WTO Challenges</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The WTO membership has brought both opportunities and challenges to Nepal. The main challenges before Nepal are to fulfill WTO commitments that need strengthening existing external trade institutions and legal mechanism, removal of supply side constraints to transform available market access into trade opportunities and restructuring of industrial sector to make it more competent and contemporary. In total, the benefits of membership depends on Nepal’s ability to identify and take advantage of trading opportunities, fulfill multilateral trade obligations, formulate and pursue development strategies within those framework and above all, defend its economic, financial and trade needs. Nepal could benefit from World Trade Organisation (WTO) only if it increases internal strength and quality of export items.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal finds it difficult to implement some of its WTO commitments. Since the benefits accruing from the implementation of these agreements are much lower than the associated cost of implementation, the resource-strapped Nepali economy cannot take this additional burden. Quite naturally, it is demanding support from its development partners to implement such commitments. The basic objectives of technical assistance for Nepal lies in promoting activities which add value to its production, help export diversification and most crucially to reduce its transport and other infrastructure costs thereby making it easier for businesses to operate. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Evolving Global Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The nature of trade is evolving globally. This is reflected in the changing composition of trade, from merchandise to services. This dynamic is largely driven by technological revolutions. While the transport revolution reduced transport costs and facilitated trade in merchandise goods, the information technology revolution has resulted in decreasing communication costs and increasing quality levels, thereby causing trade in services to be the fastest-growing component of global trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In addition to natural advantages, the three services sectors – health, education and high-end retail services hold immense export potential from Nepal’s perspective. Nepal has comparative advantages for the export of these sectors which are generally found to be cost effective. The attraction of these services is also due, in part, to a high level of market integration with northern India, if it can take advantage of the open border in the south. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In spite of liberalising the economy and changing trade and investment related laws, Nepal hasn’t been able to derive expected benefits. Trade is a technical subject. The deficiencies in knowledge concerning markets, access to distribution networks and use of the ICT, complicated regulatory procedures of shipments, weak transportation infrastructure and services and insufficient trade financing are major constraining factors. Addressing these problems would involve financial resources, time, efforts, proper management, and technical expertise. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Aid For Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The new initiative of the Aid for Trade could be a prime source of funding to enhance competitiveness. However, there is a gap between commitment and disbursement of AFT. Pledges are made through international forums for aid for trade initiatives but the pace of implementation and the disbursement rate is very slow.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Developed countries and development partners coming forward to support product development programmes, development of trade infrastructure like inland clearance depots, container freight stations, special economic zones, roads and other forms of transportation in order to enhance Nepal’s trade capacity is of prime importance. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Prosperous Neighbours</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The multilateral trading system has contributed significantly to the growth in exports that has been aptly exploited by countries like China and India. With respect to the markets created by these neighbouring countries, the disadvantage of Nepal as a land-locked country is significantly reduced because these two are after all, proximate markets. The economies of both the neighbouring countries are increasing enormously and Nepal can benefit or should be able to do so because of this. Despite increased industrialisation and trade activities in China and India, Nepal has failed to benefit from their economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s internal problems such as poor trade policy and implementation, lack of business-friendly labour laws and other rules and regulations, political instability, frequently changing trade and industrial policies, social unrest and chaos, frequent strikes, lockouts and load-shedding are also equally responsible for poor export. The reasons behind the fall in export can also be attributed to erosion of preferences for Nepali goods due to the decreased MFN (Most Favoured Nation) tariff in India. The Government of India has signed several free trade agreements with various countries. It has committed to lower customs duty as a non-LDC member of SAFTA and BIMSTEC free trade area and also announced the Duty Free Tariff Preferences (DFTP) scheme as part of commitments made in the Hong Kong ministerial meeting of WTO. The irony of Nepal’s trade is eminent in respect of decreasing tariff in Nepal. It is obvious that Nepal will continue losing export volume and find itself in a precarious situation in the absence of concrete measures to check and reverse the process of decreasing export. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s export to India is increasing at a snail’s pace. The growth rate of export is highly fluctuating. At the same time, import from India is far stable. It implies that import from India is in a better position than export. As the gap between export and import increases, trade deficit soars. The trade deficit with India was Rs 66.4 billion in FY 2005-06 but it has rocketed to Rs 174.4 billion in FY 2009-10. It is alarmingly high for Nepali economy. The major reason for the unfavourable balance of trade on Nepal’s part can be blamed on not finding proper markets for manufactured goods in Nepal, in India. The prominent factors include the inability to compete in the Indian market on the grounds of quality, price, supply capability etc. From a trading point of view, it could be quantitative restrictions and product disqualifications. It is understandable that unless a sizable export of manufactured products fail to find market, the trade balance proportion cannot be reduced. Therefore, finding a proper segment in the Indian market for Nepali products is critical.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Service Sector Emphasis</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The Government of Nepal launched Nepal Trade Integration Strategy (NTIS)-2010 last year which seeks to identify and develop key essential products and services to build its export base in a sustainable way. A total of 19 items were selected for driving export promotion. The 12 products and seven services were identified after careful scrutiny of potentiality for development along the value chains and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, increasing employment and government revenue is important. The seven services identified are namely Tourism, Labour Services, IT and BPO Services, Health, Education, Engineering and Hydro Electricity. It has been unanimously felt that Nepal has the potential to perform better in these service sectors provided there is an encouraging working environment. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Trade Facilitation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Trade treaty is only a means and not an end in itself towards enhancing greater market access. The growth of trade basically depends upon the conditions that are created within the national boundary in respect to measures related to investment promotion and improvement in governance. Speedy trade facilitation is the key to success. Trade facilitation at its core aims at developing competitive advantage. Work on trade facilitation like simplification of customs procedures, criteria for procedures of transit and standards verification and transforming policies and rules in accordance with those of its major trading partners India and China, are of immense importance. Improving productivity and strengthening supply capacity remain the basic consideration guiding the development of the commercial sector of the country. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Internal Preparations</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal is a country with major potential that needs to be realised and enhanced through various policies and related initiatives. At the same time, it has to address a number of difficulties linked to its logistical, financial and stability related concerns. The multilateral trading system can contribute towards Nepal’s potential gain in many ways. Trade-related aspirations to diversify trade and production bases into dynamic new products and services, integrating trade and trade capacity building policies into national development strategies, maximising benefits through development of effective labour market standards and institutions and striving for an ambitious, comprehensive, balanced, equitable and development-oriented outcome, are vital. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">To realise the benefits of the trade agenda, having hassle free market access through reduction of tariff and non tariff barriers, facilitation measures through increased connectivity, customs harmonisation, simplification of trade rules and procedures and efficient trade logistics and the enhancement of supply side capacity, are crucial. With the help of all the benefits – present and potential – Nepal will be in a better position to address the supply-side constraints, achieve better market access and help raise its domestic growth with greater equity. This assures help to increase above 4 per cent growth rate which Nepal has been stuck with, for some time. To increase export, there must be an increment in investment for production, both domestic and foreign, that can positively affect the investment and thereby exports. </span></div>',
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			'keywords' => '',
			'description' => 'The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.',
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	(int) 9 => array(
		'Article' => array(
			'id' => '343',
			'article_category_id' => '40',
			'title' => '‘We Are Mainstreaming Trade Into National Development Programme’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/purushottam ojha.jpg" style="width: 182px; height: 185px;" vspace="1" />Purushottam Ojha</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Secretary</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">Ministry of Commerce and Supplies</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are identified as priority items for trade by NTIS (Nepal Trade Integration Strategy). How sustainable are these 19 products?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes&nbsp;12 goods and seven services are identified. They have been identified after careful scrutiny of their potential for development along the value chain and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. These are products and services in which Nepal has comparative and competitive advantages. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, it is important to increase employment and government revenue. Identification and selection alone cannot meet our objectives. We have to create necessary environment in the country to develop these products in a manner that will ensure sustainable trade in the future. Most of these products are related to agriculture. It is important to enhance the productivity, productive capacity and product quality in them. For this, we have to go on adopting good agricultural practices, integrated pest management and quality control mechanism. At the same time, we need to focus on improving the quality of infrastructure, for example in tests and certifications to ensure acceptance of the products in the international market.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>It is said that improved supply-side performance is the key to achieving sustained economic growth. What is hindering the improvement in supply side capacity?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Over the years, we have been enjoying increased market access in various destinations as tariff barriers are being lowered. However, there are certain non-tariff barriers that are hindering the export from the least developed countries (LDC) like Nepal. We have to address these issues as well. Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade. The causes for the hindrance in improving&nbsp;the supply side capacity include lack of adequate infrastructure - particularly transport infrastructure, energy supply, rising problems of labour unrest and law and order situation.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can we overcome these supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">There are certain barriers for increasing our trade capacity as I mentioned earlier. We need to address these important issues to attract more investment and improve investment climate that will eventually help overcome supply side constraints. It is essential to bring more investment in the production as well as service sector. But it largely depends on political stability, law and order situation, industrial relations and adequacy of infrastructures. These need to be addressed in a coherent manner. We also need to increase our collaboration with development partners to get more support in the areas of economic cooperation and trade development. Enhancement of market access is crucial from the perspective of LDCs like Nepal since non-tariff barriers are being raised by importing countries in the name of plant and animal health, food safety, environmental concern and labour rights. Nepal is raising the voice against such barriers in bilateral, regional and multilateral forums.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepal been able to benefit from trade despite having huge markets in the north and the south?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that the economies of both our neighbouring countries are increasing by leaps and bounds. The GDP growth rate of China is almost in the double digits and India’s GDP is increasing by eight per cent annually. Statistics show that trade between India and China is also increasing and has reached US$ 60 billion. They are aiming at increasing it to US$ 100 billion in the next five years. Despite such increased industrialisation and trade activities in neighbouring countries, we have failed to benefit from this. We need to adopt appropriate policies within the country to link our trade and economic relations to get the spill-over benefit from our neighbouring countries. We also have functioning trade agreements with both these countries but we have not been able to harness the potential benefit of exporting our goods and services. There are certain inherent problems associated with it. There are several non-tariff barriers to our exports in India and China. We need to enhance our efforts to remove these barriers. We have entered into an agreement with the Government of PR China in April 2010 to provide duty free access to 4,721 products in six digits customs tariff line. However, our industries and exporters have not been able to fully utilise this opportunity. We have initiated the process for assessing the situation and the reasons behind non utilisation of market access opportunities. This would require a constructive dialogue and deliberation between the government and businesses on both sides. Besides, we need increased engagement with our neighbouring partners in the area of economic cooperation for enhancing productive capacity in sectors like agriculture, manufacturing, export trade and infrastructure.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepali economy benefited from trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is not true that Nepali economy is not benefiting from trade. But the question is about the level of benefit that we are harnessing.&nbsp;For this, we have to follow the path to sustainable and inclusive trade development. Trade is the output of total economic activities of the country. Trade cannot operate in isolation. Until and unless we develop our agriculture, forest, manufacturing and the service areas, trade cannot happen. All sectors of the economy should move towards the same direction and work in harmony so that there will be value addition in the export. Such a situation will help create employment, increase revenue to the government and bring more foreign currency. It will ultimately lead to the improvement in the macroeconomic situation of the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why do you think Nepal has not been able to capitalise on WTO membership?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The WTO membership has brought both opportunities and challenges to Nepal. Opportunities - because we have market access to all member countries and we can engage in constructive dialogue in the international trade forum through WTO. At the WTO, we can raise our voice together with likeminded countries to get more support from developed countries to remove market entry barriers and enhance our trade capacities. Besides, there are challenges. Ever since the liberalisation of tariff under multilateral trading system, our products have to compete with products from other countries particularly in big markets like the EU, the US and even in India. Since the tariff rate is going down, other competing countries are finding it easier to enter into these markets. This has proved to be a major challenge to maintain our market share in these markets. We have lost the export of some products like carpet, garments and pashmina in the international market and vegetable fats in Indian market during the last decade due to this reason.&nbsp;Accession to multilateral trading system and regional trade arrangement is not the panacea to remove the problems of trade. Rather, we need to develop our capacity to face increased competition on one side and utilise the opportunities available under regional and multilateral trading system on the other.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal currently has a huge trade deficit. How can this be lowered?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that we are facing a huge trade deficit. During the last couple of years, exports have not increased and imports are galloping. In the last fiscal year, we had the record trade gap of around Rs 315 billion. Most imports are consumption items like petroleum, cars and gold. The gold does not directly contribute to enhance the economic activities. So, it is an alarming situation and a challenge for the policy makers. In the midst of such a precarious situation, the Government of Nepal has launched Nepal Trade Integration Strategy (NTIS)-2010 which seeks to identify and develop some key essential products and services to build our export base in a sustainable way. We must correct the deficiency which is hampering the growth of economy and the investment climate. We have to improve law and order situation, industrial relations and management of government-owned industries. We also need to develop adequate infrastructure and improve the regulatory regime so as to help in building confidence among investors. Similarly, streamlining of the transit procedure, incentives for industries like tax rebate, monetary and non-monetary incentives and improving governance systems are among the suggested reforms. Until and unless we improve our investment climate, it will be difficult to motivate and convince potential investors to invest in the industries or in any other sectors. Unless we have investment, we can improve neither international trade nor the supply situation within the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The relatively stronger trade sector of the past has diminished gradually over the last decade. What can be done to revitalise trading sector again?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">During 1990s, we saw the growth of industries and trade in terms of export to India and other countries. But the industries we were nurturing during this period were not found sustainable. Carpet, garment and pashmina are no longer our niche products as many countries export similar goods. We were unable to improve the capacities of our industries in terms of economies of scale, quality and design of the products. The enhancement of productive capacities would require several steps as behind-the-border measures. One case in point is the development of Special Economic Zones (SEZ) for relocation of industries by providing one-stop services to industries in such zones combined with flexibility in labour regulations and tax rebates.&nbsp;The project for establishing special economic zones in the country was started some 12 years back but it is still in an indeterminate state as the development of physical infrastructure and creation of necessary legislation for regulating the zone is stagnant. Similarly, there is need to revisit laws related to the regulation of trade and investment regime, particularly the Industrial Enterprises Act and Foreign Investment and Technology Transfer Act (FITTA)-1992. The revival of Nepali trade will largely depend upon right choices of products and services in order to become sustainable. Efforts are to be made for maximising domestic value addition optimising the utilisation of human capital as well as other factors of production including land and natural resources which will culminate into healthy growth of economy. The growth of trade during 1990s was largely based on tariff arbitrage. When that arbitrage opportunity diminished, many such industries could not sustain. The Government of Nepal is now realigning trade through the manifestation made in NTIS-2010, Trade Policy-2009 and the current Three-Years Interim Plan (TYIP).&nbsp;Now, the challenge is to implement them in true spirit. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There are special privileges like zero tariffs &nbsp;for LDCs. How can we benefit from that?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal enjoys zero tariffs in many countries that belong to the Organisation for Economic Cooperation and Development (OECD). The European Union provides duty free access to the products from LDCs under the Everything but Arms (EBA) initiative. Countries like USA, Canada and Japan provide Generalised System of Preferences (GSP) facilities to many products from countries like Nepal.&nbsp;Besides, Nepali products also enjoy zero tariff facilities in Indian and Chinese markets. Therefore, it is not the problem of market as such. Nepal, together with other least developed countries around the world, is pleading duty-free quota-free (DFQF) market access in developed and developing countries right from Geneva to Washington DC.&nbsp;The most important aspect is to increase our supply side capacity and competitiveness. Since zero tariff is available to all LDCs, only those can export to these markets who are more competitive. This would require revisiting the trade and export policy with a focus on choices of right products, improvement in quality and diversification of design and reduction in the cost along the value chain.&nbsp;Being a landlocked country, the transit transport cost is generally higher. Simplification of transit procedures and reduction of cost of transit is vital for Nepali trade.&nbsp;</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A new concept ‘Aid for Trade’ has been gaining currency. What kind of reforms should Nepal make to get optimum benefit from it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Aid for Trade is a new concept that emerged during the last decade. There is consensus and commitment among developed countries to support LDCs for trade development. There is a notion that LDCs need trade and not aid and this view is often expressed in various international forums. Developed countries and development partners should come forward to support product development programmes, development of trade infrastructure like inland clearance depot, container freight station, special economic zones, roads and other forms of transportation in order to enhance the trade capacity of the LDCs. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. Pledges are made through international forums for aid for trade initiatives. However, the pace of implementation and the rate of disbursement are very slow.&nbsp;Some donors have played a tricky game just by renaming the regular official development assistance (ODA) as the aid for trade allocations which is not the spirit of these initiatives.&nbsp;Aid for trade is another stream of foreign assistance besides the regular allocation of ODA. In Nepal, we are considering creating a Fund for trade development in consultation with various development partners. An inter-ministerial task force is working on devising necessary regulatory framework for the administration of the Fund.&nbsp;&nbsp; </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The Government of Nepal has already taken steps for mainstreaming trade into national development agenda. Trade cannot be looked in isolation and is not a concern for the ministry of trade only. There are several entities and ministries associated with it. We have to bring them together to promote trade in goods and services. We are also aiming at getting adequate support from development partners to complement the national effort. If some products and services are important from trade perspective, they should get immediate attention for development and promotion. Support must go to the grassroots level, i.e. the enterprise level and the farm level so that benefits from export trickle down to the producers and growers. The assistance under aid for trade initiatives encompasses various sectors that contribute to trade development and thus various ministries and private sector entities have a role to play. The Ministry of Commerce and Supplies will work as the national focal point and coordinator for creating synergies of this effort. </span></div>',
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			'description' => 'Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification,...',
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		'Article' => array(
			'id' => '342',
			'article_category_id' => '40',
			'title' => '‘Dealing With Supply Side Constraints Will Help Our Export Prospects’',
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			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/vidya nath nepal.jpg" style="width: 189px; height: 213px;" vspace="1" />Vidya Nath Nepal</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">President </span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Centre for Public Policy Dialogue and Former Special Secretary of Commerce</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest &nbsp;of the world.</span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><br />
	</span></div>
<div style="text-align: justify;">
	<strong>How do you evaluate the current trade situation of Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">I have been observing the economy and policies for the last four decades. But the trade deficit was never this bad. Today, the deficit is in billions of rupees which is a painful situation. The import growth has spiralled while the exports have dwindled. Nepal’s value of exports for the year 2001-02 was more than Rs 45,000 million which reduced to only about Rs 41,000 million in 2007-08. On the other hand, imports in the same period increased from about Rs 103,000 million to Rs 154,000 million. Export to India remained almost stable while export to other countries decreased sharply. During this period, about 63 per cent of Nepal’s total exports went to India while about 59 per cent of its total imports were from India. Thus, Nepal’s total trade with India was about 60 per cent. The increased import has been largely for consumption materials rather than for raw material or industrial inputs. For example, gold and many other goods are imported into Nepal considering the Indian fiscal policy. Our liberal trade policy does not allow controlling imports. According to our law, we cannot prohibit any business, we can only restrict only a few items. Nepal is the most liberal country in entire South Asia in terms of its trade policy. We don’t have any import restriction and quantitative restriction. We have very small negative list for imports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How do you compare the current situation with the past?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Current trade situation has grown very weak when compared to the past. Increasing trade deficit is evident. An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest of the world. There is very little attention towards production of exportable goods. There is no favourable environment for that. Therefore the trade situation has worsened now. In 1996, a trade treaty was signed with India. In that treaty there were very little restrictions on export to India, the negative list was shorter and the rule of origin was not so strict. The treaty renewal in 2002 retracted such liberal provisions. The rule of origin was made tougher. Similarly, India exerted quantitative restrictions on some products. That disrupted our export. The political turmoil after 2002 and the resultant current transitional phase has led to poor trade situation compared to that of the past. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What are the main reasons for poor development of Nepali trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Trade has to be looked on the basis of import and export. The import is continuously increasing but that is not a reason to rejoice. To increase export, there must be an increment in investment for production. Investment can be both domestic and foreign. Forget about the foreign investment, even the domestic investors are not encouraged to invest. The main reason is the volatile and unstable political situation. Because of this, there are no new investment and production of exportable items. Apart from that, there are issues of labour, peace and security, industrial security and unstable policies that have put investors at bay. A policy must last for at least five to 10 years to attract investment. But in Nepal that is not the case. Government is changing frequently, and every change of government brings change in the policy too. Since last year, also the interest rate has sky rocketed due to liquidity crunch in the financial institutions. That has also affected the investment and thereby exports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal faces non-tariff barriers with its trading partners. How can such barriers be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We are the member of WTO, SAFTA and BIMSTEC along with our trade partners like China and India. WTO’s policy states that the non-tariff barriers must not be exerted unless it is justified. There should be certain tariff barriers but very little. The trade must be gradually made free by removing the restrictions. The facility given to one country must be provided to other country too. In spite of this, agriculture based products’ export to India face a lot of non-tariff barriers. For example, when some agro-products have to be exported to India from either Sunauli or Birgunj, quarantine tests have to be carried out at a far away laboratory. That adds huge cost for exports. One of the main problems with export trade of Nepal is transit cost which is usually prohibitive. The transport cost from here to Kolkata, the main port for Nepal, is to the tune of 14 to 40 per cent of the cost of material. With such high cost how can we compete in the international market? Documentation barriers are also severe as the documentation process takes months and that further hinders the export. Internally too, we have constraints in trade facilitation. In Indian ports too, there are numerous problems like unavailability of ships and lengthy procedures. Such non-tariff barriers added to the tariff barriers are hindering our export. Though India has provided customs free export from Nepal to India in certain goods it levies special duties on them. Sometimes, state governments in India levy additional duties according to their local rule. A complaint on such case gets lost in the Indian bureaucracy and as a result, Nepal’s exporters face harassment.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal also has severe supply side constraints. How can they be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true. Though various bilateral, regional trade agreements like SAFTA and multilateral trade arrangements like WTO have been providing us access to different markets through manner similar to reduced customs duties, we are not able to benefit form that. Under SAFTA, hundreds of items can enjoy concessional entry into other countries. WTO has the philosophy of liberalisation of trade by reducing tariffs. Compared to the last decade, the customs duties have declined even for entry into India. The trade access we got through bilateral, regional and multilateral agreements have not been fully utilised due to supply side constraints. What can we export when we can’t produce goods here? There is no investment environment and the cost of production is high while labour productivity is very low. There are problems with lengthy documentation, labour issues, peace and security and increased interest rate. If we do not have any supply side constraints, our export would definitely increase. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Industrial and trade policies are not translated into acts and regulations. Even if they are enacted, they are overlapping and contradictory. Labour issues are never settled. Quality of infrastructure like transport, power supply etc is very poor. The ADB report of 2009 says the syndicate system of trucks is common in the country and the transport cost has increased as high as 55 per cent. Research and development aspect has been largely neglected. Technologies are outdated and innovation is non-existent. Institutions in particular are weak and ineffective. Private sector is not properly promoted by the government. Unless we can correct ourselves on these counts, supply side constraints will prevail. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal enjoys numerous facilities under WTO regime as well as being an LDC. How can we utilise such advantages?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">WTO believes in MFN (Most Favoured Nation) treatment. There should not be any discrimination under this system for any country. There was a Ministerial meeting held in Doha where it was decided that WTO would provide various technical assistance to strengthen the supply side of the LDCs to increase their export potential. Little has been done on that front and that is insufficient. WTO’s provision of differential treatment to the LDCs has not been effectively implemented. Facilities like ‘Aid for Trade’ are just for name. We have not received any sufficient amount on this account. There is a need for strong and effective negotiation from LDCs as a group which is lacking so far.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Our government through our embassies abroad should strengthen economic diplomacy to promote trade to respective nations by identifying suitable products. We have failed to do so. There are a few products that we can export to India. For example, Nepal can take huge benefit if producers concentrate on exporting vegetable ghee, cardamom, GI pipe and noodles to India. Tea and ginger are exported to India but it re-exports them. From our side, it is better to export our products directly to the final destination. Nepal should identify the negative net trade of a particular country and work on exporting such goods to those countries. We have failed to move ahead in this direction. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Investors are reluctant to increase investment citing unfavourable investment environment. How can trade be enhanced amid such problems?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The main reason behind investments remaining stagnant is political instability, frequent changes in policy, labour issues and security problems. Foreign investors seek easy exit if they do not see profits. There is difficulty in such exits and liquidation procedure takes years. Foreign investors can’t wait that long. Nepali raw material based industries would be sustainable in terms of export trade. However, that concept is not necessary to apply in international trade in the course of industrialisation. Hong Kong and Singapore are examples of countries that do not have their own big manufacturing units, but have benefited by exporting assembled products. However, if we can export goods by processing our own raw materials, we would have more comparative advantage and we would not have to spend foreign currency in importing raw materials. A study shows that Nepal’s products that have highest potential of export in the long run are tourism and hydropower. However, remittance is the biggest source of foreign exchange earnings currently. At the moment, around 80 per cent of foreign exchange earnings is through remittance. Tourism ranks second. Hydropower projects are capital intensive. Nepali capital is hardly enough to run even one Tamakoshi project. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The government should be proactive in providing all facilities mentioned in industrial and trade policies to increase production and promoting exports. However, private sector should also run businesses on the basis of corporate culture with new technology and increase their competitiveness. On an average, it takes about 31 days to clear seven procedures to do business in Nepal. This process time is the longest among the SAARC countries. Similarly, it requires 41 days to export products out of Nepal. Thus, the businessmen are suffering from over regulations, corruption, dishonesty, lack of transparency and political interference. According to WEF report of 2010, Nepal ranks the lowest among all SAARC countries in quality institutions. Therefore, the expectation is that the private sector will increase production and export in spite of the weak government. They have the initiative and the mission while the government is indifferent as well as inefficient.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are selected by the NTIS as priority products. How realistic is this selection?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">They have selected 19 goods and services following a lot of studies. Among them, seven are from the service sector like IT, health, education and tourism among others. I feel we can do better in these service sectors and have the potential if there is good working environment. There are agro based products too but I don’t think they are sufficient. Since our production depends on imported technology, we must select products that generate high profit in low volume items. If we can focus in the coming decades on these 19 products by creating favourable environment for investment that would certainly benefit our trade prospects. </span></div>',
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			'description' => 'An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest  of the world.',
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	(int) 11 => array(
		'Article' => array(
			'id' => '341',
			'article_category_id' => '40',
			'title' => '‘Aid For Trade Can Do Nothing About Our Governance Problem’',
			'sub_title' => '',
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			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" height="226" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/ratnakar.jpg" vspace="2" width="200" />Ratnakar Adhikari</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">General Secretary </span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">South Asia Watch on Trade, Economics and Environment (SAWTEE)</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to &nbsp;inefficient industries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The trade policy of Nepal is more liberal than some other developing countries. Why then has trade failed to contribute to our national economy and development?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Having a liberal trade policy alone is not sufficient to increase export potential. Second, Nepal is still not more liberal than Sri Lanka and Bangladesh. Other countries have become more liberal, not only in terms of tariff and non tariff barriers but also in terms of trade to GDP ratio. If you see that the trade to GDP ratio is increasing, you can conclude that the country is more integrated into the global market. Theoretically, we have to be in a position to gain because we are liberalised. That is the classical theory of anti-export bias produced by Bhagwati and Kreuger in 1978. They say that if you protect your domestic industry, you will be raising the barrier for export because protection of domestic industry through tariff will in a way raise the price of import which will be used in the export processing sector. Eventually, your export will suffer. However, theories apart, in today’s world, having a liberal economy is no guarantee that you will be able to export too. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There is a heated debate under the Doha Round between the developed and developing countries. How justified are the arguments of the developing countries?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Agriculture is our livelihood and we should be in a position to protect our agriculture sector when required. The special safeguard measures proposed by the developing countries are useful. If you open up the entire agriculture sector in which the protection is already lower compared to industrial products, there could be other problems like food security, livelihood, social tension and others. In agriculture, I fully agree with the position of the developing countries. In terms of industrial products, most of the developing countries which are liberal today and most of the OECD or developed countries had protected their industrial sector during their respective process of economic transformation. So, it is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to inefficient industries. You have to allow a certain degree of competitive atmosphere. If you think that they will be able to do better in the long run, then you have to provide protection for a limited period of time.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">On non tariff barriers, there are two things that we have to understand. The first is that certain non tariff barriers are related to environment, consumer preferences and health and safety of the consumers. Such conditions on the basis of scientific evidence are imposed in the form of non-tariff measures. For example, if Aflatoxin causes cancer and we export certain agricultural products containing Aflatoxin which is at a level higher than globally accepted, then our product gets rejected. It’s not the fault of the importing country. We have to be able to improve our infrastructure, laboratory system, human resources and legislative arrangements in order to be able to fulfil the requirements. But there are certain non-tariff barriers which are protectionist in nature. We oppose these protectionist barriers. In terms of services, the developing countries are demanding the liberalisation of labour movement from one country to another. It has been proved that three per cent increase in labour force from the developing countries would result in global welfare gain of 300 billion dollars. This is something that needs to be pondered upon.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Finally, on trade remedy measures, developing countries do not have a serious position except saying that the developed countries are using trade remedy measures as a protectionist device. That may not necessarily be the case. So, on the whole, their position in the Doha Round is quite justified given the socio, economic and political situation of these countries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs find it difficult to implement some of their WTO commitments. How would ‘Aid for Trade’ help to implement such commitments?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Aid for Trade (AFT) does provide necessary help to the developing countries and LDCs to implement some of the WTO commitments including drafting of legislations, preparing of regulations and putting in place the institutional mechanism that are required to take advantage of the export opportunities offered by the WTO.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can ‘Aid for Trade’ help overcome supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Supply side constraints need to be divided into two different categories. One is supply- side constraints that results from our fluid political situation. The strikes and various political demonstrations make us unable to ship our goods on time. AFT cannot do anything about this. Then, there are supply side constraints that are resulting from our lack of resources or our inability to utilise resources properly in certain areas like infrastructure, development of roads, transportation, electricity and skills. People do not have the necessary skills to produce goods in a competitive manner. We have customs infrastructure which does not even measure up to regional standards. That needs to be improved. Besides, we do not use the required technology to be more productive and competitive in the international market. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Some people interpret ‘Aid for Trade’ as the same money from the same window as human rights aid. What is your take on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">That is not true. AFT includes only six components. The first is the economic infrastructure which is the money provided for road, electricity, and communication. The second category is the money provided for building productive capacity in agriculture, industries and services sectors. The third is a trade development category which is basically the money provided for export promotion and development of trade. The fourth category is trade policy and regulations for helping countries to implement their WTO commitments, including enactment of legislations and capacity building of various institutions in the country. The fifth one is called trade related adjustment which is basically the money provided to countries to implement trade liberalisation measures and protect the country from negative affects of trade liberalisation. It involves retraining people who lose their job because of trade liberalisation and finding alternative employment opportunities for them. The sixth category is ‘others’. Others could be anything if the donors and recipients agree to call a particular aid as AFT. The other way of looking at this is: AFT is Overseas Development Assistance (ODA) minus the money provided for various areas, for example, health, education, environmental conservation, human rights, women empowerment and peace and conflict. Human Rights is of course a separate area altogether.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you think ‘Aid for Trade’ will succeed in Nepal as many other aid programmes have failed to generate the desired output?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">There is no evidence to say that aid has not helped Nepal’s economic growth. The opinion is divided here. As a researcher, I would be reluctant to say that aid hasn’t helped. At the same time, I wouldn’t vouch that foreign aid has helped tremendously. However, it has certainly helped in meeting the saving and investment gap. If the foreign aid was not provided in some areas, for example, the health sector, it is difficult to say whether we would be able to do something. In the case of AFT, I am not very excited. If there is real additional money coming as AFT, that would definitely be helpful, but not if it is repackaging of money diverted from other areas. Next, it has to be predictable. If certain donor countries are going to provide certain amount of money, they have to guarantee the fund for a multi-year period.&nbsp;It is also the issue of sustainability which is not only about donors providing money on time. It should be taken into account whether the government is ready to take charge of the projects once the donor funding ceases. If a donor provides money for three years, you can’t ask the donor to provide money for the entire period of the project even if the results are good. If you can operate the project on a commercial basis, the private sector will take over. If you are not working on the commercial basis, then government should step in and provide sustainability to the project. The final issue is the effectiveness of the aid. The Paris declaration of aid effectiveness should be the guiding principles for enhancing the effectiveness of AFT. These criteria would actually determine the success of the project. If these criteria are met, the chances of AFT working for the country are fairly good. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts say we lack basic trade infrastructure. What kind of problems and challenges do you see that hinder Nepal’s sustainable trade development? What should be done?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Basic infrastructure is necessary for the country to be able to expand its export on a sustainable basis. A study shows that if a shipment is delayed by one day because of lousy infrastructure, it is equivalent to adding 0.8 per cent to the total tariff that you pay to the importing country. Another study says that if export is delayed by one day, the total export potential will be reduced by one per cent. Infrastructure should be the number one priority for Nepal to be able to trade on a sustainable basis. AFT is not going to be enough because we have our own governance problems to tackle. Governance issue is equally important. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts opine that international community should not only provide market access but also help LDCs in enhancing their trade capacity. If everything is to be done by other countries, what should LDCs like Nepal prioritise in their agenda?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal should fully mainstream trade in national development strategy first. In the new Plan document that is going to be prepared, it has to be included. Apart from that, mainstreaming has to be done at the sectoral level too. For example, if tea export is to be increased, then its priority has to be mainstreamed not only at the level of the Ministry of Industry but also at the Ministry of Agriculture which is responsible for promotion and growth of tea. So, all these ministries and sectors have to take into account the fact that mainstreaming is vital. The second issue is that we have to address supply-side constraints through effective governance reform as well as utilisation of AFT. But there are two aspects we have to ensure ourselves besides the sustainability issue. First, we have to improve our absorptive capacity. The government is unable to even spend the budget amount that has been allocated. How would it spend the money allocated by an external agency? However, we have seen some gradual improvement in our absorbing capacity but it needs to be enhanced further. Another critical issue is that of coordination.&nbsp;There must be coordination on how much money is coming, how it is being utilised and which sector is being prioritised. There has to be a coordination mechanism between the ministries of commerce, industry, tourism, agriculture and other related ministries that have a role in promoting trade so that there is better coordination and effective utilisation of resources.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs are worried that the current intellectual property protection regime does not recognise their contributions. How can countries like ours raise their voice to eliminate the danger of losing patent rights to compete in the international market?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Some of our properties of genetic resources and traditional knowledge are taken away by some multinational companies and universities. But in order to address that kind of problem, we have to keep our house in order. We need to pass the legislation on access and beneficiary by the parliament which is pending for six years now. The draft was prepared in 2004-05 but has not been adopted as a law. We need to ensure this as it will take care of three aspects. First, it will guide us on regulating access to our genetic resources and traditional knowledge. Second, it would make sure that when the access is provided, it is done on the basis of a prior informed consent of the local communities who are involved in conserving those resources. Third, it would ensure that those communities are appropriately remunerated. They would be appropriately remunerated for the job they have done so far to conserve the resources. With that kind of legislation, many countries have protected their bio diversity, genetic resources. It’s our fault that we have failed to follow suit. Global regime is unfair, however, we have not been able to create a mechanism at the local level to counter the unfair tendency of some global rules. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Being an LDC, Nepal enjoys numerous benefits like zero tariff. How should Nepal utilise such concessions to gain optimum benefits?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, we do have zero tariff access in selected markets. The European Union is definitely among them but we don’t have zero tariff access in the US market. The process for the same has begun but it will take a long time before such access is provided. Even if you have zero tariff access, you still have to fulfil the rules of origin (ROO) requirement. Once you fulfil the ROO, you are back to the supply-side issues because you have to create backward linkages. If a shirt has to be exported, it’s better to have the fabric manufactured in Nepal itself rather than relying on countries like China and India for the supply of materials. If we continue to get the materials from these countries, we will not be able to fulfil the ROO criteria. We have the full potential for export In some areas where ROO is not a problem. One such example is coffee which can be exported to European, Japanese or any other market in desired quantity without having to fulfil the ROO criteria because it’s an indigenous product and there could be more than 90 per cent value addition and processing in our country itself. However, we cannot export if we are not able to produce in desired quantity. Apart from production, we also have the problem of competitiveness. Even if our cost of production is lower than other countries in the world, our products will cost more by the time it reaches the final market. Let me give you an example. Imagine a situation in Gulmi where you have to organise a few farmers in the form of cooperatives while trying to export coffee to Japan. You collect 12 tonnes of total consignment and put it on the truck and try to send it. But there is a strike so you are stuck there for two days. Finally, you manage somehow and reach Birgunj customs. In order to clear the export consignment, it takes two days. Once cleared, the consignment moves to Kolkata port. It should normally take a maximum of two days to reach Kolkata port but sometimes it takes six days because there is a strike in Bihar or West Bengal which falls on the way. Once at Kolkata port, the consignment is not enough to reserve the entire ship. Now, it takes four days for the ship to fill up. Eventually, it moves from Kolkata. Kolkata is not a deep sea port but a shallow port so it can’t go directly to Japan. Therefore, the consignment on board the ship travels to Visakhapatnam, Colombo or Singapore. The consignment is transferred to the mother vessel at one of these ports and then it goes to Tokyo. In the process, you lose so much of time that you will not be competitive in the global market. So, it is not only the question of productivity and production, but also the question of being competitive in export trading. </span></div>
<div style="text-align: justify;">
	 </div>',
			'published' => true,
			'created' => '2011-06-03',
			'modified' => '2011-06-04',
			'keywords' => '',
			'description' => 'It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to  inefficient industries.',
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	(int) 12 => array(
		'Article' => array(
			'id' => '272',
			'article_category_id' => '40',
			'title' => 'FISCAL FACE OF NEPAL'S FEDERALISM',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<i><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut  wagle.jpg" style="width: 114px; height: 147px;" vspace="2" />By Achyut Wagle</i></p>
<div style="text-align: justify;">
	Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda. The preamble of the Interim Constitution of Nepal 2007 has baptized the country as the Federal Democratic Republic Nepal. The Article 138 of the same Constitution has provided basis for restructuring the state.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Both, the constitutional and circumstantial yokes now guide Nepal, for better or worse, to perhaps irreversible journey to federalism. But, matter of factly, that is all in theory. Practically, there is a wide political space to be covered between the present unitary state to a judiciously delineated, stable yet functionally acceptable-to-all federal structure of future Nepal. Yet again, the federal Nepal is impossible to imagine without bringing the fiscal frame of federalism into forefront of the state restructuring discourse, which now seems to have obliqued by hyperboles on either side of the political debate.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Despite an euphoria of a sort to resolutely adopt a federal system, the objectives envisaged by the Interim Constitution in this particular regard appear rather slanted. The very concept incorporated in the Article 138 does not accept federalism by-and-large as an economic phenomenon. It proposed to ‘end the disparities’ of various forms, but hardly prescribes modality for prosperity and optimal use and scientific redistribution of resources. The worst proposition in the constitution is: it has authorised the government, not the Constituent Assembly (CA) to constitute the State Restructuring Commission, which is supposed to give impartial technical inputs.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	It is apparent that the federal structure of the nation cannot be finalised without technical report from the Commission, and thus, organising constitution writing process would not <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img.jpg" style="width: 367px; height: 182px;" vspace="2" />complete without the Commission and its inputs. Apart from this, the constitutional provision regarding the Commission gives more ominous than the virtuous signal. The authority given to the government to form this Commission provides an edge to the party in power to make it comfortable to itself and therefore, chances of its report being politically biased remain higher. Why was not the responsibility of constituting such a commission vested to the all powerful CA is a question unanswered so far.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Nevertheless, Nepal has no alternative to writing a new constitution, sooner or later. That new constitutional framework must embrace the federal set of polity and structures. Of all the structures, fiscal federalism will be both – defining and delineating basis of the sub-national administrative units, and also the means to ensuring justifiable (re)distribution of resources, prosperity and welfare. For all these reasons, the fiscal federalism is and should be at the centre, in all discourses related to the federal restructuring of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Essence of Federalism</strong></div>
<div style="text-align: justify;">
	Federalism is unique and in a way paradoxical concept. First, it seeks to consolidate the national unity while creating newer and larger number of sub-national units; ostensibly by divisions. Second, its objective is to recognise the social, linguistic and/or cultural identity without diluting the overall national identity. And, the third, it strives to bring the government nearer to the people that has a better sense of autonomy in deciding their own fate, but without severing its ties and dependence to the farther government – the one at the centre.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For many, federalism is merely an administrative re-mapping of the political geography of the nation. Creation of sub-national structures, that may be called state, province, prefecture or anything of the kind, seems to the prime objective of Nepal’s ongoing debate on federalism. But, how these new structures evolve and exercise the state power – mainly to meet the economic needs of the citizenry – would determine whether any nation is essentially federal or not. Nepal cannot be exception to this fundamental theoretical premise.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The functions, duties and rights of the federal unit are defined by the extent of power a unit can exercise. Its authority depends on the adoption of universally accepted models to extract power from among the – delegation, decentralisation or devolution, or combination of all of these. And, at the heart of all of these lies – the democracy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	There are very large nation-states world over with varying number of sub-regional administrative units. But, in absence of democratic dispensation, right from the grassroots, these units can only exercise very limited state authority delegated or marginally decentralised by the centre. Only power devolved by democratic exercise can only create a federal state, true to its sense.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Fiscal Federalism at the Centre</strong></div>
<div style="text-align: justify;">
	The concept of fiscal federalism, and for all practical purposes, the entire frame of federalism, is generally summed-up in three major</div>
<div style="text-align: justify;">
	<br />
	components – namely the tax-point transfers, equalisation grants and convincingly justifiable distribution of resources mainly the natural resources among the sub-national units. There are other peripheral, operational or fringe issues too. But in effect, the main three would largely incorporate them all. There are also several models of both ‘fiscal’ and ‘general’ federalism. But, they too do not necessarily go beyond these three fundamentals of federalism.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Also, there are views against the perspective of limiting the ‘entire federalism’ to the ‘fiscal alone’ proposition. It is <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover img1.jpg" style="width: 406px; height: 461px;" vspace="2" />more apparent in Nepal’s discourse on federalism. Even the top-hats of major political parties who would be deciding the ultimate frame of Federal Nepal also tend to believe that without specific mention of issues like political inclusion, rights-based access to state and recognition of racial and ethical identities, the very purpose of federalism, at least for them, could be defeated. The level of understanding of our CA members on such technical and essentially academic issues is better not to raise here.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In fact, unlike the popular beliefs, the issues of inclusion and identity are rather purely economic issues. For example, the inclusion is not sought in any abstract issues, it is rather meant to ensure inclusion in employment, benefits and other economic opportunities. Even the preservation of identity either is an economic activity in itself, or it has a cost to develop and preserve the different facets that give an identity to people and communities – like language, scriptures, rituals, customs, traditions and culture.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	These realities make it imperative that Nepal’s discourse on federalism needs an immediate and meaningful re-orientation, so as keeping the fiscal federalism at the centre of all exercises aimed at state restructuring. And, highly extensive technical and factual details and their analyses would require deciding on the size and the borders of new sub-national states. Nepal does not seem to have even initiated the process of those financial and other statistical number crunching, so far. Therefore, the claims that constitution could be written within a month ‘if’ the parties agrees are unrealistic platitudes. Expert believe that it would take at least six months of rigorous effort for a highly competent professional team to finalise the issues related to fiscal federalism – i.e. tax, distribution of natural resources and, of course, demography and geography.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In the hindsight, this is also an indication that it is impossible to complete the constitution writing by the stipulated deadline of 27 March 2011. Also, political campaigning to create new states on the basis of caste, community or even some extreme demands like ‘One Terai, One Province’ do not present potentiality for financially viable provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Technical Considerations</strong></div>
<div style="text-align: justify;">
	Financially justifiable and economically functional sub-national delineation is going to be perhaps the most challenging aspect to give Nepal a federal shape. All three major aspects – tax point transfers, equalisation grant and distribution of natural resources among the provinces – involve larger number of murkier issues than the easier ones.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Apart from these, several other components of fiscal relations between the central and sub-national governments, financial management and its processes within the state must also be decided to effectively devolve power to the people at the grassroots. Such issues may relate, but not limited to planning, economic diplomacy, money market and specialised institutions for both fiscal and financial architecture. Given Nepal’s poor governance and slanted nature of understanding about fiscal federalism even at the top-rung of political leadership, the country seems to be making ommitive than spontaneous jump to fiscal federal structure. These are some of the reasons why these issues deserve more <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img2.jpg" style="width: 342px; height: 158px;" vspace="2" />meaningful discussion, before the country could decide on the actual frame of federalism, essentially the fiscal federalism.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Tax Point Transfers</strong></div>
<div style="text-align: justify;">
	One of the key components of federalism is the decision on the jurisdiction of major tax collection points, i.e. which sub-national government will administer or operate a particular tax point, the types of taxes a province would collect and how the collected revenue would be distributed between the centre and the state, and, sometimes among the states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In case of Nepal, the decision on the jurisdiction of tax points could face double pronged problem. First, only six customs points collect over 90 per cent of the customs revenue <i>(Table 1)</i>. And, the amount of collection at only the points that lie in two zones – Bagmati and Narayani of the Central Region, account for well above sixty per cent. The customs revenue generally accounts for 25.3 per cent of the total revenue.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Similarly, the revenue contribution of four districts is above 80 per cent and this reaches to 94 per cent if added another four districts.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	This situation does not only present high tax concentration in the Kathmandu Valley and the central region but also poses a serious challenge to divide the provinces so as each of them can have reasonably attractive tax collection points within their territory. It also indicates to the reality that despite adoption of federal structure, the financial dependence of the provinces could yet remain with Kathmandu. And, even worse, this economic factor cannot be drastically altered soon by a mere political decision.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In addition to deciding on the tax point jurisdiction, decision on the kind of taxes that provinces can impose and the taxes that would directly go to central accounts is also going to be a difficult one. Generally, property and service taxes are levied by the local bodies, sales and value added taxes go to the provincial government and customs and income taxes go to the central government accounts. This assumption appears suitable in the case of Nepal too, as our vertical administration is accordingly stratified in three tiers.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Equalisation Grants</strong></div>
<div style="text-align: justify;">
	Despite tall asks of autonomous and semi-autonomous provinces on different bases, the fiscal and financial fundamentals do not support the possibility of creating such states. The basis of autonomy is the abundance of physical and financial resources available within any given political unit. As evident in the tax collection patterns, the revenue resource does not support such an ‘autonomous state’ except the one created at the centre, incorporating Kathmandu.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Until the state-to-be-created in the federal set-up are capable of mobilising their own resources, the equalisation grant, the money given by the centre, will be the most dependable source to finance the development and public delivery of goods in the provinces. Even on this count, our debate on federalism seems unduly titled to political considerations alone. In the most ideal cases of revenue and grant sources of funds, dependence to centre remains pretty high. For example, the provinces of Switzerland are entitled to keep 50 per cent of the revenue collected and Canadian ones can hold up 47 per cent of it. These are the highest rates of centre-province revenue sharing the world over. In this light, the ‘autonomous’ state advocated in Nepal appears pure farce.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	But, in our case, the ‘sustainability’ or ‘survival’ side of the new states has never been debated thoroughly as the issue deserved. There are also demands of creating separate provinces like ‘Karnali’. One could easily imagine the level of would-be financial dependence of such states to the centre. Such scenario implicitly infer that centre must once again remain strong as it will have to continuously dole out money to so called autonomous provinces, and, it in turn, has to be strong in effect to gather enough amount of resources to be able to meet the needs of all these new ‘baby’ states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Natural Resources</strong></div>
<div style="text-align: justify;">
	The distribution of natural resources among the new provinces is another difficult and unavoidable task on effecting federalism. There are several examples of serious disputes between the provinces regarding the rights to use such resources. The Kaveri and Narmada river disputes in India are classic examples to it.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In Nepal, water, forest, mines and minerals and land (mainly cultivable) are considered major natural resources.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For us, one advantage of this resource vis-a-vis federal imperatives is that, it is fairly evenly distributed given that we agree to justifiably allocate them to generally acceptable size and number of states; say five to nine.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Recently, some campaigns misinterpreting the international instruments like ILO Article 169 have compounded the problem. But, lately the people involved in the indigenous rights movements themselves are becoming somehow disillusioned to deliberate misleading campaigns of yesteryears. However, natural resources will still remain a major basis of re-delineation and the process will surely be difficult.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Other Issues</strong></div>
<div style="text-align: justify;">
	There are several other issues which have to come to the forefront in the discourse on federalism. They include, whether a province should have authority to carry its own economic diplomacy to accept or endow financial assistance from and to international community; whether it can have its own finance bill; or would it have own supervisory and regulatory authorities independent of central oversight or would they just function as extended line agencies, etc. Equally complex is the issue of large infrastructure projects, their management, ownership and return – if any.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Unfortunately, Nepal as the country as a whole, and CA in particular as the only responsible constitutional organ to debate all these provisions to include in the new constitution, have remained far short of initiating meaningful deliberations. Whatsoever, Nepal in executing the federal structure must ensure unfringeable private property rights universally in all the states, freedom to movement of products and services as well as people, unhindered trade and business transactions between the states and uniform (underently different) tax structure, among others. n</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Article 138 of the Interim Constitution</div>
<div style="text-align: justify;">
	138. <b>Progressive restructuring of the State: </b></div>
<div style="text-align: justify;">
	(1) <span>&nbsp;&nbsp; There shall be made progressive restructuring of the State with inclusive, democratic federal system of governance, by doing away with the centralized and unitary structure of the State so as to end discriminations based on class, caste, language, gender, culture, religion and region.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(1a)&nbsp;Recognizing the desire of the indigenous peoples and of the people of backward and other area including Madhesi people towards autonomous provinces Nepal shall be a federal democratic republican state. Provinces shall be autonomous and vested with full authority. The boundaries, number, names and structures, as well as full details of the lists, of autonomous provinces and the center and allocation of means, resources and powers shall be determined by the Constituent Assembly, while maintaining the sovereignty, unity and integrity of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(2) &nbsp;There shall be constituted a high level commission to make suggestions on the restructuring of the State as referred to in Clauses (1) and (1a)&nbsp;The composition, function, duty, power and condition of service of such commission shall be as determined by the Government of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(3) <span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The final settlement on the matters relating to the restructuring of the State and the form of federal system of governance shall be as determined by the Constituent Assembly.</span></div>',
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			'description' => 'Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda.',
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		'Article' => array(
			'id' => '271',
			'article_category_id' => '40',
			'title' => 'Bases For Fiscal Federalism',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-align: justify;">
	The following article represents Dr Devendra Raj Panday’s research-based paper presented at a symposium titled “Fiscal Federalism in Nepal” in August 2009 in Kathmandu. The extract is printed here with his consent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The studies on fiscal and financial federalism concentrate on how financial and monetary institutions’ functions might be arranged and a mechanism for coherent policy making and monitoring established for the state to produce expected outputs. It involves the assigning of spending, taxing and borrowing powers between the centre and the other tiers of government and the focus of responsibility and accountability in fiscal management. In many ways, it is an act of political decision and bargaining – in the course of finalising the constitution and making yearly decisions especially on taxation, revenue sharing and allocation of grants by the centre for various purposes. In all this, efficiency and equity, often in conflict with each other, become issues of major concern. In order to do the needful, the national economy has to run efficiently, produce growth and provide stability that is necessary for broader development. At the same time, the aggregate growth must not create or sustain imbalances, vertically and horizontally. It means that further continuation of centre within the periphery syndromes in governance is not acceptable from both economic and political standpoints. The discrepancies in economic and social status of various regional or provincial economies must be narrowed down with the ‘marginal benefits’ of growth going disproportionately to the disadvantaged and economically and socially excluded people across the country. There are several ways in which fiscal efficiency balanced well with equity considerations can be pursued.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	First, allowing ‘independent fiscal regime’ for the provinces should not dilute the common market character of the federation. Simultaneously, it should also be kept in mind that the free flow of goods and services and investment across the provinces can result in favour of better-equipped regions that may already be relatively better off than others. In theory, there should be economic convergence of different regions under free trade with the mobility of factors as well as goods and services. But we know from Nepal’s experience as a player in the international economy as to how difficult it is for a least developed country (or a region within a country) to compete with better endowed, resourceful and experienced economies. Less developed provinces in the federation deserve the same treatment politically, economically and morally as historically, Nepal as a least developed nation has demanded internationally, including in SAARC mechanisms.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Second, there has to be an understanding and a political consensus on the degree of competition and the spirit of cooperation to be pursued among the constituent units of the federation. The neo-liberal economic approaches sometimes display contradictory positions in this respect. On the one hand, there is the market preservation argument which expects the federation to work in harmony and have the states produce and trade goods without any barriers that would endanger the national market’s efficient working. On the other, there is a view that there should be constitutional guarantees against regulating inter-state flow of goods and services, to perhaps avoid the kind of situation in India where there is no harmony in some taxes levied in the states and on their policies concerning inter-state movement of goods and services. Meanwhile, the liberal ideology also illustrates the idea of ‘competitive governments’ and argues that the states must compete with one another in providing incentives to attract mobile capital and other factors into their territory to punish the laggards. The preference for competitive federalism where the states may compete among themselves to maximise their own welfare at the cost of other provinces may reflect the ‘beggar thy neighbour’ strategy of yesteryears. This is a critical point since, like in the overall design of economic liberalisation, only the relatively prosperous states would benefit from competitive economic and fiscal policies. In post-1990 India where the states are encouraged to compete with each other for attracting investments into their territory, some states have done well, but at the cost of growing inter-state disparities and regional imbalances. Nepal can ill afford a similar practice. It would also run counter to the social objective of federalism which is to reduce disparities and imbalances, not to increase them. Once again, purposeful pragmatism calls for an approach that would optimise people’s welfare at the provincial and local levels and encourage entrepreneurship and investment all around without the states jeopardising each other’s interests and the overall interest of the national economy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Third, in the practical task of expenditure and revenue assignment, efficiency consideration is implicit in the widely held opinion that before considering taxation, assignment of expenditures among different tiers of government should be taken care of. The idea in this ‘money to follow work’ principle is that taxation and borrowing powers of the states and assumedly, the centre’s should not be independent of specific obligations they undertake for discharging public functions and the volume of expenditures required for that purpose. The idea is to ensure that all states are empowered to provide comparable public services regardless of their revenue capacities. Beyond this, the expenditure assignment is expected to be guided by economic considerations whereby the central as well as provincial and local governments provide services whose benefits accrue to the residents within its jurisdiction and where the costs of the provisions incurred can be internalised within that jurisdiction. To put it simply, the responsibility for the provision – where the benefits from a given service are distributed nation-wide such as the country’s defence, the Supreme Court or the national highway system – lies with the centre. If the benefit incidence of a given service is limited to primary and secondary education or water supply and sanitation, the provision is best readied by provincial and local governments. The opportunity to save on transaction costs and the possibility of harnessing the economy of scale in fiscal operations are associated elements of the process.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fourth, in a developing country where both the expectations and the requirements of the people are high, assigning expenditures for the centre and the constituent states does not only mean slicing the existing budget into central and provincial items of expenditure and dividing tax revenue accordingly. It also means taking into account the responsibilities to deliver services that the people could not have earlier. It also means undertaking various development works for generating social goods that can be provided or ensured to finance them. The challenge will arise from policy matters and in the pursuit of related priorities. For agriculture, education and health among others, the centre may wish to promote certain norms and targets considered desirable from the national viewpoint. The states in charge of these assignments can have different ideas especially if the same political party or the coalition of parties is not in charge at the centre and specific states. The centre will have other concerns including those that are part of its international commitments. Such commitments can be about trade and environment as they can be about national and international human rights standards concerning the status of women, children, indigenous people etc. And there are commitments about Millennium Development Goals (MDGs) with further complications arising from the possibility that many of the related functions will come under the purview of provincial governments. Consequently, expenditure assignment also becomes responsibility and accountability assignment against which the availability of matching revenue needs to be guaranteed. The centre has an obligation to address these issues as it negotiates the tax sharing arrangements and, particularly, the conditional and unconditional grants’ transfers from the centre to the provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fifth, there are four areas of concern that should guide the process on taxation. One, every jurisdiction needs adequate tax revenue to finance the assigned and necessary expenditures. To make up for the shortfall in one jurisdiction, the better endowed among others should have the incentive to engage in revenue sharing. Two, efficiency consideration will be as important in the assignment of taxing power as in spending, more so due to its direct impact on the working of the common market. The incentives and disincentives in the tax structure on a given jurisdiction, especially for the mobile factors and the consumers of public services are critical. Taxation assignment requires appropriate study of tax bases, possible overlapping of incidence, the spill-over effects and the population that stands to benefit from the spending facilitated by such taxes. Three, the distribution of taxing authority among the different tiers of government has a significant bearing on equity. The residence based taxes on income and property may be appropriate for the provincial and local governments, but any tax with significant redistributive power, such as progressive income tax becomes suitable only for the national government to enforce national priorities on equity and broader development. Four, administrative efficiency including transaction cost considerations will also guide the assignment of taxing power. On this basis, some taxes become suitable even for sub-provincial or local governments for eventual sharing vertically where local conditions and administrative set up can help administer it better.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Sixth, apart from the question of specific taxes to be assigned to the centre and the provinces, a decision about the collecting agency is also important. Some taxes available for meeting public expenditures may be collected and used by only one jurisdiction. One such example could be the property tax levied and collected by local governments. Such tax base can also be shared between the local and provincial governments. Some taxes may be collected in one jurisdiction and used by all. For example, income tax can be collected by the centre and shared with others. In all these cases, the tax base, its incidence and the administrative cost of collection will be important considerations. From a political perspective, the perceived or pursued autonomy of the provinces vis-a-vis the centre will play its part. There is a potential conflict in the way one asserts ‘states power’ and the compromises needed in the interest of efficiency as well as equity in the interest of national bonding.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Seventh, as in Nepal’s case of federalism by ‘devolution’ and not ‘aggregation’, the central government retains its basic strength and power which applies to fiscal arrangements too. The centre must have absolute power to collect taxes from the domains of individual provinces and use the funds collected to meet expenditures it deems important across the country. In almost all the important federal countries, the share of the central government in total public revenue (collected by the centre, the provinces and the local governments) is above 50 per cent. In Nepal, the economic reality – the likely wide variations in the economic status and revenue bases of different regions and the social imperative of redistribution – will undoubtedly vest the centre with considerable authority and responsibility in this respect.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Finally, besides redistribution, it is critical that the central government be adequately empowered to undertake stabilisation functions, on the one hand, and monitor the economic and distribution effects of inter-jurisdiction competition, on the other. It is prudent and practical to let the centre have exclusive authority over stabilisation function and use its power of the purse in a way where the provincial governments have an incentive to follow the national priorities even as they are bound to come into conflict with priorities established by them in their provincial interests.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<i>(Dr Panday retired from government service as Secretary of Finance and became the Finance Minister in the first government formed after the restoration of democracy in 1991.)</i></div>',
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			'title' => '‘We Need A Strong Central Government With Fiscal Redistribution Power’',
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	<b><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/Dr Ram Sharan Mahat.jpg" style="width: 192px; height: 217px;" vspace="2" />Dr Ram Sharan Mahat</b></div>
<div style="text-align: justify;">
	Former Finance Minister</div>
<div style="text-align: justify;">
	The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How would mobilisation of resources take place under the federal structure?</strong></div>
<div style="text-align: justify;">
	Mobilisation of resources is imperative to run the government irrespective of whether there is a federal structure or not. Under the federal structure, there will be governments both at the central and provincial levels. Therefore, resources will be mobilised at both ends. Apart from the revenue sources under their respective jurisdictions listed in the constitution, there will be a concurrent list of revenue sources imposed at both levels. In federal countries, the centre as well as the provinces impose taxes and duties such as income tax and excise duty which raises the burden on the taxpayers. Duties are normally collected by the centre at a single point for administrative convenience but shared at both levels. In addition to the central tax, the provinces piggyback to a certain extent, however, remaining within limits defined by the respective framework legislation. For example, if the central income tax is 25 per cent, the province may add another 5 per cent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The source of revenue in Nepal at present are centralised in a few districts. Under such situation, how can fiscal balance be maintained when Nepal becomes federal?</strong></div>
<div style="text-align: justify;">
	This is definitely a big challenge. The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run. People think that once they have a separate province, they will have all the autonomy and freedom. But if the province has no resource of its own and depends on the central allocation even for day-to-day administration, the autonomy has no meaning. Therefore, one has to be very careful while carving out the provinces. The decision should also be based on long term viability and economic sustainability of the regions, in addition to other considerations. Unfortunately, at present the most vocal demand relates to provinces based on ethnicities.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you see the danger of regional disparity due to unequal distribution of resources and sources of revenue?</strong></div>
<div style="text-align: justify;">
	The common fallacy among the ardent federalists in Nepal is that regional disparity will be narrowed and poverty banished once there is a federal structure. This is wrong. Resources and development potential are unequally distributed and so are the revenue sources. Competition among provinces with differing resource endowments could accentuate regional disparities instead of narrowing down unless there is intervention from the centre. For this, the centre must be strong with redistributive power. In the USA, there are serious regional disparities. West Virginia’s per capita income is less than half of Connecticut’s. In India, Haryana’s per capita income compared to UP and Bihar is three to five times higher. Please note that India is not the perfect example of a federal structure. India, at best, can be regarded as a quasi federation with a strong centre. So, this situation in India is despite central intervention.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What should federal Nepal’s fiscal policy focus on to ensure appropriate and equal distribution of resources among the provinces?</strong></div>
<div style="text-align: justify;">
	There is no alternative to a strong central government with fiscal redistribution power to ensure equity and economic justice. All provinces should have uniform access to basic services like education, health, electricity, roads and other socio-economic services. For this to happen, poorer provinces will need central support through a mechanism called Equalization Fund. A fiscal mechanism to ensure transfer of resources from rich to poor provinces is necessary. It is precisely for this and other reasons that revenue from major sources like customs, income tax, and partially VAT and excise must go to the centre. If you look at Nepal’s case at present, these sources practically yield no revenue. If they are brought under provincial jurisdiction, most federal units will have no income at all.&nbsp;</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t there been a meaningful debate on state restructuring and the form of federal system?</strong></div>
<p style="text-align: justify;">
	It is not that there are no debates taking place. But generally speaking, the focus has largely been on ethnic lines rather than on long term sustainability and from development perspective. Most people have a vague idea about federalism and what it will deliver. State restructuring is not just about the country’s division into federal units. It is more than that – such as ensuring people’s empowerment at the basic level. Democracy is after all the empowerment of individuals, beyond communities and societies. It could be ensured with strong decentralisation but there has hardly been any debate on that.</p>',
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			'title' => 'Downtown Housing Company(june 2011)',
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			'content' => '<p style="text-align: justify;">
	<span style="font-size: 10pt;">D</span><span style="font-size: 9.5pt;">owntown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has provided products and services to accommodate the urban middle class by developing high-quality residential properties. Today, Downtown Housing Company is one of the most respected and diversified service firms available with dedicated people who serve a growing client base that reaches far and beyond.</span></p>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Downtown Housing manages the process from conception through completion - an approach that has been perfected over time to exceed the clients’ expectations. Downtown proactively works to ensure every property as once-in-a-lifetime investment opportunity for its clients, giving it the special care and attention to detail that enhances value for living within.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">City View provides clients with the kind of peace and tranquillity they want. Only 38 exclusive apartments (including 2. duplex pent houses) have been built here, with rich and stylish complex.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	 </div>
<div style="margin: 0in 0in 5.65pt; text-align: center;">
	<span style="font-size: 15.5pt;">Guna Colony </span></div>
<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 11pt; letter-spacing: -0.2pt;">E</span><span style="letter-spacing: -0.2pt;">stablished in 1998, Guna Colony Pvt Ltd is a large and reputable company involved in property development. It has already completed properties like Stupa Housing in Sinamangal, Stupa Colony in Buddhanagar, Reliable Colony in Bhainsepati and LP Apartment in Lazimpat. New projects such as Bhainsepati Apartments, BN Apartment and GN Apartments in Gwarko have already been launched.</span></div>',
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			'description' => 'Downtown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has.........',
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			'title' => 'Housing In BirgunjSlow Growth, High Hopes(june 2011)',
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			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 14px;"><strong><i>By Bimmi Sharma</i></strong></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">H</span><span style="font-size: 9.5pt;">ousing business may be mushrooming in the Kathmandu Valley. But the story is different in Birgunj. People with diffent backgrounds find it quite normal to live in separate flats and apartments within the same building in the capital city.&nbsp;But such concept of community living hasn’t gone down well with Birgunj locals. They still prefer to stay separate from people of other religion, caste or culture. It is this mindset that is the major impediment for a flourishing housing industry in the city, lament housing entrepreneurs. They complain of having a difficult time implementing the idea of community housing that was first conceptualised here 14 years ago. So far, all Birgunj could manage are three apartment complexes and a fourth one under construction. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nanakchand Ashwani and Shyam Rungta were the first ones to enter the housing business here. They have built two apartment complexes - ‘Ganesh’ and ‘Lakshmi’. These two five-storied apartment complexes have a total of 40 units. The flats at Ganesh were priced at Rs. 900,000 and at Laxmi at Rs 1.35 million per unit. However, these flats remained unsold for a long time. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Eight years after these attempts, Triveni Group constructed a 10-storied apartment complex ‘Triveni Gopal’ in Birta area of Birgunj. Built at a cost of Rs 50 million by Birendra Sanghai of the Triveni Group, the complex has 72 units in total. Sajjan Kumar Chimariya, the manager of the complex says, “Apartment culture is yet to pick up in Birgunj because people are more comfortable with the idea of building houses on their own land and to enjoy complete ownership.” He adds that the project barely managed to recover the investment and did not yield any profit whatsoever. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite the apartments having all facilities including electricity, water, garden, park and security, people find these rather expensive and inconvenient. Out of the 72 flats in ‘Triveni Gopal’, 50 are occupied while the owners of the rest 22 units haven’t started residing here. They rather want to sell their properties. “The country’s volatile situation is primarily responsible for the lukewarm response towards housing in Birgunj,” says Chimariya. He adds, “There is no future for housing business in Birgunj. It’s advisable that the new entrants don’t enter the market here.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">‘Prasanna Apartments’ which came into being a year ago has started getting residents moving in already. Tara Shumsher Rana, a Director of ‘Prasanna’ apartments opines, “The housing business is experiencing a low right now but it has a good future in Birgunj due to the impending development of infrastructure in and around this city.” The construction of Nijgadh International Airport close to Birgunj, Kathmandu-Nijgadh Fast Track Road, Integrated Customs Checkpoint, Birgunj-Thori Road, Birgunj University and a well developed agriculture market are bound to make Birgunj a more attractive place to live. These developments will have a positive impact on the housing industry, opines Rana. His company Prasanna Constructions is in the business of constructing buildings for its clients for 25 years now. Built at an investment of Rs 50 million, ‘Prasanna Apartments’ has 20 flats altogether and costs anything between Rs 3.2-4 million. Of the 20 flats, only thee are remaining to be sold, Rana informs. “Though the present situation is not conducive, once there is political stability and economic progress begins, housing business in Birgunj will definitely flourish,” Rana says optimistically. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle; text-align: justify;">
	<span style="font-size: 9.5pt;">Ashok Kumar Baid, an industrialist who owns Shalimar Cement has joined the housing business and plans to build ‘Kamdhenu Apartment Homes’ using the ‘Kamadhenu’ brand under franchise from the Indian owner of the brand. To be constructed at an investment of Rs 800 million, this 12-storied apartment with 134 units will be ready for occupancy in two years’ time. Each flat in this ‘first apartment complex of international standard in Birgunj’, as the developer calls it, will cost Rs 7-8 million. “Interested buyers will need to pay 20 per cent of the total amount upfront. The facilities include swimming pool, health club, gym, park, garden and provision store,” says Baid. He says he is confident of selling all the units of his project which will come up at Ward 13, Adarshanagar in Birgunj. Like Rana, Baid too is optimistic that housing industry in Birgunj will grow as various developments are taking place in and around Birgunj. He says, “Birgunj is a leading business destination and the development projects being implemented in and around here will definitely benefit the housing industry as well as other businesses.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">‘Kamdhenu Apartment Homes’ will be the fourth apartment complex in Birgunj. The previous three apartment houses have a collecgive investment of Rs 150 million. When the investment proposed for Kamadhenu and some other projects that are in the pipeline are added up, the total investment goes up to Rs. 1 billion. Ashok Kumar Temani, the President of Birgunj Chamber of Commerce and Industry is upbeat about the business potential of apartment complexes. “In the future, Birgunj will be like Shanghai or Mumbai. Once the projects which are being constructed at break-neck speed are completed, we will see skilled workers flocking to this city for work,” Temani predicts. He continues, “These people’s housing requirements ensure a bright future for the housing industry here.” </span></p>',
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			'description' => 'Housing business may be mushrooming in the Kathmandu Valley. But the story is different in Birgunj. People with diffent backgrounds find it quite normal to live in separate flats and apartments within the...........',
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		'Article' => array(
			'id' => '376',
			'article_category_id' => '40',
			'title' => 'Growing Housingin Pokhara(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 12px;"><i>Text and photos: Deepak K Shrestha</i></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">With increasing urbanisation and modernisation, the housing industry in Pokhara is gaining momentum though not as fast as in Kathmandu. Along with tourism, education and the health sector, housing is fast becoming an attractive investment prospect for investors here. In terms of population growth and migration, Pokhara is second only to Kathmandu. However, the community housing business has not grown in the same proportion. Entrepreneurs believe that since it is a new concept, people will take time to get attracted to this concept. However, it is already a seven-year-old industry in Pokhara, with two companies already in it while other two are preparing to enter the fray.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Annapurna Developers Pvt Ltd (with the brand name ‘Fishtail Residency’) and Pokhara Homes Pvt Ltd have started operations already in Gharipatan of Pokhara Sub Metropolitan City. These companies claim to provide facilities at par with the housing complexes in Kathmandu such as good roads, water and power availability as well as health club. This has attracted buyers who have the means and desire to live in such housing complexes. Besides these, Road Show Real Estate Pvt Ltd and Gandaki Real Estate Pvt Ltd have entered this business recently. While the Road show has its project at a location called ‘Deep’ that is in the Ward No 16 of Pokhara Sub-Metropolitan City, Gandaki has its project at Lekhnath Municipality under the brand name ‘Lekhnath Dream Colony’.&nbsp;Investors claim that the consumers have shown significant interest lately for buying such property.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While renowned contractor and industrialist Surya Bahadur KC is the investor for Pokhara Homes Pvt Ltd, Dhruba Kumar Shrestha, Kalu Gurung and Bindu Kumar Thapa are the investors in Fishtail Residency, Road Show and Gandaki Housing respectively.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Pokhara Homes started building houses on 70 ropanis of land about seven years ago but faced adversity for the first few years. Tej Baniya, the Operations Manager of the company said, “We started doing good business only about three-four years ago.” A total of 54 houses were built under phase-I out of which 52 have been sold already. “We are starting phase-II in the next six months which will have 32 units,” Baniya informs. The company sells two-and-a-half-storied bungalows, complete with five bedrooms, built on 8-10 annas of land. Baniya claims that each house costs Rs 9-9.5 million just for the construction. He further says that the mere announcement of phase-II has attracted 17 bookings already. Pokhara Homes is also constructing 20 colonies and 14 separate houses near Chorsanghu in Pokhara. The houses and apartments in this area will be less expensive than the ones in Gharipatan.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">All housing companies in Pokhara are conducting business with prior approval from the authorities concerned – i.e. municipality and Pokhara Valley Town Development Committee. “Due to close proximity of Gharipatan area to the airport, we are not allowed to construct buildings higher than two-and-a-half-stories,” says Bhupendra Shrestha, the Marketing Director of Fishtail Residency. The company which started work about four years ago on 21 ropanis of land has already sold 40 of the total 66 units constructed. The buyers have already started residing in 30 of these units, each one a two-and-a-half-storied, four-bedroom bungalow costing over Rs 10 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Gandaki Real Estate Pvt Ltd that was primarily dealing in real estate holdings thus far has started constructing housing units on 81 ropanis of land in Talchowk of Lekhnath-8. The company has a target of building 30 units within a year, each unit occupying 5.5-8 annas land and priced between Rs 9 and 15 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Suman Kumar Gurung, the Pokhara Branch Manager of Road Show Real Estate said that a total of 108 units will be constructed in Deep of Pokhara-16. The units built on 5-9 annas are targeted at the upper and middle class consumers. The housing complex will have kindergarten, tennis court, swimming pool, cable television, telephone and power generator among other facilities. </span></div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">The stakeholders of Pokhara’s housing industry include locals as well as the rich from the capital. Nepal Army’s retired general Pyar Jung Thapa and Galaxy School’s founder Gita Rana have already bought properties in the city. Besides the established businessmen, the newly rich people as well as&nbsp;retired soldiers of foreign armies have shown tremendous interest in Pokhara’s community housing units. Gurung says, “Peaceful environment, security and a modern lifestyle is attracting retired professionals immensely.” He adds that the housing industry in Pokhara has a great future because the very name of the city rings a bell in people’s ears since it is considered ‘heaven on earth’. Political instability, the Central Bank’s endless directives and lack of investment climate have affected the housing sector as well. But the housing entrepreneurs remain optimistic that the flourishing housing business outside the Kathmandu Valley will be provided encouragement by the government.</span></p>',
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	(int) 3 => array(
		'Article' => array(
			'id' => '375',
			'article_category_id' => '40',
			'title' => 'We Need To Reinvigorate The Real Estate Climate (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bijay Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">Chairman and Managing Director</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">CE Construction Pvt Ltd<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we can't expect the individuals to completely stop building independent residences.</div>
<p>
	&nbsp;</p>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">You have been in the housing industry for some time now.&nbsp;Where do you stand currently? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Real Estate is our core strength but at the same time, we have been operating in other sectors as well. We have a wide range of properties in different locations in and outside of Kathmandu and our ultimate objective in the real estate is to serve the mass. Currently, the housing sector is experiencing a slow growth. Different stakeholders such as the government, regulatory body, financial institutions, developers, investors and individual buyers are somehow responsible for the slow pace of the housing industry.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The NRB has relaxed lending for the housing sector recently. How big is the relief? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	It has definitely provided relief to some extent. But the impact is yet to be seen because there is a liquidity crunch in the market and the banks have a problem maintaining credit-to-deposit ratio. We need to work very hard to regain a prosperous real estate climate.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">As the banks are shying away from investing further in this sector, how do you plan to take your projects forward?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We have been using different financial tools on a project-to-project basis and the major portion of our cash flow is coming through sales. There are basically two categories of buyers the speculative investors who intend to sell the property at later date at higher prices and the end users who really want to settle in those homes. Both types of people seem quite reluctant to invest in this sector at the moment because of political uncertainty and unclear policies. We are working hard to come up with innovative tools to cater to both the categories. At the same time, we are introducing attractive packages for the buyers. Project management being our strength, we periodically map our project execution plan, assess the risks and the uncertainties and act accordingly. Even though the banks are going through a difficult time, they have been extending cooperation towards us because of our credibility. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The interest rate has tremendously increased increasing the cost of housing development and eventually the price. Thus the properties are now beyond the general public's affordability. What do you suggest to tackle this problem?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, the housing sector is reeling from the impact of the interest hike, however, it is minimal. The projects are usually funded through equity, borrowings from the financial institutions, credit from the vendors and subcontractors and most importantly, from sales. In general, the share of bank funding in a project is about 30 to 45 per cent of the base cost. Of the sales price, the share of bank funding is only 25 to 35 percent. So, the interest hike of 5 per cent has an impact of about 1.25 to 1.75 per cent on the sales price. The developers should be willing to absorb that from his profit in view of this difficult time. Therefore, the slaes price need not go up just because the interest rate has gone up. In order to continue with the planned projects, the developers will have to resist hiking the price and be content with lower profit. This is the best strategy till the buyers are in wait and watch mentalality. The impact on sales is not because of the price of the product itself but due to the interest on loan which buyers take from the financial institutions. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Don't you think that the houses and apartments are priced unnaturally high? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">When we talk about the price of the housing products, one needs to take into account the basic components: the price of the land as well as the cost of the building and infrastructure. So, in the current context, developers can only play with the land price as the other two components are easy to calculate. We ask the buyers compute the price of the above mentioned components of our units and let them sum it up. As far as the land price is concerned, buyers can check the price in the project neighbourhood. Our price turns out to be 20 to 25 per cent less than what the buyers come up with after such calculation.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Since the buyers are getting the finished product, they save in the hassles that they may otherwise go through when they build their house on their own. If you assign monetary value also to these hassles, the houses that you buy from a developer are much cheaper than what you will have if you construct it on your own.&nbsp;In our case, it is even cheaper because we are the single real estate solution provider- we buy the land ourselves which saves in the service fee of the broker, we do in-house designing, we ourselves are the contractors and we buy local material in bulk and import many branded materials through our trading division. In comparison, individual house owners building their own house have to buy all these on their own in retail. In that process they end up paying higher for everything. And quality is the further value addition when you buy from a developer because the developers are equipped with resources like manpower, equipments and construction technology.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">It is said that apartments are not much preferred by Nepali people. Therefore, a lot of apartment units from the developers are lying unoccupied. How do you view this?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">&nbsp;This is very true but at the same time, we do need to understand that any change takes time. Currently, a number of units of completed apartments are either still unsold or unoccupied even if they are sold. Therefore, progress of many projects is slowed. However, this slowdown in the progress is not only due to inadequate sales but also due to lack of fund as bank lending is curtailed. Many developers fear that if they borrow at high cost and finish the units but they remain unsold for long, they may have to incur very high maintenance cost for such apartments.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	However, we in CE are trying to complete all our projects on time to send a positive message across. Presently, the criteria for the buyers selection of a property are: the credibility of the developers and the physical status of the project. Buyers are comfortable in buying finished products because it is like buying any other commodity. Counselling as well as other marketing tools might not be that effective at the moment as compared to putting on sale the finished product.<br />
	 </div>
<div style="text-align: justify;">
	No matter how the people at present may view the apartments, the apartment projects are viable because the price that the buyers of such apartments will be paying will be lot cheaper when compared to the upgraded lifestyle that the buyer can enjoy in such apartments. It is just a matter of time before people shed their inhibitions about buying apartments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">What are the required measures to improve this sector?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.05pt;">First of all, the country needs to assess whether real estate is a need for us or not. If yes, all the concerned parties including the developers need to extend their full cooperation. To gain the confidence of the buyers, I have different recommendations to my colleagues. Those who have not started their projects must have a thorough plan to work out the cash flow before they start the project. They must also have a full proof marketing plan. As for those who have started their projects, their primary responsibility should be to complete the sold units fast and meet the contract conditions as well as reschedule construction of unsold component of the project based on cash flow and sales forecast. This strategy will not only help win the confidence of the buyers and investors but also that of the financial institutions.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: -0.15pt;">The average age of a building is around 50 years. What will happen to those living in the apartments and individual houses developed by housing developers after this time period? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The age of a building depends on the technology used to build it. The property is insured against earthquake, fire or any other kind of damage. If something happens during the lifetime of a building, either a community housing or an apartment building, it will usually be compensated through insurance.&nbsp;Once the building's lifetime expires, the law clearly states that the ownership of the property will be ascertained on a pro-rata basis. You have two options - either to rebuild the property with the same proportion of ownership or if all the flat owners of a particular property agree to sell it, they will get the sales proceeds divided amon themselves on a pro-rata basis. If the property value grows tremendously during the lifetime of the building or afterwards, the owners will have the option to demolish and come up with a different product. For example, it can be a commercial complex or any other product that may yield higher return. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Is there an issue with the ownership of the flats? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Well, there is no issue whatsoever at all regarding flat ownership. Once you buy a flat, you get an ownership certificate from the Land Revenue Office. When a building is complete, the municipality and the department of urban development and physical planning inspect it and issue the completion certificate. It then recommends the Land Revenue Office which issues you the certificate of ownership.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">How long will it take to change the housing culture from independent houses to community living in flats and condominiums ?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we cant expect the individuals completely stopping to build independent residences on their own. This is because housing projects will not be able to meet the individual requirements of all the people.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Tell us something about your ongoing projects? </span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">CE's current housing projects include: Vinayak Colony (176 units of independent houses) in Bhaisepati, Grande Towers (529 High-End apartments) in Dhapasi, Veena's Residency (76 units independent houses) and Harmony Housing (74 units independent houses). Similarly, we have recently completed Vinayank Colony-phase 1 in Bhaisepati, Rio Apartment in Kupondol and The Retreat Apartment in Bijayshwori. We are also coming up with two affordable independent housing projects in Sitapaila and Budhanilkatha.</span></p>',
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			'id' => '374',
			'article_category_id' => '40',
			'title' => 'Developers-built Housing Market Is On The Rise (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Om Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">CEO and Chairman</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Comfort Housing Pvt Ltd</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher prices. And they will continue holding as long as they have the capacity to hold.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you evaluate the housing industry at present?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I started my career as a developer and we are the pioneer in promoting community living concept in Nepal and real estate as an industry. My aim is to establish this as a professional institution because this is a very large industry where everyone can be adjusted. Human life does not exist without real estate because any building, whether it is hospital or a theatre or a residence, belongs to this sector. So, this sector should be developed in a proper way. When we compare Nepal with any other country, our urbanisation is largely unplanned. Housing industry is dependent on three elements - government, individuals and the developers. Our government has a different agenda and the government people are not bothered about well managed urbanisation. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you look at the future of this industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal's 15 per cent population live in urban areas whereas the global urban population today is 50 per cent. By 2030, our expected urban population will be around 30 per cent while the global urban population will reach 70 per cent.&nbsp;According to a survey, in Nepal, we require nearly 270,000 housing units annually. In 10 years time, one million units will need repair and maintenance. Likewise, within the Kathmandu Valley, we will have a deficiency of around 40,300 units every year. So, it has a bright future and huge potential. On the other hand, secondary transaction is equally important. In my opinion, in community living, there is 10 to 15 per cent secondary transaction. The secondary transaction also generates revenue for the government.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can the housing sector be revived from the current problems, such as the restrictive rule of Nepal Rastra Bank?</strong></div>
<div style="text-align: justify;">
	A number of factors affect the housing market. They are: government policies, financial institutions, building materials, building technology, households, land prices and the real estate agents. We have different policies coming from the government and the Nepal Rastra Bank (NRB). There are a few aspects in the government policy that need to be addressed immediately.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">First is&nbsp;the capital gain tax rate that is 10 per cent for any transactions within five years and five per cent after five years. Thre is difficulty for people to afford 10 per cent capital gain tax. So, when the people sell the property in the secondary market, they report transaction figure to the government, they show a lower than the actual figure. This ultimately affects government revenue. For example, if I buy a property for Rs 10 million and sell that in a year-and-a-half for Rs 20 million, then my capital gain is Rs 10 million. And from that Rs 10 million, I am expected to pay Rs 1 million as capital gain tax to the government.&nbsp;To avoid such taxes, people are showing Rs 12 million on paper though the actual transaction is for Rs 20 million. This way, the government is losing revenue. Once the property is liquidated, the money is normally deposited in the bank. But while depositing the money in the bank, you have to show the source of the money. Hence, only Rs 10 million can be deposited. The rest Rs 8 million remains out of the system. This is one of the reasons for the current liquidity crisis.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Second, while buying land of more than Rs 3 million, it is mandatory to declare income source. This is the other concern that needs to be addressed immediately.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Housing must be recognised as an industry so that the revenue goes into the state coffers. The NRB limitation has now been relaxed and a new loan portfolio category - home loan - has been created as well. I think the banking sector too should have a positive attitude towards housing industry. There are three different perceptions among the banks - some say that the real estate is an industry and profits can be made from this. That’s why they have made investments in this sector. Others say that the real estate is a future industry and they need some experience in this sector. So they have made limited investments. There are yet others who regard as a very risky industry. Therefore, they have made very small investment in this sector.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	We are currently at the bottom of the real estate cycle. To recover from such a state, these government policies and the perception of the banking sector towards this industry should change.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Though the NRB has relaxed lending, some of the housing developers say it is yet to make its impact in the market. Why such slow response?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher price. And they will continue holding as long as they have the capacity to hold. Some investors are keen on recovering the principal amount if they are not in a position to make profits. Some other investors are willing to liquidate even at a loss so that they may not need to continue bearing the financial burden. We are at a stage where even if we can't make profits, we have to liquidate the property. Our strength will be tested in mid-July because there will be pressure from banks. Our inventory holding capacity too will get revealed. Today, if you can sustain yourself, you will emerge winner but if you can't, you will have to liquidate to get the return on interest and principal. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>When the bank's investment was curbed, how severely were your projects affected? How did the companies manage to take their projects forward?</strong></div>
<div style="text-align: justify;">
	As per the data from the government authorities, fiscal years 2007-08 and 2008-09 witnessed the highest number of new projects registration while 2009-10 had very few and in 2010-11, there are no new projects registered at all. The projects approved in the past are making progress, but some of them are progressing very slow or they have downsized.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">An investor will definitely look for maximum returns. But people do not have much confidence in the real estate industry at present. So people are not putting in money. Similarly, banks are also not investing which is why this industry has slowed down.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">One indication of low sales of apartments is that Nepalis are not much attracted towards group housing. What should be done to assure them that such houses are better than individually constructed residences?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I personally feel that people have gained more confidence in group housing now. A decade ago, this concept was very new. Today, a number of developers have entered the market with their projects because the concept has been accepted by the people. The success or failure of a project is a different issue altogether. The concept of community living has been largely accepted by the Nepali people. Now, the percentage of owner-built houses is declining while the developers-built housing market is on the rise. In developed countries, all the people buy houses from developers only. Once you are very rich, then you may want to go for custom-built houses.<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">People complain that the developer-built houses and flats are unreasonably priced. How can the price be brought down to make the houses affordable for more people?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">In my opinion, the prices of the developer-built houses are reasonable at present. Therefore, the prices are not going to come down from what they are. Though some investors and developers may sell their property at even lower price than what it is at present, that will be only in case of financial distress. The land purchased by the developers was very expensive in the first place. The interest on the capital borrowed is very high. Similarly, there is a high uncertainty cost. Besides, human resource cost is getting expensive by the day. In all ways, if you compare with yesterday's price, today's price is at the same level. But the expenses have certainly increased. So, the developers have cut down on their profit. They are at a point where they can't come down any further in price.&nbsp;</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>that means there is no plan to build more affordable housing?&nbsp;</strong></div>
<div style="text-align: justify;">
	It is true that developers are not coming up with affordable housing. As a developer, we should come up with low priced products targeting the wider mass. While we at Comfort Housing are planning to come up with affordable housing, some colleagues in&nbsp;inthis industry have already brought such products to the market. So, the products will come to the market as per the demand in the market. The problem is that while the people have low budget, they have a high value house in their mind. They should also know how much they can afford and what they will get within that.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Commercial and residential housing projects are centred in few cities, mainly in the capital. Why are developers not interested to take such projects in the semi-urban areas and small towns?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Well, the concept has changed now. I had started a project in Dharan a long time ago. At that time, the community living concept was not popular. The migrant population of Kathmandu is 39.6 per cent. Everyone wants to own a house here as Kathmandu is the capital city. That is why developers are mainly concentrating in Kathmandu valley. Now that the peace process has progressed to some extent, development outside the Kathmandu valley is bound to take place in a year or two. The land prices in all the commercial towns have gone up like anything and that is one of the indicators. Even in the Kathmandu valley, the projects have come up in the suburbs. Our urban area is expanding by 4.6 per cent every year. Today, three to five kilometres periphery of the ring road is also considered urban area. So, the developers are going beyond the ring road and that is why we see a lot of housing projects centred within this belt. I feel that we should go further beyond that. We should focus on the development of suburban areas so that we can minimise the load on the carrying capacity of the city.</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The Supreme Court recently declared null and void the rule that required all transactions above Rs. 5 million to be made through bank. How much relief would it provide to the industry?</span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Not much because the problem is more with the worry and suspicion the people have about the situation tomorrow. They are not sure what sort of new charges may be levied then. However, this ruling by the Supreme Court will help to some extent.</span></p>',
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			'description' => 'Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling.........',
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	(int) 5 => array(
		'Article' => array(
			'id' => '373',
			'article_category_id' => '40',
			'title' => 'Developers Need To Be Transparent To Win Public Confidence(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Ashoke SJB Rana</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">President</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Nepal Bankers’ Association</span></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How does the banking community look at the overall prospect of the housing industry?</strong></div>
<div style="text-align: justify;">
	When we interact with Nepal Land and Housing Developer’s Association (NLHDA), they put forth their arguments why the housing developers should be encouraged. Their point is that it promotes infrastructure development that the government has failed to provide such as water, electricity and other facilities that come along with housing standards mentioned in the building code. So, I think this is very positive. It is only the speculative side we need to be wary of.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How much have the banks invested in this sector?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">Our estimate is that the banks have invested in average of 25 percent of their loan portfolio into this sector. However, this is an average only. I think that the NRB has put the cap at the right time to prevent the bubble from bursting. We were afraid that the share of housing industry in the total loan portfolio of the banking system might go higher because of the asset price bubble expanding till last year. If you can get regular income and recover your investments in 15 to 20 years, it’s good to invest in this sector. But when the price of the property and the development cost increases and the return comes around in 50 to 60 years that is not economically viable. The mortgage in the west is done usually for 15 to 20 years. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How will the banking sector benefit with the improvement in housing industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">One of the major aspects of the housing industry is infrastructure development. The NRB has welcomed this because that means value addition but it also wanted to control the speculative part. People were buying property on credit or with loan hoping the price would go up and they would he able to sell it for profit even before paying the entire price. And that was the dangerous part of the entire chain.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>A lot of housing and apartment units are unsold. In this market situation how confident are you of the banks recovering the loans they have given to this sector?</strong></div>
<div style="text-align: justify;">
	The NRB has recently changed its directive and allowed&nbsp;home loans of up to Rs 6 million to be considered as normal loan. This means people who want to buy a house can borrow up to Rs 6 million from the bank and manage the rest from the equity. High-end apartments cost around Rs 10 to 15 million. So, this loan amount is sufficient. There should not be any problem to recover such loans.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>As an investor, what kind of policy reforms do you think are required to improve this industry?</strong></div>
<div style="text-align: justify;">
	I think a little bit of transparency on the part of developers has to come. Just like the banks disclose about their capital, deposit, liquidity ratio and investment, the real estate developers too need to make certain disclosures to the public. The big fear is that the investors might be putting in money where the developers have not put any. It could be all borrowed. Investors want to know the strength of the developers. I think some kind of transparency and disclosure from developers can give confidence to the banks and the individual buyers.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0.15pt;">Till recently there was a rule which made it compulsory that all payments exceeding Rs. 5 million in a real estate transaction be made through a bank. Recently the Supreme Court declared that such a rule was illegal. What is your comment on it?</span></strong></div>
<div style="text-align: justify;">
	That provision was there because banks felt that dealing in cash is an expensive proposition. We try to encourage use of cheques. It has been now ruled out and it is unfortunate. I don’t think that the real problem was with payment through bank. The problem was with the disclosure of income source. Even if someone comes with cash, they still have to disclose the income source to the Land Revenue office while getting the transaction registered. I don’t think it is a meaningful ruling.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What are the requirements for granting loans to individual buyers of apartments? What is the current trend?</strong></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment. It’s not a project loan where there may be an implementation risk that the borrower may not implement the project in time. It’s about buying a home that the developer constructs. The bank has to properly evaluate the developer to minimise the implementation risk. So, I think the housing loan is a very structured product. I think that for the banks, it is an easier loan to recover.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	The risk is only when an institution is exposed high on the speculative side of real estate business. If the exposure is not high, the institution may be stuck with a project or two for sometime, but that will not impact much in the overall health of the bank.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is your suggestion to the real estate developers?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">We need to separate the good developers from the others, some of them may not be financially sound. The public should find out who the serious developers are and distinguish them from the inexperienced ones. There are developers who have no engineering knowledge and only believe that it is like a real estate transaction. If there are people who are trained engineers and have business plans like the ones from CE construction, it gives confidence to the entire sector. I think we need to support these people and ignore the others. <br />
	</span></p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;"><br />
	</span></p>',
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	(int) 6 => array(
		'Article' => array(
			'id' => '372',
			'article_category_id' => '40',
			'title' => 'Real Estate Sector Must Develop Professionally (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bhaskar Mani Gyawali</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Executive Director-Banks and Financial Institutions Regulation Department</span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Nepal Rastra Bank</span></span></div>
<div style="text-align: justify;">
	<span style="font-size: 11px;"><br />
	</span></div>
<div style="text-align: justify;">
	The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own houses. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What actually does NRB want in the investment of commercial banks in the housing industry?</strong></div>
<div style="text-align: justify;">
	The NRB wants real estate and housing business to develop as a true industry. In this sector currently, a huge amount is invested from the banks, the developers and the general people. Concentration of such a huge amount in a single sector affects other sectors too.&nbsp;The NRB wants this sector to surge professionally. There will be investment as required and the transparency and honesty has to be maintained at the highest degree.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Is the investment in the housing industry feasible for the banks in Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own house. But we thought the trend of unnatural price hike driven by the investment for profit from money borrowed from the bank wouldn't be sustainable. Therefore, the NRB has put a limit for bank investment in this sector. However, it does not mean that the banks should not invest in this sector. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The NRB recently relaxed the cap it had imposed on bank lending in the real estate sector. Why was the NRB late in realising this sector's potential as an industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">What was happening in the past was: people were buying land with the help of bank borrowing and selling the same land to others for profit who in turn, were borrowing from the bank to pay for the purchase and selling the same land further for profit. It formed a never-ending chain that resulted in land prices being unnaturally hiked. The NRB is against such practice. We believe the real estate sector should develop in a professional way.&nbsp;Lending for purchasing real estate properties meant for personal use should not be stopped if the buyer of such property has enough income to service the loan obligations.&nbsp;Such real estate lending is to buy land for constructing personal residence, to construct a residential house on&nbsp;the borrower's land and to buy houses or flats in the community housing projects. So, we recently issued a directive to remove loans up to Rs 6 million from the category of the real estate loan. If the banks do not invest in houses and apartments, the people's right to have their own house will be a mere dream. In the long run, old houses will need to be replaced and with the increase in population, more people will need houses. We have not tried to discourage investment into this sector and that is why we relaxed the lending.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can you say that the real estate loan provided to under a new name 'home loan' would not result in similar adverse consequences as in the past?</strong></div>
<div style="text-align: justify;">
	The loans up to Rs 6 million have been removed from the category of real estate loan. This loan is provided by banks depending on the borrower's ability to pay back the instalments. Previously, the real estate loans went mostly for the speculative business of land plotting that created undesired consequences. But the home loan is not speculative and will not create problems.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>&nbsp;The developers complain that the NRB has been hurting their business by introducing adverse policies. What do you have to say about it?</strong></div>
<div style="text-align: justify;">
	Well, considering the demand of the real estate developers, we removed the loans of up to Rs 6 million for the purchase of apartments and houses from the category of 'real estate loan'. But the developers are demanding that this limit has to be lifted further. We believe that Rs 6 million is a huge amount of money and higher than required by an average Nepali to purchase a house. So, it is not possible to lift this limitation any further.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The Supreme Court recently nullified the earlier rule that required all the real estate transactions exceeding Rs. 5 million in value to be through a bank. What is the view of NRB on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The verdict of the Supreme Court is equivalent to law and we respect the decision. Cheques, cash or any other methods are just the instruments of payment. Looking at the international practice of making payments, it is difficult to say that payments through cheques would create problems and cash wouldn't.&nbsp;We recommend that transactions should be made through any other method other than cash. And a cheque is safer, simpler and easier. This is the intention of the banking system around the world and the NRB's wish is no different.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong>What are the possible measures that the NRB can initiate or facilitate for the smooth growth of the housing industry?</strong></div>
<div style="text-align: justify;">
	We have now brought the home loans of up to Rs 6 million under the category of personal loan. This indicates that the NRB wants this business to develop and move ahead in a healthy way. With the time and demand, there will always be room for necessary amendments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the current status on loan recovery from the housing industry?</strong></div>
<div style="text-align: justify;">
	The banks have to recover any lending within the stipulated time period. We have received information that the loans are being repaid.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the total investment of the banking industry in this sector? Do you see further investments coming into this sector in the coming years despite its present precarious position?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Currently, the total investment in this sector is Rs 97 billion which is 18.9 per cent of the total investments made by commercial banks. The real estate and housing sector is a growing business and there must be further investments in in this sector also in the future. The past practice of using bank's money to speculate on the real estate should not be there. However, to fulfil the people's need for houses and apartments, there must be further investments pumped into this sector.</span></p>',
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	(int) 7 => array(
		'Article' => array(
			'id' => '371',
			'article_category_id' => '40',
			'title' => 'Urban Infrastructure Development Has Failed To Keep Pace With Urbanisation (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 12px;"><strong><span style="line-height: 120%;"><br />
	Shivahari Sharma</span></strong></span><span style="font-size: 7pt; line-height: 120%;"><br />
	Deputy Director General</span><span style="font-size: 7pt; line-height: 115%;"><br />
	Department of Urban Development and Building Construction<br />
	<br />
	<br />
	</span><strong><span style="font-size: 9.5pt;"><br />
	How safe are the buildings constructed by housing developers in Kathmandu?<br />
	</span></strong><span style="font-size: 8.5pt;"><br />
	The housing companies that want to construct community housing get license only after fulfilling a few procedures. First, the developer should get a planning permit from the Town Development Committee (TDC) based on regulations and by-laws. Next, the developers plan and design buildings and apartments which are later approved by the Department of U</span><span style="font-size: 8.5pt;">rban Development and Building Construction (DUDBC). The approval is subject to fulfilling the requirements of the National Building Code on safety, power supply, fire hazards, other possible disasters and structural design. Following that, the project, if big one, must pass Environmental Impact Assessment (EIA). If it is small one, it must pass the Initial Environmental Examination (IEE). EIA is approved by the Ministry of Environment and IEE from the Ministry of Physical Planning and Works. Then the site map is passed by the concerned municipality or VDC. The housing and apartment complexes have been properly designed and approved. So I don't think they are unsafe. We have our monitoring mechanism in place. But we feel it is not adequate. So, we are in the process of strengthening it. We have planned a third party monitoring system which means outsourcing the job as we have human resource constraint.&nbsp;The pace of urbanisation in the last decade in the capital has been tremendous because of the conflict. However, the growth is largely a haphazard one and urban infrastructure development has failed to keep pace with that of urbanisation. I feel infrastructure development in the city must be able to meet the pressures of migration and rapid urbanisation and such infrastructure development should be carried out by the metropolitan city and local bodies.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Could you tell us more about your monitoring mechanism that ensures the housing companies adhere to safety standards? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">We do have our own in-house monitoring mechanism. However, monitoring of the environmental compliance has to be done by the concerned ministry as well. Similarly, adherence to the planning permit is evaluated by the TDC. The size of open space, size and number of units, ground coverage and some others aspects are specified in the planning permit. The monitoring by the division office of DUDBC has not been extensive due to resource scarcity.&nbsp;So, we are instituting a system of third party monitoring next year to evaluate the level of compliance. This will make the process more transparent.&nbsp;We have found cases where constructions have begun even before the approval.&nbsp;However, it has been tightened now and we have taken actions against such practices. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Do you have plans to limit the number of projects that come to you for approval?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">With the fast pace of urbanisation, there is a huge demand for housing.&nbsp;The competition is still not adequate in community living and group housing. The target buyers of such housing should be the middle and lower income groups. But at present, the housing companies have targeted only the higher income groups. The main reason behind this is the high land price and complex land management system.&nbsp;Unless the land price comes down, this market cannot become competitive. Rather than controlling, this sector needs regulation through set standards. There are flaws that need to be corrected so that this industry will improve. The demand was affected after tightening of the housing loan. Last year’ inflation in the land price also affected a number of housing projects. In 2007-08 and 2008-09, there were a lot of new projects which took license but now we hardly have any takers.&nbsp;At present, the average cost of apartments is around Rs 6.5 to 9 million. However, some companies have recently introduced flats for around Rs 1.7 million. When the price comes down to around Rs 0.8 to 1 million, we can have housing for the masses.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">After the recent relaxation by Nepal Rastra Bank in the control in housing loan, we can expect that the number of new projects may increase. Until 26 October 2010, 59 projects were given license and now there are 18 new projects in the process of acquiring licenses. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">It has been observed that the process of issuing licence is rather lengthy and the companies need to visit numerous authorities in this connection. What is being done to simplify it?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">This is also a big issue raised by the private sector. We have discussed about the one-door licensing process in the ministry. The process can be simplified but for now, they must visit four different authorities.&nbsp;EIA and IEE fall under the purview of a separate unit. Planning permit and map approval can be brought under one unit. They are currently under the purview of municipalities and TDC offices. But the existing law has to be amended first for such changes to take place.&nbsp;Developers have also demanded a change in the parameters for EIA and IEE. Their view is that the housing projects facilitate managed urbanisation and do not harm the environment much. We have discussed that too in the ministry and sent a proposal to the Ministry of Environment for consideration on this. It is true that the current procedure is time consuming but if all the requirements are met by the developers, it won't take much time.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">The geologists say the geology of Kathmandu is not suitable for constructing high rise buildings. Why then has the department given licenses to construct tall apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Nepal lies in 11th most risky area of the world in terms of earthquake. Kathmandu is located in one of the world's most seismically active zones. But let's not forget that despite frequent earthquakes in Japan, they have so many skyscrapers. Therefore, high rise apartments will not pose a major threat if appropriate design is made, the building code requirements are fulfilled, soil tests and geological studies are conducted properly and quality constructions materials are used. The important thing is that the specific local conditions of the construction area have to be considered while giving planning permit.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">People are concerned about the safety of the apartment buildings that are approved by the department. What is your evaluation of the safety in these apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">&nbsp;Going by the designs that are presented to us, I don't think people should be wary. The private sector has invested a lot of money in their projects. If something goes wrong with one particular project, it is bound to affect other projects as well. With the kind of massive investment they have put in, they wouldn't want to make it unsafe. With the current speed of urbanisation, there won't be an alternative to high rise apartments in the near future.&nbsp;So, it's imperative that the safety measures are of the highest standard to win the confidence of the general public. We have checked the designs for the apartment buildings and feel that they are safe enough. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Why isn't there an inter-departmental coordination for developing infrastructure like electricity supply, road, sewage and drinking water?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Somewhere along the line, the inter-departmental and inter-ministerial coordination is missing. But the scenario has definitely improved now and there is no haphazard digging like in the past. If a maintenance work has to be done, prior approval from the road department must be taken. The problem is that one department does not trust the other's work. And a lack of discussion about the matter hampers the cause further. We also don't have a regulation unit for urban infrastructure in cities. We have proposed a town development corporation which will look at the local bodies and the planning unit in Kathmandu. However, the proposed bill is yet to be passed by the parliament. The proposed bill has proposed the formation of Kathmandu Valley City Development Corporation which will include five municipalities of the valley as well as the VDCs in the suburbs. We believe that if such an authority existed, coordination would definitely be improved.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">By when do you think the city development mechanism will come through? How long will people have to continue to bear unmanaged and haphazard urbanisation? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">There are plans for Kathmandu but they have not been implemented yet. A clear policy regarding land use is not there. After the formation of the national urban and housing policies, we prepared the draft of the bill and sent it to the relevant ministry. The policies are there but it does not have ownership in the absence of the physical development act. First of all, the land must be managed in order to ensure urban planning. For example, if someone decides to build a house in the middle of a field he would want to take the road, electricity and other infrastructure to the house. If there is a physical development act, it will prohibit the construction of a building in the farmland and deny the basic infrastructure for such land. We have also prepared the draft for an act on real estate business and regulation and sent it to the parliamentary committee. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt; line-height: 115%;"><br />
	If that gets passed, the buying and selling of property can generate revenue for the government besides providing security to the buyers. The present haphazard situation is due to the absence of a proper law that would ensure a proper control mechanism. We want that the growing cities should not suffer the same fate as Kathmandu. There should be decentralisation of services and opportunities so that development can be spread throughout the country in a balanced proportion. The government is working towards it and we can certainly hope that there will be positive changes soon. </span></div>',
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			'description' => 'How safe are the buildings constructed by housing developers in Kathmandu?
The housing companies that want to construct community housing get license only after .....',
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		'Article' => array(
			'id' => '344',
			'article_category_id' => '40',
			'title' => 'Nepal’s Trade Ratcheting Imports',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><i>By Pinaki Roy</i></span></div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> Nepal signed the Trade and Investment Framework Agreement (TIFA) with the United States recently which paves way for the promotion of more comprehensive trade agreements between Nepal and the US in the future.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; line-height: 115%; color: rgb(237, 28, 36);">*</span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The second meeting of Nepal-Tibet Trade Facilitation Committee (NTTFC) – a bilateral talks forum – is being held in Kathmandu from May 8 to 10. The main focus of the talks will be to cut the ballooning trade deficit with China by taking maximum advantage of zero tariff on imports from Nepal offered by China.</div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While these developments may sound all good, analysing the state of Nepal’s foreign trade over the last <img align="left" alt="" border="2" height="450" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover1.jpg" vspace="1" width="350" />decade or so presents a bleak picture. It’s unfortunate that Nepal has very few products at present that hold any promise of competing in the international market. Add to it the dismal environment of domestic business in the country and the chances of reaping tangible benefits from any agreement in the near future look extremely slim. Nepal’s faltering export scenario has been unable to check an unsustainable trade deficit. The eternal power shortage, fragile law and order situation and transportation woes are among the main impediments to the development of export-oriented sector. These erode the confidence of the private sector. With dwindling confidence of the investors, let alone foreign direct investments, Nepal can’t expect to see domestic investment in the foreseeable future either. In short, Nepal’s economy is in dire straits with grim hope of the growth of export-oriented industries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Escalating Trade Balance</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">During the first eight months of the current fiscal year 2010-11, exports have increased to Rs 43.24 billion, an improvement by Rs 2.99 billion over the same period last fiscal year. Meanwhile, imports increased to Rs 252.88 billion, an increase by Rs 4.61 billion over the same period. The trade deficit amounted to Rs 209.64 billion, an increase by Rs 1.61 billion. Imports are expected to continue to increase in more or less the same pattern it is following so far. This indicates that trade deficit is expected to further widen in 2012. Due to some major foreign currencies getting weaker, Nepal’s exchange rate is expected to appreciate which will make exports costlier abroad. Besides, the impact of rising inflation rate in Nepal is likely to make exports more uncompetitive in the next year. </span></div>
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	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The agriculture sector in Nepal has remained under-developed, with a very low productivity level. At the same time, the industrial sector suffers from a host of uncertainties. The inefficient structures of these important sectors of the economy have not only reduced the competitiveness of the economy but also resulted in a limited production base. It is far below the consumption needs of the people. As a result, Nepal depends heavily on import trade for meeting its large and varied needs. Despite a marginal increase in exports, the painfully slow growth of imports during the last decade doesn’t augur well for the country. Besides, most imports are confined to non productive and consumable items like vehicles, petroleum products and gold that does not directly contribute to economic activities. Therefore, it is an alarming situation and a challenge for the policy makers.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Infrastructural Bottlenecks</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The export sector is still plagued by the same problems that have adversely affected the entire economy. Supply-side constraints such as intermittent blockades, labour disputes, access to technology and credit, virtual absence of trade facilitation measures, lack of human capital, power outages and road transport among other infrastructural bottlenecks are eroding Nepal’s competitiveness in the international market. These factors also result in preventing diversification of its export basket. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Large gaps exist in trade efficiency based on indicators such as the cost incurred for the trade and number of days taken to close the deal. Infrastructures like roads, ports, information technology and communications network and other logistics, transit facilities, cross-border connectivity and customs facilities are also in short supply. Nepal is yet to enhance the capacities for trade strategies and negotiations, trade and investment finance and other capabilities related to export. The trade-related institutional, human resource and supply-side limitations constrain Nepal to take advantage from trade by meaningfully participating in multilateral and regional trading systems. Considering the problems, the new initiatives on Aid for Trade (AFT) could help overcome the problems and open up new trade opportunities for Nepal. But again, the said constraints could also impede the country from qualifying for such Aid. Structural reforms and infrastructure investments to reduce transportation and transactions costs are the key to improving the external competitiveness of Nepali products.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Limited Export Items</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Another feature of Nepali export is its limited items of export. As major export items like carpets, garments, pashmina and handicrafts are produced mainly in labour-intensive industries, the impact of trade on employment is considered significant. Vegetable ghee along with the products mentioned above constitute a significant part of Nepal’s total export. This indicates high dependency of export on very few products. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In the second half of the 1990s, the growth of export was higher than the growth of import reflecting a positive impact of adopting the liberal economic policies. However, this trend did not continue for long and experts attribute this primarily to the impact of the decade long conflict. Though the competitiveness of the export sector had increased in the early days of the liberalisation period, the policies were rendered ineffective during the conflict and the post conflict transition. As a result, the share of import to GDP has been far greater than that of export for the last decade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The progress in export has been slow due to a number of national and international events and circumstances. The 10th Plan had emphasised on identifying new exportable products of comparative advantage and improving their quality and export volume. It advocated rectifying the procedural hindrances to product-wise and country-wise diversification of foreign trade. It also looked at enhancing the competitiveness of the trade sector in harmony with the regional and multilateral agreements. The Plan envisaged strengthening institutional capacity of the government, non-government and the private sectors to enhance collection, processing and dissemination of information relating to export promotion. To make foreign trade simpler, more reliable and cost effective reforms were recommended in the areas of laws, regulations, policies, procedures and facilitation. It also recommended that organisational and managerial efforts be strengthened and export promotion prioritised in a coordinated manner. The Plan also talked about mobilising Nepali diplomatic network abroad in promoting foreign direct investment (FDI), export, and the economic interests of the nation so as to accelerate the industrial development and the expansion of export trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Quality Certification</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal already imports almost seven times more than it exports. The growth prospect of exports and the industrial sector look as gloomy as ever. Most constraints that we face today are non-economic ones. It has been increasingly realised that market access alone does not guarantee flourishing of international trade. Nepal, like any other LDC, lags in trade capacity due to non-availability of sufficient number of exportable products on the one hand and the quantity and quality of available products to meet standards of the importing countries, on the other. Nepal’s trade is faced with constraints on supply side in terms of development of testing and certification facilities, accreditation of laboratories and mutual recognition of test and certification in facilitating trade. The improvement of laboratories and testing facilities in Nepal has, for example, remained an important agenda in Nepal’s trade with India, its largest trading partner. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 11.5pt;">Trade Barriers</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal still pays a very high tariff to access major markets on the one hand and on the other, duty-free and quota-free initiatives have yet to prove fruitful due to hurdles imposed by non-tariff barriers. Non-tariff barriers (NTBs) in the form of regulatory requirements, quota restrictions, administrative procedures and rules of origin (ROO) are of major concern. Due to their technical complexity and non-transparent nature, they are the most difficult barriers to overcome. Standards-related NTBs such as sanitary and phyto-sanitary (SPS) restrictions act as major impediments to Nepal’s exports. Several instances have shown that process of discussions amongst the exporters and importers which results in better information sharing can itself help address more than half of such problems. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite Nepal gaining enhanced market access into the developed countries, it cannot take advantage from it until the government and the private sector join hands to expand and diversify the country’s exports. Trade is governed, to a large extent, by trade regulations and related administrative procedures. More often than not, the entry and exit from the market as well as the volume of trade rely on the transparent and simplicity of trade and administrative procedures. A study reveals that submission of unnecessary documents, administrative hassles at custom offices, additional detention charges and untimely delivery of goods increase the cost of transaction in formal trade. These activities and procedures enormously affect the trade affairs. Ultimately, it discourages the business fraternity in carrying out their businesses freely and fairly. </span></div>
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">WTO Challenges</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The WTO membership has brought both opportunities and challenges to Nepal. The main challenges before Nepal are to fulfill WTO commitments that need strengthening existing external trade institutions and legal mechanism, removal of supply side constraints to transform available market access into trade opportunities and restructuring of industrial sector to make it more competent and contemporary. In total, the benefits of membership depends on Nepal’s ability to identify and take advantage of trading opportunities, fulfill multilateral trade obligations, formulate and pursue development strategies within those framework and above all, defend its economic, financial and trade needs. Nepal could benefit from World Trade Organisation (WTO) only if it increases internal strength and quality of export items.</span></div>
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	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal finds it difficult to implement some of its WTO commitments. Since the benefits accruing from the implementation of these agreements are much lower than the associated cost of implementation, the resource-strapped Nepali economy cannot take this additional burden. Quite naturally, it is demanding support from its development partners to implement such commitments. The basic objectives of technical assistance for Nepal lies in promoting activities which add value to its production, help export diversification and most crucially to reduce its transport and other infrastructure costs thereby making it easier for businesses to operate. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Evolving Global Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The nature of trade is evolving globally. This is reflected in the changing composition of trade, from merchandise to services. This dynamic is largely driven by technological revolutions. While the transport revolution reduced transport costs and facilitated trade in merchandise goods, the information technology revolution has resulted in decreasing communication costs and increasing quality levels, thereby causing trade in services to be the fastest-growing component of global trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In addition to natural advantages, the three services sectors – health, education and high-end retail services hold immense export potential from Nepal’s perspective. Nepal has comparative advantages for the export of these sectors which are generally found to be cost effective. The attraction of these services is also due, in part, to a high level of market integration with northern India, if it can take advantage of the open border in the south. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In spite of liberalising the economy and changing trade and investment related laws, Nepal hasn’t been able to derive expected benefits. Trade is a technical subject. The deficiencies in knowledge concerning markets, access to distribution networks and use of the ICT, complicated regulatory procedures of shipments, weak transportation infrastructure and services and insufficient trade financing are major constraining factors. Addressing these problems would involve financial resources, time, efforts, proper management, and technical expertise. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Aid For Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The new initiative of the Aid for Trade could be a prime source of funding to enhance competitiveness. However, there is a gap between commitment and disbursement of AFT. Pledges are made through international forums for aid for trade initiatives but the pace of implementation and the disbursement rate is very slow.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Developed countries and development partners coming forward to support product development programmes, development of trade infrastructure like inland clearance depots, container freight stations, special economic zones, roads and other forms of transportation in order to enhance Nepal’s trade capacity is of prime importance. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Prosperous Neighbours</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The multilateral trading system has contributed significantly to the growth in exports that has been aptly exploited by countries like China and India. With respect to the markets created by these neighbouring countries, the disadvantage of Nepal as a land-locked country is significantly reduced because these two are after all, proximate markets. The economies of both the neighbouring countries are increasing enormously and Nepal can benefit or should be able to do so because of this. Despite increased industrialisation and trade activities in China and India, Nepal has failed to benefit from their economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s internal problems such as poor trade policy and implementation, lack of business-friendly labour laws and other rules and regulations, political instability, frequently changing trade and industrial policies, social unrest and chaos, frequent strikes, lockouts and load-shedding are also equally responsible for poor export. The reasons behind the fall in export can also be attributed to erosion of preferences for Nepali goods due to the decreased MFN (Most Favoured Nation) tariff in India. The Government of India has signed several free trade agreements with various countries. It has committed to lower customs duty as a non-LDC member of SAFTA and BIMSTEC free trade area and also announced the Duty Free Tariff Preferences (DFTP) scheme as part of commitments made in the Hong Kong ministerial meeting of WTO. The irony of Nepal’s trade is eminent in respect of decreasing tariff in Nepal. It is obvious that Nepal will continue losing export volume and find itself in a precarious situation in the absence of concrete measures to check and reverse the process of decreasing export. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s export to India is increasing at a snail’s pace. The growth rate of export is highly fluctuating. At the same time, import from India is far stable. It implies that import from India is in a better position than export. As the gap between export and import increases, trade deficit soars. The trade deficit with India was Rs 66.4 billion in FY 2005-06 but it has rocketed to Rs 174.4 billion in FY 2009-10. It is alarmingly high for Nepali economy. The major reason for the unfavourable balance of trade on Nepal’s part can be blamed on not finding proper markets for manufactured goods in Nepal, in India. The prominent factors include the inability to compete in the Indian market on the grounds of quality, price, supply capability etc. From a trading point of view, it could be quantitative restrictions and product disqualifications. It is understandable that unless a sizable export of manufactured products fail to find market, the trade balance proportion cannot be reduced. Therefore, finding a proper segment in the Indian market for Nepali products is critical.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Service Sector Emphasis</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The Government of Nepal launched Nepal Trade Integration Strategy (NTIS)-2010 last year which seeks to identify and develop key essential products and services to build its export base in a sustainable way. A total of 19 items were selected for driving export promotion. The 12 products and seven services were identified after careful scrutiny of potentiality for development along the value chains and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, increasing employment and government revenue is important. The seven services identified are namely Tourism, Labour Services, IT and BPO Services, Health, Education, Engineering and Hydro Electricity. It has been unanimously felt that Nepal has the potential to perform better in these service sectors provided there is an encouraging working environment. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Trade Facilitation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Trade treaty is only a means and not an end in itself towards enhancing greater market access. The growth of trade basically depends upon the conditions that are created within the national boundary in respect to measures related to investment promotion and improvement in governance. Speedy trade facilitation is the key to success. Trade facilitation at its core aims at developing competitive advantage. Work on trade facilitation like simplification of customs procedures, criteria for procedures of transit and standards verification and transforming policies and rules in accordance with those of its major trading partners India and China, are of immense importance. Improving productivity and strengthening supply capacity remain the basic consideration guiding the development of the commercial sector of the country. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Internal Preparations</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal is a country with major potential that needs to be realised and enhanced through various policies and related initiatives. At the same time, it has to address a number of difficulties linked to its logistical, financial and stability related concerns. The multilateral trading system can contribute towards Nepal’s potential gain in many ways. Trade-related aspirations to diversify trade and production bases into dynamic new products and services, integrating trade and trade capacity building policies into national development strategies, maximising benefits through development of effective labour market standards and institutions and striving for an ambitious, comprehensive, balanced, equitable and development-oriented outcome, are vital. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">To realise the benefits of the trade agenda, having hassle free market access through reduction of tariff and non tariff barriers, facilitation measures through increased connectivity, customs harmonisation, simplification of trade rules and procedures and efficient trade logistics and the enhancement of supply side capacity, are crucial. With the help of all the benefits – present and potential – Nepal will be in a better position to address the supply-side constraints, achieve better market access and help raise its domestic growth with greater equity. This assures help to increase above 4 per cent growth rate which Nepal has been stuck with, for some time. To increase export, there must be an increment in investment for production, both domestic and foreign, that can positively affect the investment and thereby exports. </span></div>',
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			'description' => 'The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.',
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			'title' => '‘We Are Mainstreaming Trade Into National Development Programme’',
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			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/purushottam ojha.jpg" style="width: 182px; height: 185px;" vspace="1" />Purushottam Ojha</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Secretary</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">Ministry of Commerce and Supplies</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are identified as priority items for trade by NTIS (Nepal Trade Integration Strategy). How sustainable are these 19 products?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes&nbsp;12 goods and seven services are identified. They have been identified after careful scrutiny of their potential for development along the value chain and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. These are products and services in which Nepal has comparative and competitive advantages. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, it is important to increase employment and government revenue. Identification and selection alone cannot meet our objectives. We have to create necessary environment in the country to develop these products in a manner that will ensure sustainable trade in the future. Most of these products are related to agriculture. It is important to enhance the productivity, productive capacity and product quality in them. For this, we have to go on adopting good agricultural practices, integrated pest management and quality control mechanism. At the same time, we need to focus on improving the quality of infrastructure, for example in tests and certifications to ensure acceptance of the products in the international market.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>It is said that improved supply-side performance is the key to achieving sustained economic growth. What is hindering the improvement in supply side capacity?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Over the years, we have been enjoying increased market access in various destinations as tariff barriers are being lowered. However, there are certain non-tariff barriers that are hindering the export from the least developed countries (LDC) like Nepal. We have to address these issues as well. Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade. The causes for the hindrance in improving&nbsp;the supply side capacity include lack of adequate infrastructure - particularly transport infrastructure, energy supply, rising problems of labour unrest and law and order situation.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can we overcome these supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">There are certain barriers for increasing our trade capacity as I mentioned earlier. We need to address these important issues to attract more investment and improve investment climate that will eventually help overcome supply side constraints. It is essential to bring more investment in the production as well as service sector. But it largely depends on political stability, law and order situation, industrial relations and adequacy of infrastructures. These need to be addressed in a coherent manner. We also need to increase our collaboration with development partners to get more support in the areas of economic cooperation and trade development. Enhancement of market access is crucial from the perspective of LDCs like Nepal since non-tariff barriers are being raised by importing countries in the name of plant and animal health, food safety, environmental concern and labour rights. Nepal is raising the voice against such barriers in bilateral, regional and multilateral forums.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepal been able to benefit from trade despite having huge markets in the north and the south?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that the economies of both our neighbouring countries are increasing by leaps and bounds. The GDP growth rate of China is almost in the double digits and India’s GDP is increasing by eight per cent annually. Statistics show that trade between India and China is also increasing and has reached US$ 60 billion. They are aiming at increasing it to US$ 100 billion in the next five years. Despite such increased industrialisation and trade activities in neighbouring countries, we have failed to benefit from this. We need to adopt appropriate policies within the country to link our trade and economic relations to get the spill-over benefit from our neighbouring countries. We also have functioning trade agreements with both these countries but we have not been able to harness the potential benefit of exporting our goods and services. There are certain inherent problems associated with it. There are several non-tariff barriers to our exports in India and China. We need to enhance our efforts to remove these barriers. We have entered into an agreement with the Government of PR China in April 2010 to provide duty free access to 4,721 products in six digits customs tariff line. However, our industries and exporters have not been able to fully utilise this opportunity. We have initiated the process for assessing the situation and the reasons behind non utilisation of market access opportunities. This would require a constructive dialogue and deliberation between the government and businesses on both sides. Besides, we need increased engagement with our neighbouring partners in the area of economic cooperation for enhancing productive capacity in sectors like agriculture, manufacturing, export trade and infrastructure.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepali economy benefited from trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is not true that Nepali economy is not benefiting from trade. But the question is about the level of benefit that we are harnessing.&nbsp;For this, we have to follow the path to sustainable and inclusive trade development. Trade is the output of total economic activities of the country. Trade cannot operate in isolation. Until and unless we develop our agriculture, forest, manufacturing and the service areas, trade cannot happen. All sectors of the economy should move towards the same direction and work in harmony so that there will be value addition in the export. Such a situation will help create employment, increase revenue to the government and bring more foreign currency. It will ultimately lead to the improvement in the macroeconomic situation of the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why do you think Nepal has not been able to capitalise on WTO membership?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The WTO membership has brought both opportunities and challenges to Nepal. Opportunities - because we have market access to all member countries and we can engage in constructive dialogue in the international trade forum through WTO. At the WTO, we can raise our voice together with likeminded countries to get more support from developed countries to remove market entry barriers and enhance our trade capacities. Besides, there are challenges. Ever since the liberalisation of tariff under multilateral trading system, our products have to compete with products from other countries particularly in big markets like the EU, the US and even in India. Since the tariff rate is going down, other competing countries are finding it easier to enter into these markets. This has proved to be a major challenge to maintain our market share in these markets. We have lost the export of some products like carpet, garments and pashmina in the international market and vegetable fats in Indian market during the last decade due to this reason.&nbsp;Accession to multilateral trading system and regional trade arrangement is not the panacea to remove the problems of trade. Rather, we need to develop our capacity to face increased competition on one side and utilise the opportunities available under regional and multilateral trading system on the other.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal currently has a huge trade deficit. How can this be lowered?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that we are facing a huge trade deficit. During the last couple of years, exports have not increased and imports are galloping. In the last fiscal year, we had the record trade gap of around Rs 315 billion. Most imports are consumption items like petroleum, cars and gold. The gold does not directly contribute to enhance the economic activities. So, it is an alarming situation and a challenge for the policy makers. In the midst of such a precarious situation, the Government of Nepal has launched Nepal Trade Integration Strategy (NTIS)-2010 which seeks to identify and develop some key essential products and services to build our export base in a sustainable way. We must correct the deficiency which is hampering the growth of economy and the investment climate. We have to improve law and order situation, industrial relations and management of government-owned industries. We also need to develop adequate infrastructure and improve the regulatory regime so as to help in building confidence among investors. Similarly, streamlining of the transit procedure, incentives for industries like tax rebate, monetary and non-monetary incentives and improving governance systems are among the suggested reforms. Until and unless we improve our investment climate, it will be difficult to motivate and convince potential investors to invest in the industries or in any other sectors. Unless we have investment, we can improve neither international trade nor the supply situation within the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The relatively stronger trade sector of the past has diminished gradually over the last decade. What can be done to revitalise trading sector again?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">During 1990s, we saw the growth of industries and trade in terms of export to India and other countries. But the industries we were nurturing during this period were not found sustainable. Carpet, garment and pashmina are no longer our niche products as many countries export similar goods. We were unable to improve the capacities of our industries in terms of economies of scale, quality and design of the products. The enhancement of productive capacities would require several steps as behind-the-border measures. One case in point is the development of Special Economic Zones (SEZ) for relocation of industries by providing one-stop services to industries in such zones combined with flexibility in labour regulations and tax rebates.&nbsp;The project for establishing special economic zones in the country was started some 12 years back but it is still in an indeterminate state as the development of physical infrastructure and creation of necessary legislation for regulating the zone is stagnant. Similarly, there is need to revisit laws related to the regulation of trade and investment regime, particularly the Industrial Enterprises Act and Foreign Investment and Technology Transfer Act (FITTA)-1992. The revival of Nepali trade will largely depend upon right choices of products and services in order to become sustainable. Efforts are to be made for maximising domestic value addition optimising the utilisation of human capital as well as other factors of production including land and natural resources which will culminate into healthy growth of economy. The growth of trade during 1990s was largely based on tariff arbitrage. When that arbitrage opportunity diminished, many such industries could not sustain. The Government of Nepal is now realigning trade through the manifestation made in NTIS-2010, Trade Policy-2009 and the current Three-Years Interim Plan (TYIP).&nbsp;Now, the challenge is to implement them in true spirit. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There are special privileges like zero tariffs &nbsp;for LDCs. How can we benefit from that?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal enjoys zero tariffs in many countries that belong to the Organisation for Economic Cooperation and Development (OECD). The European Union provides duty free access to the products from LDCs under the Everything but Arms (EBA) initiative. Countries like USA, Canada and Japan provide Generalised System of Preferences (GSP) facilities to many products from countries like Nepal.&nbsp;Besides, Nepali products also enjoy zero tariff facilities in Indian and Chinese markets. Therefore, it is not the problem of market as such. Nepal, together with other least developed countries around the world, is pleading duty-free quota-free (DFQF) market access in developed and developing countries right from Geneva to Washington DC.&nbsp;The most important aspect is to increase our supply side capacity and competitiveness. Since zero tariff is available to all LDCs, only those can export to these markets who are more competitive. This would require revisiting the trade and export policy with a focus on choices of right products, improvement in quality and diversification of design and reduction in the cost along the value chain.&nbsp;Being a landlocked country, the transit transport cost is generally higher. Simplification of transit procedures and reduction of cost of transit is vital for Nepali trade.&nbsp;</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A new concept ‘Aid for Trade’ has been gaining currency. What kind of reforms should Nepal make to get optimum benefit from it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Aid for Trade is a new concept that emerged during the last decade. There is consensus and commitment among developed countries to support LDCs for trade development. There is a notion that LDCs need trade and not aid and this view is often expressed in various international forums. Developed countries and development partners should come forward to support product development programmes, development of trade infrastructure like inland clearance depot, container freight station, special economic zones, roads and other forms of transportation in order to enhance the trade capacity of the LDCs. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. Pledges are made through international forums for aid for trade initiatives. However, the pace of implementation and the rate of disbursement are very slow.&nbsp;Some donors have played a tricky game just by renaming the regular official development assistance (ODA) as the aid for trade allocations which is not the spirit of these initiatives.&nbsp;Aid for trade is another stream of foreign assistance besides the regular allocation of ODA. In Nepal, we are considering creating a Fund for trade development in consultation with various development partners. An inter-ministerial task force is working on devising necessary regulatory framework for the administration of the Fund.&nbsp;&nbsp; </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The Government of Nepal has already taken steps for mainstreaming trade into national development agenda. Trade cannot be looked in isolation and is not a concern for the ministry of trade only. There are several entities and ministries associated with it. We have to bring them together to promote trade in goods and services. We are also aiming at getting adequate support from development partners to complement the national effort. If some products and services are important from trade perspective, they should get immediate attention for development and promotion. Support must go to the grassroots level, i.e. the enterprise level and the farm level so that benefits from export trickle down to the producers and growers. The assistance under aid for trade initiatives encompasses various sectors that contribute to trade development and thus various ministries and private sector entities have a role to play. The Ministry of Commerce and Supplies will work as the national focal point and coordinator for creating synergies of this effort. </span></div>',
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			'title' => '‘Dealing With Supply Side Constraints Will Help Our Export Prospects’',
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			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/vidya nath nepal.jpg" style="width: 189px; height: 213px;" vspace="1" />Vidya Nath Nepal</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">President </span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Centre for Public Policy Dialogue and Former Special Secretary of Commerce</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest &nbsp;of the world.</span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><br />
	</span></div>
<div style="text-align: justify;">
	<strong>How do you evaluate the current trade situation of Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">I have been observing the economy and policies for the last four decades. But the trade deficit was never this bad. Today, the deficit is in billions of rupees which is a painful situation. The import growth has spiralled while the exports have dwindled. Nepal’s value of exports for the year 2001-02 was more than Rs 45,000 million which reduced to only about Rs 41,000 million in 2007-08. On the other hand, imports in the same period increased from about Rs 103,000 million to Rs 154,000 million. Export to India remained almost stable while export to other countries decreased sharply. During this period, about 63 per cent of Nepal’s total exports went to India while about 59 per cent of its total imports were from India. Thus, Nepal’s total trade with India was about 60 per cent. The increased import has been largely for consumption materials rather than for raw material or industrial inputs. For example, gold and many other goods are imported into Nepal considering the Indian fiscal policy. Our liberal trade policy does not allow controlling imports. According to our law, we cannot prohibit any business, we can only restrict only a few items. Nepal is the most liberal country in entire South Asia in terms of its trade policy. We don’t have any import restriction and quantitative restriction. We have very small negative list for imports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How do you compare the current situation with the past?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Current trade situation has grown very weak when compared to the past. Increasing trade deficit is evident. An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest of the world. There is very little attention towards production of exportable goods. There is no favourable environment for that. Therefore the trade situation has worsened now. In 1996, a trade treaty was signed with India. In that treaty there were very little restrictions on export to India, the negative list was shorter and the rule of origin was not so strict. The treaty renewal in 2002 retracted such liberal provisions. The rule of origin was made tougher. Similarly, India exerted quantitative restrictions on some products. That disrupted our export. The political turmoil after 2002 and the resultant current transitional phase has led to poor trade situation compared to that of the past. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What are the main reasons for poor development of Nepali trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Trade has to be looked on the basis of import and export. The import is continuously increasing but that is not a reason to rejoice. To increase export, there must be an increment in investment for production. Investment can be both domestic and foreign. Forget about the foreign investment, even the domestic investors are not encouraged to invest. The main reason is the volatile and unstable political situation. Because of this, there are no new investment and production of exportable items. Apart from that, there are issues of labour, peace and security, industrial security and unstable policies that have put investors at bay. A policy must last for at least five to 10 years to attract investment. But in Nepal that is not the case. Government is changing frequently, and every change of government brings change in the policy too. Since last year, also the interest rate has sky rocketed due to liquidity crunch in the financial institutions. That has also affected the investment and thereby exports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal faces non-tariff barriers with its trading partners. How can such barriers be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We are the member of WTO, SAFTA and BIMSTEC along with our trade partners like China and India. WTO’s policy states that the non-tariff barriers must not be exerted unless it is justified. There should be certain tariff barriers but very little. The trade must be gradually made free by removing the restrictions. The facility given to one country must be provided to other country too. In spite of this, agriculture based products’ export to India face a lot of non-tariff barriers. For example, when some agro-products have to be exported to India from either Sunauli or Birgunj, quarantine tests have to be carried out at a far away laboratory. That adds huge cost for exports. One of the main problems with export trade of Nepal is transit cost which is usually prohibitive. The transport cost from here to Kolkata, the main port for Nepal, is to the tune of 14 to 40 per cent of the cost of material. With such high cost how can we compete in the international market? Documentation barriers are also severe as the documentation process takes months and that further hinders the export. Internally too, we have constraints in trade facilitation. In Indian ports too, there are numerous problems like unavailability of ships and lengthy procedures. Such non-tariff barriers added to the tariff barriers are hindering our export. Though India has provided customs free export from Nepal to India in certain goods it levies special duties on them. Sometimes, state governments in India levy additional duties according to their local rule. A complaint on such case gets lost in the Indian bureaucracy and as a result, Nepal’s exporters face harassment.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal also has severe supply side constraints. How can they be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true. Though various bilateral, regional trade agreements like SAFTA and multilateral trade arrangements like WTO have been providing us access to different markets through manner similar to reduced customs duties, we are not able to benefit form that. Under SAFTA, hundreds of items can enjoy concessional entry into other countries. WTO has the philosophy of liberalisation of trade by reducing tariffs. Compared to the last decade, the customs duties have declined even for entry into India. The trade access we got through bilateral, regional and multilateral agreements have not been fully utilised due to supply side constraints. What can we export when we can’t produce goods here? There is no investment environment and the cost of production is high while labour productivity is very low. There are problems with lengthy documentation, labour issues, peace and security and increased interest rate. If we do not have any supply side constraints, our export would definitely increase. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Industrial and trade policies are not translated into acts and regulations. Even if they are enacted, they are overlapping and contradictory. Labour issues are never settled. Quality of infrastructure like transport, power supply etc is very poor. The ADB report of 2009 says the syndicate system of trucks is common in the country and the transport cost has increased as high as 55 per cent. Research and development aspect has been largely neglected. Technologies are outdated and innovation is non-existent. Institutions in particular are weak and ineffective. Private sector is not properly promoted by the government. Unless we can correct ourselves on these counts, supply side constraints will prevail. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal enjoys numerous facilities under WTO regime as well as being an LDC. How can we utilise such advantages?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">WTO believes in MFN (Most Favoured Nation) treatment. There should not be any discrimination under this system for any country. There was a Ministerial meeting held in Doha where it was decided that WTO would provide various technical assistance to strengthen the supply side of the LDCs to increase their export potential. Little has been done on that front and that is insufficient. WTO’s provision of differential treatment to the LDCs has not been effectively implemented. Facilities like ‘Aid for Trade’ are just for name. We have not received any sufficient amount on this account. There is a need for strong and effective negotiation from LDCs as a group which is lacking so far.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Our government through our embassies abroad should strengthen economic diplomacy to promote trade to respective nations by identifying suitable products. We have failed to do so. There are a few products that we can export to India. For example, Nepal can take huge benefit if producers concentrate on exporting vegetable ghee, cardamom, GI pipe and noodles to India. Tea and ginger are exported to India but it re-exports them. From our side, it is better to export our products directly to the final destination. Nepal should identify the negative net trade of a particular country and work on exporting such goods to those countries. We have failed to move ahead in this direction. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Investors are reluctant to increase investment citing unfavourable investment environment. How can trade be enhanced amid such problems?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The main reason behind investments remaining stagnant is political instability, frequent changes in policy, labour issues and security problems. Foreign investors seek easy exit if they do not see profits. There is difficulty in such exits and liquidation procedure takes years. Foreign investors can’t wait that long. Nepali raw material based industries would be sustainable in terms of export trade. However, that concept is not necessary to apply in international trade in the course of industrialisation. Hong Kong and Singapore are examples of countries that do not have their own big manufacturing units, but have benefited by exporting assembled products. However, if we can export goods by processing our own raw materials, we would have more comparative advantage and we would not have to spend foreign currency in importing raw materials. A study shows that Nepal’s products that have highest potential of export in the long run are tourism and hydropower. However, remittance is the biggest source of foreign exchange earnings currently. At the moment, around 80 per cent of foreign exchange earnings is through remittance. Tourism ranks second. Hydropower projects are capital intensive. Nepali capital is hardly enough to run even one Tamakoshi project. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The government should be proactive in providing all facilities mentioned in industrial and trade policies to increase production and promoting exports. However, private sector should also run businesses on the basis of corporate culture with new technology and increase their competitiveness. On an average, it takes about 31 days to clear seven procedures to do business in Nepal. This process time is the longest among the SAARC countries. Similarly, it requires 41 days to export products out of Nepal. Thus, the businessmen are suffering from over regulations, corruption, dishonesty, lack of transparency and political interference. According to WEF report of 2010, Nepal ranks the lowest among all SAARC countries in quality institutions. Therefore, the expectation is that the private sector will increase production and export in spite of the weak government. They have the initiative and the mission while the government is indifferent as well as inefficient.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are selected by the NTIS as priority products. How realistic is this selection?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">They have selected 19 goods and services following a lot of studies. Among them, seven are from the service sector like IT, health, education and tourism among others. I feel we can do better in these service sectors and have the potential if there is good working environment. There are agro based products too but I don’t think they are sufficient. Since our production depends on imported technology, we must select products that generate high profit in low volume items. If we can focus in the coming decades on these 19 products by creating favourable environment for investment that would certainly benefit our trade prospects. </span></div>',
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			'description' => 'An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest  of the world.',
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			'id' => '341',
			'article_category_id' => '40',
			'title' => '‘Aid For Trade Can Do Nothing About Our Governance Problem’',
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			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" height="226" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/ratnakar.jpg" vspace="2" width="200" />Ratnakar Adhikari</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">General Secretary </span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">South Asia Watch on Trade, Economics and Environment (SAWTEE)</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to &nbsp;inefficient industries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The trade policy of Nepal is more liberal than some other developing countries. Why then has trade failed to contribute to our national economy and development?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Having a liberal trade policy alone is not sufficient to increase export potential. Second, Nepal is still not more liberal than Sri Lanka and Bangladesh. Other countries have become more liberal, not only in terms of tariff and non tariff barriers but also in terms of trade to GDP ratio. If you see that the trade to GDP ratio is increasing, you can conclude that the country is more integrated into the global market. Theoretically, we have to be in a position to gain because we are liberalised. That is the classical theory of anti-export bias produced by Bhagwati and Kreuger in 1978. They say that if you protect your domestic industry, you will be raising the barrier for export because protection of domestic industry through tariff will in a way raise the price of import which will be used in the export processing sector. Eventually, your export will suffer. However, theories apart, in today’s world, having a liberal economy is no guarantee that you will be able to export too. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There is a heated debate under the Doha Round between the developed and developing countries. How justified are the arguments of the developing countries?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Agriculture is our livelihood and we should be in a position to protect our agriculture sector when required. The special safeguard measures proposed by the developing countries are useful. If you open up the entire agriculture sector in which the protection is already lower compared to industrial products, there could be other problems like food security, livelihood, social tension and others. In agriculture, I fully agree with the position of the developing countries. In terms of industrial products, most of the developing countries which are liberal today and most of the OECD or developed countries had protected their industrial sector during their respective process of economic transformation. So, it is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to inefficient industries. You have to allow a certain degree of competitive atmosphere. If you think that they will be able to do better in the long run, then you have to provide protection for a limited period of time.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">On non tariff barriers, there are two things that we have to understand. The first is that certain non tariff barriers are related to environment, consumer preferences and health and safety of the consumers. Such conditions on the basis of scientific evidence are imposed in the form of non-tariff measures. For example, if Aflatoxin causes cancer and we export certain agricultural products containing Aflatoxin which is at a level higher than globally accepted, then our product gets rejected. It’s not the fault of the importing country. We have to be able to improve our infrastructure, laboratory system, human resources and legislative arrangements in order to be able to fulfil the requirements. But there are certain non-tariff barriers which are protectionist in nature. We oppose these protectionist barriers. In terms of services, the developing countries are demanding the liberalisation of labour movement from one country to another. It has been proved that three per cent increase in labour force from the developing countries would result in global welfare gain of 300 billion dollars. This is something that needs to be pondered upon.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Finally, on trade remedy measures, developing countries do not have a serious position except saying that the developed countries are using trade remedy measures as a protectionist device. That may not necessarily be the case. So, on the whole, their position in the Doha Round is quite justified given the socio, economic and political situation of these countries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs find it difficult to implement some of their WTO commitments. How would ‘Aid for Trade’ help to implement such commitments?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Aid for Trade (AFT) does provide necessary help to the developing countries and LDCs to implement some of the WTO commitments including drafting of legislations, preparing of regulations and putting in place the institutional mechanism that are required to take advantage of the export opportunities offered by the WTO.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can ‘Aid for Trade’ help overcome supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Supply side constraints need to be divided into two different categories. One is supply- side constraints that results from our fluid political situation. The strikes and various political demonstrations make us unable to ship our goods on time. AFT cannot do anything about this. Then, there are supply side constraints that are resulting from our lack of resources or our inability to utilise resources properly in certain areas like infrastructure, development of roads, transportation, electricity and skills. People do not have the necessary skills to produce goods in a competitive manner. We have customs infrastructure which does not even measure up to regional standards. That needs to be improved. Besides, we do not use the required technology to be more productive and competitive in the international market. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Some people interpret ‘Aid for Trade’ as the same money from the same window as human rights aid. What is your take on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">That is not true. AFT includes only six components. The first is the economic infrastructure which is the money provided for road, electricity, and communication. The second category is the money provided for building productive capacity in agriculture, industries and services sectors. The third is a trade development category which is basically the money provided for export promotion and development of trade. The fourth category is trade policy and regulations for helping countries to implement their WTO commitments, including enactment of legislations and capacity building of various institutions in the country. The fifth one is called trade related adjustment which is basically the money provided to countries to implement trade liberalisation measures and protect the country from negative affects of trade liberalisation. It involves retraining people who lose their job because of trade liberalisation and finding alternative employment opportunities for them. The sixth category is ‘others’. Others could be anything if the donors and recipients agree to call a particular aid as AFT. The other way of looking at this is: AFT is Overseas Development Assistance (ODA) minus the money provided for various areas, for example, health, education, environmental conservation, human rights, women empowerment and peace and conflict. Human Rights is of course a separate area altogether.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you think ‘Aid for Trade’ will succeed in Nepal as many other aid programmes have failed to generate the desired output?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">There is no evidence to say that aid has not helped Nepal’s economic growth. The opinion is divided here. As a researcher, I would be reluctant to say that aid hasn’t helped. At the same time, I wouldn’t vouch that foreign aid has helped tremendously. However, it has certainly helped in meeting the saving and investment gap. If the foreign aid was not provided in some areas, for example, the health sector, it is difficult to say whether we would be able to do something. In the case of AFT, I am not very excited. If there is real additional money coming as AFT, that would definitely be helpful, but not if it is repackaging of money diverted from other areas. Next, it has to be predictable. If certain donor countries are going to provide certain amount of money, they have to guarantee the fund for a multi-year period.&nbsp;It is also the issue of sustainability which is not only about donors providing money on time. It should be taken into account whether the government is ready to take charge of the projects once the donor funding ceases. If a donor provides money for three years, you can’t ask the donor to provide money for the entire period of the project even if the results are good. If you can operate the project on a commercial basis, the private sector will take over. If you are not working on the commercial basis, then government should step in and provide sustainability to the project. The final issue is the effectiveness of the aid. The Paris declaration of aid effectiveness should be the guiding principles for enhancing the effectiveness of AFT. These criteria would actually determine the success of the project. If these criteria are met, the chances of AFT working for the country are fairly good. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts say we lack basic trade infrastructure. What kind of problems and challenges do you see that hinder Nepal’s sustainable trade development? What should be done?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Basic infrastructure is necessary for the country to be able to expand its export on a sustainable basis. A study shows that if a shipment is delayed by one day because of lousy infrastructure, it is equivalent to adding 0.8 per cent to the total tariff that you pay to the importing country. Another study says that if export is delayed by one day, the total export potential will be reduced by one per cent. Infrastructure should be the number one priority for Nepal to be able to trade on a sustainable basis. AFT is not going to be enough because we have our own governance problems to tackle. Governance issue is equally important. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts opine that international community should not only provide market access but also help LDCs in enhancing their trade capacity. If everything is to be done by other countries, what should LDCs like Nepal prioritise in their agenda?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal should fully mainstream trade in national development strategy first. In the new Plan document that is going to be prepared, it has to be included. Apart from that, mainstreaming has to be done at the sectoral level too. For example, if tea export is to be increased, then its priority has to be mainstreamed not only at the level of the Ministry of Industry but also at the Ministry of Agriculture which is responsible for promotion and growth of tea. So, all these ministries and sectors have to take into account the fact that mainstreaming is vital. The second issue is that we have to address supply-side constraints through effective governance reform as well as utilisation of AFT. But there are two aspects we have to ensure ourselves besides the sustainability issue. First, we have to improve our absorptive capacity. The government is unable to even spend the budget amount that has been allocated. How would it spend the money allocated by an external agency? However, we have seen some gradual improvement in our absorbing capacity but it needs to be enhanced further. Another critical issue is that of coordination.&nbsp;There must be coordination on how much money is coming, how it is being utilised and which sector is being prioritised. There has to be a coordination mechanism between the ministries of commerce, industry, tourism, agriculture and other related ministries that have a role in promoting trade so that there is better coordination and effective utilisation of resources.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs are worried that the current intellectual property protection regime does not recognise their contributions. How can countries like ours raise their voice to eliminate the danger of losing patent rights to compete in the international market?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Some of our properties of genetic resources and traditional knowledge are taken away by some multinational companies and universities. But in order to address that kind of problem, we have to keep our house in order. We need to pass the legislation on access and beneficiary by the parliament which is pending for six years now. The draft was prepared in 2004-05 but has not been adopted as a law. We need to ensure this as it will take care of three aspects. First, it will guide us on regulating access to our genetic resources and traditional knowledge. Second, it would make sure that when the access is provided, it is done on the basis of a prior informed consent of the local communities who are involved in conserving those resources. Third, it would ensure that those communities are appropriately remunerated. They would be appropriately remunerated for the job they have done so far to conserve the resources. With that kind of legislation, many countries have protected their bio diversity, genetic resources. It’s our fault that we have failed to follow suit. Global regime is unfair, however, we have not been able to create a mechanism at the local level to counter the unfair tendency of some global rules. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Being an LDC, Nepal enjoys numerous benefits like zero tariff. How should Nepal utilise such concessions to gain optimum benefits?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, we do have zero tariff access in selected markets. The European Union is definitely among them but we don’t have zero tariff access in the US market. The process for the same has begun but it will take a long time before such access is provided. Even if you have zero tariff access, you still have to fulfil the rules of origin (ROO) requirement. Once you fulfil the ROO, you are back to the supply-side issues because you have to create backward linkages. If a shirt has to be exported, it’s better to have the fabric manufactured in Nepal itself rather than relying on countries like China and India for the supply of materials. If we continue to get the materials from these countries, we will not be able to fulfil the ROO criteria. We have the full potential for export In some areas where ROO is not a problem. One such example is coffee which can be exported to European, Japanese or any other market in desired quantity without having to fulfil the ROO criteria because it’s an indigenous product and there could be more than 90 per cent value addition and processing in our country itself. However, we cannot export if we are not able to produce in desired quantity. Apart from production, we also have the problem of competitiveness. Even if our cost of production is lower than other countries in the world, our products will cost more by the time it reaches the final market. Let me give you an example. Imagine a situation in Gulmi where you have to organise a few farmers in the form of cooperatives while trying to export coffee to Japan. You collect 12 tonnes of total consignment and put it on the truck and try to send it. But there is a strike so you are stuck there for two days. Finally, you manage somehow and reach Birgunj customs. In order to clear the export consignment, it takes two days. Once cleared, the consignment moves to Kolkata port. It should normally take a maximum of two days to reach Kolkata port but sometimes it takes six days because there is a strike in Bihar or West Bengal which falls on the way. Once at Kolkata port, the consignment is not enough to reserve the entire ship. Now, it takes four days for the ship to fill up. Eventually, it moves from Kolkata. Kolkata is not a deep sea port but a shallow port so it can’t go directly to Japan. Therefore, the consignment on board the ship travels to Visakhapatnam, Colombo or Singapore. The consignment is transferred to the mother vessel at one of these ports and then it goes to Tokyo. In the process, you lose so much of time that you will not be competitive in the global market. So, it is not only the question of productivity and production, but also the question of being competitive in export trading. </span></div>
<div style="text-align: justify;">
	 </div>',
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			'description' => 'It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to  inefficient industries.',
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		'Article' => array(
			'id' => '272',
			'article_category_id' => '40',
			'title' => 'FISCAL FACE OF NEPAL'S FEDERALISM',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<i><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut  wagle.jpg" style="width: 114px; height: 147px;" vspace="2" />By Achyut Wagle</i></p>
<div style="text-align: justify;">
	Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda. The preamble of the Interim Constitution of Nepal 2007 has baptized the country as the Federal Democratic Republic Nepal. The Article 138 of the same Constitution has provided basis for restructuring the state.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Both, the constitutional and circumstantial yokes now guide Nepal, for better or worse, to perhaps irreversible journey to federalism. But, matter of factly, that is all in theory. Practically, there is a wide political space to be covered between the present unitary state to a judiciously delineated, stable yet functionally acceptable-to-all federal structure of future Nepal. Yet again, the federal Nepal is impossible to imagine without bringing the fiscal frame of federalism into forefront of the state restructuring discourse, which now seems to have obliqued by hyperboles on either side of the political debate.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Despite an euphoria of a sort to resolutely adopt a federal system, the objectives envisaged by the Interim Constitution in this particular regard appear rather slanted. The very concept incorporated in the Article 138 does not accept federalism by-and-large as an economic phenomenon. It proposed to ‘end the disparities’ of various forms, but hardly prescribes modality for prosperity and optimal use and scientific redistribution of resources. The worst proposition in the constitution is: it has authorised the government, not the Constituent Assembly (CA) to constitute the State Restructuring Commission, which is supposed to give impartial technical inputs.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	It is apparent that the federal structure of the nation cannot be finalised without technical report from the Commission, and thus, organising constitution writing process would not <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img.jpg" style="width: 367px; height: 182px;" vspace="2" />complete without the Commission and its inputs. Apart from this, the constitutional provision regarding the Commission gives more ominous than the virtuous signal. The authority given to the government to form this Commission provides an edge to the party in power to make it comfortable to itself and therefore, chances of its report being politically biased remain higher. Why was not the responsibility of constituting such a commission vested to the all powerful CA is a question unanswered so far.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Nevertheless, Nepal has no alternative to writing a new constitution, sooner or later. That new constitutional framework must embrace the federal set of polity and structures. Of all the structures, fiscal federalism will be both – defining and delineating basis of the sub-national administrative units, and also the means to ensuring justifiable (re)distribution of resources, prosperity and welfare. For all these reasons, the fiscal federalism is and should be at the centre, in all discourses related to the federal restructuring of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Essence of Federalism</strong></div>
<div style="text-align: justify;">
	Federalism is unique and in a way paradoxical concept. First, it seeks to consolidate the national unity while creating newer and larger number of sub-national units; ostensibly by divisions. Second, its objective is to recognise the social, linguistic and/or cultural identity without diluting the overall national identity. And, the third, it strives to bring the government nearer to the people that has a better sense of autonomy in deciding their own fate, but without severing its ties and dependence to the farther government – the one at the centre.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For many, federalism is merely an administrative re-mapping of the political geography of the nation. Creation of sub-national structures, that may be called state, province, prefecture or anything of the kind, seems to the prime objective of Nepal’s ongoing debate on federalism. But, how these new structures evolve and exercise the state power – mainly to meet the economic needs of the citizenry – would determine whether any nation is essentially federal or not. Nepal cannot be exception to this fundamental theoretical premise.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The functions, duties and rights of the federal unit are defined by the extent of power a unit can exercise. Its authority depends on the adoption of universally accepted models to extract power from among the – delegation, decentralisation or devolution, or combination of all of these. And, at the heart of all of these lies – the democracy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	There are very large nation-states world over with varying number of sub-regional administrative units. But, in absence of democratic dispensation, right from the grassroots, these units can only exercise very limited state authority delegated or marginally decentralised by the centre. Only power devolved by democratic exercise can only create a federal state, true to its sense.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Fiscal Federalism at the Centre</strong></div>
<div style="text-align: justify;">
	The concept of fiscal federalism, and for all practical purposes, the entire frame of federalism, is generally summed-up in three major</div>
<div style="text-align: justify;">
	<br />
	components – namely the tax-point transfers, equalisation grants and convincingly justifiable distribution of resources mainly the natural resources among the sub-national units. There are other peripheral, operational or fringe issues too. But in effect, the main three would largely incorporate them all. There are also several models of both ‘fiscal’ and ‘general’ federalism. But, they too do not necessarily go beyond these three fundamentals of federalism.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Also, there are views against the perspective of limiting the ‘entire federalism’ to the ‘fiscal alone’ proposition. It is <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover img1.jpg" style="width: 406px; height: 461px;" vspace="2" />more apparent in Nepal’s discourse on federalism. Even the top-hats of major political parties who would be deciding the ultimate frame of Federal Nepal also tend to believe that without specific mention of issues like political inclusion, rights-based access to state and recognition of racial and ethical identities, the very purpose of federalism, at least for them, could be defeated. The level of understanding of our CA members on such technical and essentially academic issues is better not to raise here.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In fact, unlike the popular beliefs, the issues of inclusion and identity are rather purely economic issues. For example, the inclusion is not sought in any abstract issues, it is rather meant to ensure inclusion in employment, benefits and other economic opportunities. Even the preservation of identity either is an economic activity in itself, or it has a cost to develop and preserve the different facets that give an identity to people and communities – like language, scriptures, rituals, customs, traditions and culture.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	These realities make it imperative that Nepal’s discourse on federalism needs an immediate and meaningful re-orientation, so as keeping the fiscal federalism at the centre of all exercises aimed at state restructuring. And, highly extensive technical and factual details and their analyses would require deciding on the size and the borders of new sub-national states. Nepal does not seem to have even initiated the process of those financial and other statistical number crunching, so far. Therefore, the claims that constitution could be written within a month ‘if’ the parties agrees are unrealistic platitudes. Expert believe that it would take at least six months of rigorous effort for a highly competent professional team to finalise the issues related to fiscal federalism – i.e. tax, distribution of natural resources and, of course, demography and geography.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In the hindsight, this is also an indication that it is impossible to complete the constitution writing by the stipulated deadline of 27 March 2011. Also, political campaigning to create new states on the basis of caste, community or even some extreme demands like ‘One Terai, One Province’ do not present potentiality for financially viable provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Technical Considerations</strong></div>
<div style="text-align: justify;">
	Financially justifiable and economically functional sub-national delineation is going to be perhaps the most challenging aspect to give Nepal a federal shape. All three major aspects – tax point transfers, equalisation grant and distribution of natural resources among the provinces – involve larger number of murkier issues than the easier ones.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Apart from these, several other components of fiscal relations between the central and sub-national governments, financial management and its processes within the state must also be decided to effectively devolve power to the people at the grassroots. Such issues may relate, but not limited to planning, economic diplomacy, money market and specialised institutions for both fiscal and financial architecture. Given Nepal’s poor governance and slanted nature of understanding about fiscal federalism even at the top-rung of political leadership, the country seems to be making ommitive than spontaneous jump to fiscal federal structure. These are some of the reasons why these issues deserve more <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img2.jpg" style="width: 342px; height: 158px;" vspace="2" />meaningful discussion, before the country could decide on the actual frame of federalism, essentially the fiscal federalism.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Tax Point Transfers</strong></div>
<div style="text-align: justify;">
	One of the key components of federalism is the decision on the jurisdiction of major tax collection points, i.e. which sub-national government will administer or operate a particular tax point, the types of taxes a province would collect and how the collected revenue would be distributed between the centre and the state, and, sometimes among the states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In case of Nepal, the decision on the jurisdiction of tax points could face double pronged problem. First, only six customs points collect over 90 per cent of the customs revenue <i>(Table 1)</i>. And, the amount of collection at only the points that lie in two zones – Bagmati and Narayani of the Central Region, account for well above sixty per cent. The customs revenue generally accounts for 25.3 per cent of the total revenue.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Similarly, the revenue contribution of four districts is above 80 per cent and this reaches to 94 per cent if added another four districts.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	This situation does not only present high tax concentration in the Kathmandu Valley and the central region but also poses a serious challenge to divide the provinces so as each of them can have reasonably attractive tax collection points within their territory. It also indicates to the reality that despite adoption of federal structure, the financial dependence of the provinces could yet remain with Kathmandu. And, even worse, this economic factor cannot be drastically altered soon by a mere political decision.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In addition to deciding on the tax point jurisdiction, decision on the kind of taxes that provinces can impose and the taxes that would directly go to central accounts is also going to be a difficult one. Generally, property and service taxes are levied by the local bodies, sales and value added taxes go to the provincial government and customs and income taxes go to the central government accounts. This assumption appears suitable in the case of Nepal too, as our vertical administration is accordingly stratified in three tiers.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Equalisation Grants</strong></div>
<div style="text-align: justify;">
	Despite tall asks of autonomous and semi-autonomous provinces on different bases, the fiscal and financial fundamentals do not support the possibility of creating such states. The basis of autonomy is the abundance of physical and financial resources available within any given political unit. As evident in the tax collection patterns, the revenue resource does not support such an ‘autonomous state’ except the one created at the centre, incorporating Kathmandu.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Until the state-to-be-created in the federal set-up are capable of mobilising their own resources, the equalisation grant, the money given by the centre, will be the most dependable source to finance the development and public delivery of goods in the provinces. Even on this count, our debate on federalism seems unduly titled to political considerations alone. In the most ideal cases of revenue and grant sources of funds, dependence to centre remains pretty high. For example, the provinces of Switzerland are entitled to keep 50 per cent of the revenue collected and Canadian ones can hold up 47 per cent of it. These are the highest rates of centre-province revenue sharing the world over. In this light, the ‘autonomous’ state advocated in Nepal appears pure farce.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	But, in our case, the ‘sustainability’ or ‘survival’ side of the new states has never been debated thoroughly as the issue deserved. There are also demands of creating separate provinces like ‘Karnali’. One could easily imagine the level of would-be financial dependence of such states to the centre. Such scenario implicitly infer that centre must once again remain strong as it will have to continuously dole out money to so called autonomous provinces, and, it in turn, has to be strong in effect to gather enough amount of resources to be able to meet the needs of all these new ‘baby’ states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Natural Resources</strong></div>
<div style="text-align: justify;">
	The distribution of natural resources among the new provinces is another difficult and unavoidable task on effecting federalism. There are several examples of serious disputes between the provinces regarding the rights to use such resources. The Kaveri and Narmada river disputes in India are classic examples to it.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In Nepal, water, forest, mines and minerals and land (mainly cultivable) are considered major natural resources.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For us, one advantage of this resource vis-a-vis federal imperatives is that, it is fairly evenly distributed given that we agree to justifiably allocate them to generally acceptable size and number of states; say five to nine.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Recently, some campaigns misinterpreting the international instruments like ILO Article 169 have compounded the problem. But, lately the people involved in the indigenous rights movements themselves are becoming somehow disillusioned to deliberate misleading campaigns of yesteryears. However, natural resources will still remain a major basis of re-delineation and the process will surely be difficult.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Other Issues</strong></div>
<div style="text-align: justify;">
	There are several other issues which have to come to the forefront in the discourse on federalism. They include, whether a province should have authority to carry its own economic diplomacy to accept or endow financial assistance from and to international community; whether it can have its own finance bill; or would it have own supervisory and regulatory authorities independent of central oversight or would they just function as extended line agencies, etc. Equally complex is the issue of large infrastructure projects, their management, ownership and return – if any.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Unfortunately, Nepal as the country as a whole, and CA in particular as the only responsible constitutional organ to debate all these provisions to include in the new constitution, have remained far short of initiating meaningful deliberations. Whatsoever, Nepal in executing the federal structure must ensure unfringeable private property rights universally in all the states, freedom to movement of products and services as well as people, unhindered trade and business transactions between the states and uniform (underently different) tax structure, among others. n</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Article 138 of the Interim Constitution</div>
<div style="text-align: justify;">
	138. <b>Progressive restructuring of the State: </b></div>
<div style="text-align: justify;">
	(1) <span>&nbsp;&nbsp; There shall be made progressive restructuring of the State with inclusive, democratic federal system of governance, by doing away with the centralized and unitary structure of the State so as to end discriminations based on class, caste, language, gender, culture, religion and region.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(1a)&nbsp;Recognizing the desire of the indigenous peoples and of the people of backward and other area including Madhesi people towards autonomous provinces Nepal shall be a federal democratic republican state. Provinces shall be autonomous and vested with full authority. The boundaries, number, names and structures, as well as full details of the lists, of autonomous provinces and the center and allocation of means, resources and powers shall be determined by the Constituent Assembly, while maintaining the sovereignty, unity and integrity of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(2) &nbsp;There shall be constituted a high level commission to make suggestions on the restructuring of the State as referred to in Clauses (1) and (1a)&nbsp;The composition, function, duty, power and condition of service of such commission shall be as determined by the Government of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(3) <span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The final settlement on the matters relating to the restructuring of the State and the form of federal system of governance shall be as determined by the Constituent Assembly.</span></div>',
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			'description' => 'Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda.',
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			'id' => '271',
			'article_category_id' => '40',
			'title' => 'Bases For Fiscal Federalism',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-align: justify;">
	The following article represents Dr Devendra Raj Panday’s research-based paper presented at a symposium titled “Fiscal Federalism in Nepal” in August 2009 in Kathmandu. The extract is printed here with his consent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The studies on fiscal and financial federalism concentrate on how financial and monetary institutions’ functions might be arranged and a mechanism for coherent policy making and monitoring established for the state to produce expected outputs. It involves the assigning of spending, taxing and borrowing powers between the centre and the other tiers of government and the focus of responsibility and accountability in fiscal management. In many ways, it is an act of political decision and bargaining – in the course of finalising the constitution and making yearly decisions especially on taxation, revenue sharing and allocation of grants by the centre for various purposes. In all this, efficiency and equity, often in conflict with each other, become issues of major concern. In order to do the needful, the national economy has to run efficiently, produce growth and provide stability that is necessary for broader development. At the same time, the aggregate growth must not create or sustain imbalances, vertically and horizontally. It means that further continuation of centre within the periphery syndromes in governance is not acceptable from both economic and political standpoints. The discrepancies in economic and social status of various regional or provincial economies must be narrowed down with the ‘marginal benefits’ of growth going disproportionately to the disadvantaged and economically and socially excluded people across the country. There are several ways in which fiscal efficiency balanced well with equity considerations can be pursued.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	First, allowing ‘independent fiscal regime’ for the provinces should not dilute the common market character of the federation. Simultaneously, it should also be kept in mind that the free flow of goods and services and investment across the provinces can result in favour of better-equipped regions that may already be relatively better off than others. In theory, there should be economic convergence of different regions under free trade with the mobility of factors as well as goods and services. But we know from Nepal’s experience as a player in the international economy as to how difficult it is for a least developed country (or a region within a country) to compete with better endowed, resourceful and experienced economies. Less developed provinces in the federation deserve the same treatment politically, economically and morally as historically, Nepal as a least developed nation has demanded internationally, including in SAARC mechanisms.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Second, there has to be an understanding and a political consensus on the degree of competition and the spirit of cooperation to be pursued among the constituent units of the federation. The neo-liberal economic approaches sometimes display contradictory positions in this respect. On the one hand, there is the market preservation argument which expects the federation to work in harmony and have the states produce and trade goods without any barriers that would endanger the national market’s efficient working. On the other, there is a view that there should be constitutional guarantees against regulating inter-state flow of goods and services, to perhaps avoid the kind of situation in India where there is no harmony in some taxes levied in the states and on their policies concerning inter-state movement of goods and services. Meanwhile, the liberal ideology also illustrates the idea of ‘competitive governments’ and argues that the states must compete with one another in providing incentives to attract mobile capital and other factors into their territory to punish the laggards. The preference for competitive federalism where the states may compete among themselves to maximise their own welfare at the cost of other provinces may reflect the ‘beggar thy neighbour’ strategy of yesteryears. This is a critical point since, like in the overall design of economic liberalisation, only the relatively prosperous states would benefit from competitive economic and fiscal policies. In post-1990 India where the states are encouraged to compete with each other for attracting investments into their territory, some states have done well, but at the cost of growing inter-state disparities and regional imbalances. Nepal can ill afford a similar practice. It would also run counter to the social objective of federalism which is to reduce disparities and imbalances, not to increase them. Once again, purposeful pragmatism calls for an approach that would optimise people’s welfare at the provincial and local levels and encourage entrepreneurship and investment all around without the states jeopardising each other’s interests and the overall interest of the national economy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Third, in the practical task of expenditure and revenue assignment, efficiency consideration is implicit in the widely held opinion that before considering taxation, assignment of expenditures among different tiers of government should be taken care of. The idea in this ‘money to follow work’ principle is that taxation and borrowing powers of the states and assumedly, the centre’s should not be independent of specific obligations they undertake for discharging public functions and the volume of expenditures required for that purpose. The idea is to ensure that all states are empowered to provide comparable public services regardless of their revenue capacities. Beyond this, the expenditure assignment is expected to be guided by economic considerations whereby the central as well as provincial and local governments provide services whose benefits accrue to the residents within its jurisdiction and where the costs of the provisions incurred can be internalised within that jurisdiction. To put it simply, the responsibility for the provision – where the benefits from a given service are distributed nation-wide such as the country’s defence, the Supreme Court or the national highway system – lies with the centre. If the benefit incidence of a given service is limited to primary and secondary education or water supply and sanitation, the provision is best readied by provincial and local governments. The opportunity to save on transaction costs and the possibility of harnessing the economy of scale in fiscal operations are associated elements of the process.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fourth, in a developing country where both the expectations and the requirements of the people are high, assigning expenditures for the centre and the constituent states does not only mean slicing the existing budget into central and provincial items of expenditure and dividing tax revenue accordingly. It also means taking into account the responsibilities to deliver services that the people could not have earlier. It also means undertaking various development works for generating social goods that can be provided or ensured to finance them. The challenge will arise from policy matters and in the pursuit of related priorities. For agriculture, education and health among others, the centre may wish to promote certain norms and targets considered desirable from the national viewpoint. The states in charge of these assignments can have different ideas especially if the same political party or the coalition of parties is not in charge at the centre and specific states. The centre will have other concerns including those that are part of its international commitments. Such commitments can be about trade and environment as they can be about national and international human rights standards concerning the status of women, children, indigenous people etc. And there are commitments about Millennium Development Goals (MDGs) with further complications arising from the possibility that many of the related functions will come under the purview of provincial governments. Consequently, expenditure assignment also becomes responsibility and accountability assignment against which the availability of matching revenue needs to be guaranteed. The centre has an obligation to address these issues as it negotiates the tax sharing arrangements and, particularly, the conditional and unconditional grants’ transfers from the centre to the provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fifth, there are four areas of concern that should guide the process on taxation. One, every jurisdiction needs adequate tax revenue to finance the assigned and necessary expenditures. To make up for the shortfall in one jurisdiction, the better endowed among others should have the incentive to engage in revenue sharing. Two, efficiency consideration will be as important in the assignment of taxing power as in spending, more so due to its direct impact on the working of the common market. The incentives and disincentives in the tax structure on a given jurisdiction, especially for the mobile factors and the consumers of public services are critical. Taxation assignment requires appropriate study of tax bases, possible overlapping of incidence, the spill-over effects and the population that stands to benefit from the spending facilitated by such taxes. Three, the distribution of taxing authority among the different tiers of government has a significant bearing on equity. The residence based taxes on income and property may be appropriate for the provincial and local governments, but any tax with significant redistributive power, such as progressive income tax becomes suitable only for the national government to enforce national priorities on equity and broader development. Four, administrative efficiency including transaction cost considerations will also guide the assignment of taxing power. On this basis, some taxes become suitable even for sub-provincial or local governments for eventual sharing vertically where local conditions and administrative set up can help administer it better.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Sixth, apart from the question of specific taxes to be assigned to the centre and the provinces, a decision about the collecting agency is also important. Some taxes available for meeting public expenditures may be collected and used by only one jurisdiction. One such example could be the property tax levied and collected by local governments. Such tax base can also be shared between the local and provincial governments. Some taxes may be collected in one jurisdiction and used by all. For example, income tax can be collected by the centre and shared with others. In all these cases, the tax base, its incidence and the administrative cost of collection will be important considerations. From a political perspective, the perceived or pursued autonomy of the provinces vis-a-vis the centre will play its part. There is a potential conflict in the way one asserts ‘states power’ and the compromises needed in the interest of efficiency as well as equity in the interest of national bonding.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Seventh, as in Nepal’s case of federalism by ‘devolution’ and not ‘aggregation’, the central government retains its basic strength and power which applies to fiscal arrangements too. The centre must have absolute power to collect taxes from the domains of individual provinces and use the funds collected to meet expenditures it deems important across the country. In almost all the important federal countries, the share of the central government in total public revenue (collected by the centre, the provinces and the local governments) is above 50 per cent. In Nepal, the economic reality – the likely wide variations in the economic status and revenue bases of different regions and the social imperative of redistribution – will undoubtedly vest the centre with considerable authority and responsibility in this respect.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Finally, besides redistribution, it is critical that the central government be adequately empowered to undertake stabilisation functions, on the one hand, and monitor the economic and distribution effects of inter-jurisdiction competition, on the other. It is prudent and practical to let the centre have exclusive authority over stabilisation function and use its power of the purse in a way where the provincial governments have an incentive to follow the national priorities even as they are bound to come into conflict with priorities established by them in their provincial interests.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<i>(Dr Panday retired from government service as Secretary of Finance and became the Finance Minister in the first government formed after the restoration of democracy in 1991.)</i></div>',
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	(int) 14 => array(
		'Article' => array(
			'id' => '270',
			'article_category_id' => '40',
			'title' => '‘We Need A Strong Central Government With Fiscal Redistribution Power’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-align: justify;">
	<b><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/Dr Ram Sharan Mahat.jpg" style="width: 192px; height: 217px;" vspace="2" />Dr Ram Sharan Mahat</b></div>
<div style="text-align: justify;">
	Former Finance Minister</div>
<div style="text-align: justify;">
	The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How would mobilisation of resources take place under the federal structure?</strong></div>
<div style="text-align: justify;">
	Mobilisation of resources is imperative to run the government irrespective of whether there is a federal structure or not. Under the federal structure, there will be governments both at the central and provincial levels. Therefore, resources will be mobilised at both ends. Apart from the revenue sources under their respective jurisdictions listed in the constitution, there will be a concurrent list of revenue sources imposed at both levels. In federal countries, the centre as well as the provinces impose taxes and duties such as income tax and excise duty which raises the burden on the taxpayers. Duties are normally collected by the centre at a single point for administrative convenience but shared at both levels. In addition to the central tax, the provinces piggyback to a certain extent, however, remaining within limits defined by the respective framework legislation. For example, if the central income tax is 25 per cent, the province may add another 5 per cent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The source of revenue in Nepal at present are centralised in a few districts. Under such situation, how can fiscal balance be maintained when Nepal becomes federal?</strong></div>
<div style="text-align: justify;">
	This is definitely a big challenge. The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run. People think that once they have a separate province, they will have all the autonomy and freedom. But if the province has no resource of its own and depends on the central allocation even for day-to-day administration, the autonomy has no meaning. Therefore, one has to be very careful while carving out the provinces. The decision should also be based on long term viability and economic sustainability of the regions, in addition to other considerations. Unfortunately, at present the most vocal demand relates to provinces based on ethnicities.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you see the danger of regional disparity due to unequal distribution of resources and sources of revenue?</strong></div>
<div style="text-align: justify;">
	The common fallacy among the ardent federalists in Nepal is that regional disparity will be narrowed and poverty banished once there is a federal structure. This is wrong. Resources and development potential are unequally distributed and so are the revenue sources. Competition among provinces with differing resource endowments could accentuate regional disparities instead of narrowing down unless there is intervention from the centre. For this, the centre must be strong with redistributive power. In the USA, there are serious regional disparities. West Virginia’s per capita income is less than half of Connecticut’s. In India, Haryana’s per capita income compared to UP and Bihar is three to five times higher. Please note that India is not the perfect example of a federal structure. India, at best, can be regarded as a quasi federation with a strong centre. So, this situation in India is despite central intervention.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What should federal Nepal’s fiscal policy focus on to ensure appropriate and equal distribution of resources among the provinces?</strong></div>
<div style="text-align: justify;">
	There is no alternative to a strong central government with fiscal redistribution power to ensure equity and economic justice. All provinces should have uniform access to basic services like education, health, electricity, roads and other socio-economic services. For this to happen, poorer provinces will need central support through a mechanism called Equalization Fund. A fiscal mechanism to ensure transfer of resources from rich to poor provinces is necessary. It is precisely for this and other reasons that revenue from major sources like customs, income tax, and partially VAT and excise must go to the centre. If you look at Nepal’s case at present, these sources practically yield no revenue. If they are brought under provincial jurisdiction, most federal units will have no income at all.&nbsp;</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t there been a meaningful debate on state restructuring and the form of federal system?</strong></div>
<p style="text-align: justify;">
	It is not that there are no debates taking place. But generally speaking, the focus has largely been on ethnic lines rather than on long term sustainability and from development perspective. Most people have a vague idea about federalism and what it will deliver. State restructuring is not just about the country’s division into federal units. It is more than that – such as ensuring people’s empowerment at the basic level. Democracy is after all the empowerment of individuals, beyond communities and societies. It could be ensured with strong decentralisation but there has hardly been any debate on that.</p>',
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			'description' => 'he provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces.',
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			'id' => '378',
			'article_category_id' => '40',
			'title' => 'Downtown Housing Company(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<span style="font-size: 10pt;">D</span><span style="font-size: 9.5pt;">owntown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has provided products and services to accommodate the urban middle class by developing high-quality residential properties. Today, Downtown Housing Company is one of the most respected and diversified service firms available with dedicated people who serve a growing client base that reaches far and beyond.</span></p>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Downtown Housing manages the process from conception through completion - an approach that has been perfected over time to exceed the clients’ expectations. Downtown proactively works to ensure every property as once-in-a-lifetime investment opportunity for its clients, giving it the special care and attention to detail that enhances value for living within.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">City View provides clients with the kind of peace and tranquillity they want. Only 38 exclusive apartments (including 2. duplex pent houses) have been built here, with rich and stylish complex.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	 </div>
<div style="margin: 0in 0in 5.65pt; text-align: center;">
	<span style="font-size: 15.5pt;">Guna Colony </span></div>
<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 11pt; letter-spacing: -0.2pt;">E</span><span style="letter-spacing: -0.2pt;">stablished in 1998, Guna Colony Pvt Ltd is a large and reputable company involved in property development. It has already completed properties like Stupa Housing in Sinamangal, Stupa Colony in Buddhanagar, Reliable Colony in Bhainsepati and LP Apartment in Lazimpat. New projects such as Bhainsepati Apartments, BN Apartment and GN Apartments in Gwarko have already been launched.</span></div>',
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			'description' => 'Downtown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has.........',
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			'title' => 'Housing In BirgunjSlow Growth, High Hopes(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 14px;"><strong><i>By Bimmi Sharma</i></strong></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">H</span><span style="font-size: 9.5pt;">ousing business may be mushrooming in the Kathmandu Valley. But the story is different in Birgunj. People with diffent backgrounds find it quite normal to live in separate flats and apartments within the same building in the capital city.&nbsp;But such concept of community living hasn’t gone down well with Birgunj locals. They still prefer to stay separate from people of other religion, caste or culture. It is this mindset that is the major impediment for a flourishing housing industry in the city, lament housing entrepreneurs. They complain of having a difficult time implementing the idea of community housing that was first conceptualised here 14 years ago. So far, all Birgunj could manage are three apartment complexes and a fourth one under construction. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nanakchand Ashwani and Shyam Rungta were the first ones to enter the housing business here. They have built two apartment complexes - ‘Ganesh’ and ‘Lakshmi’. These two five-storied apartment complexes have a total of 40 units. The flats at Ganesh were priced at Rs. 900,000 and at Laxmi at Rs 1.35 million per unit. However, these flats remained unsold for a long time. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Eight years after these attempts, Triveni Group constructed a 10-storied apartment complex ‘Triveni Gopal’ in Birta area of Birgunj. Built at a cost of Rs 50 million by Birendra Sanghai of the Triveni Group, the complex has 72 units in total. Sajjan Kumar Chimariya, the manager of the complex says, “Apartment culture is yet to pick up in Birgunj because people are more comfortable with the idea of building houses on their own land and to enjoy complete ownership.” He adds that the project barely managed to recover the investment and did not yield any profit whatsoever. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite the apartments having all facilities including electricity, water, garden, park and security, people find these rather expensive and inconvenient. Out of the 72 flats in ‘Triveni Gopal’, 50 are occupied while the owners of the rest 22 units haven’t started residing here. They rather want to sell their properties. “The country’s volatile situation is primarily responsible for the lukewarm response towards housing in Birgunj,” says Chimariya. He adds, “There is no future for housing business in Birgunj. It’s advisable that the new entrants don’t enter the market here.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">‘Prasanna Apartments’ which came into being a year ago has started getting residents moving in already. Tara Shumsher Rana, a Director of ‘Prasanna’ apartments opines, “The housing business is experiencing a low right now but it has a good future in Birgunj due to the impending development of infrastructure in and around this city.” The construction of Nijgadh International Airport close to Birgunj, Kathmandu-Nijgadh Fast Track Road, Integrated Customs Checkpoint, Birgunj-Thori Road, Birgunj University and a well developed agriculture market are bound to make Birgunj a more attractive place to live. These developments will have a positive impact on the housing industry, opines Rana. His company Prasanna Constructions is in the business of constructing buildings for its clients for 25 years now. Built at an investment of Rs 50 million, ‘Prasanna Apartments’ has 20 flats altogether and costs anything between Rs 3.2-4 million. Of the 20 flats, only thee are remaining to be sold, Rana informs. “Though the present situation is not conducive, once there is political stability and economic progress begins, housing business in Birgunj will definitely flourish,” Rana says optimistically. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle; text-align: justify;">
	<span style="font-size: 9.5pt;">Ashok Kumar Baid, an industrialist who owns Shalimar Cement has joined the housing business and plans to build ‘Kamdhenu Apartment Homes’ using the ‘Kamadhenu’ brand under franchise from the Indian owner of the brand. To be constructed at an investment of Rs 800 million, this 12-storied apartment with 134 units will be ready for occupancy in two years’ time. Each flat in this ‘first apartment complex of international standard in Birgunj’, as the developer calls it, will cost Rs 7-8 million. “Interested buyers will need to pay 20 per cent of the total amount upfront. The facilities include swimming pool, health club, gym, park, garden and provision store,” says Baid. He says he is confident of selling all the units of his project which will come up at Ward 13, Adarshanagar in Birgunj. Like Rana, Baid too is optimistic that housing industry in Birgunj will grow as various developments are taking place in and around Birgunj. He says, “Birgunj is a leading business destination and the development projects being implemented in and around here will definitely benefit the housing industry as well as other businesses.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">‘Kamdhenu Apartment Homes’ will be the fourth apartment complex in Birgunj. The previous three apartment houses have a collecgive investment of Rs 150 million. When the investment proposed for Kamadhenu and some other projects that are in the pipeline are added up, the total investment goes up to Rs. 1 billion. Ashok Kumar Temani, the President of Birgunj Chamber of Commerce and Industry is upbeat about the business potential of apartment complexes. “In the future, Birgunj will be like Shanghai or Mumbai. Once the projects which are being constructed at break-neck speed are completed, we will see skilled workers flocking to this city for work,” Temani predicts. He continues, “These people’s housing requirements ensure a bright future for the housing industry here.” </span></p>',
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		'Article' => array(
			'id' => '376',
			'article_category_id' => '40',
			'title' => 'Growing Housingin Pokhara(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 12px;"><i>Text and photos: Deepak K Shrestha</i></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">With increasing urbanisation and modernisation, the housing industry in Pokhara is gaining momentum though not as fast as in Kathmandu. Along with tourism, education and the health sector, housing is fast becoming an attractive investment prospect for investors here. In terms of population growth and migration, Pokhara is second only to Kathmandu. However, the community housing business has not grown in the same proportion. Entrepreneurs believe that since it is a new concept, people will take time to get attracted to this concept. However, it is already a seven-year-old industry in Pokhara, with two companies already in it while other two are preparing to enter the fray.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Annapurna Developers Pvt Ltd (with the brand name ‘Fishtail Residency’) and Pokhara Homes Pvt Ltd have started operations already in Gharipatan of Pokhara Sub Metropolitan City. These companies claim to provide facilities at par with the housing complexes in Kathmandu such as good roads, water and power availability as well as health club. This has attracted buyers who have the means and desire to live in such housing complexes. Besides these, Road Show Real Estate Pvt Ltd and Gandaki Real Estate Pvt Ltd have entered this business recently. While the Road show has its project at a location called ‘Deep’ that is in the Ward No 16 of Pokhara Sub-Metropolitan City, Gandaki has its project at Lekhnath Municipality under the brand name ‘Lekhnath Dream Colony’.&nbsp;Investors claim that the consumers have shown significant interest lately for buying such property.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While renowned contractor and industrialist Surya Bahadur KC is the investor for Pokhara Homes Pvt Ltd, Dhruba Kumar Shrestha, Kalu Gurung and Bindu Kumar Thapa are the investors in Fishtail Residency, Road Show and Gandaki Housing respectively.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Pokhara Homes started building houses on 70 ropanis of land about seven years ago but faced adversity for the first few years. Tej Baniya, the Operations Manager of the company said, “We started doing good business only about three-four years ago.” A total of 54 houses were built under phase-I out of which 52 have been sold already. “We are starting phase-II in the next six months which will have 32 units,” Baniya informs. The company sells two-and-a-half-storied bungalows, complete with five bedrooms, built on 8-10 annas of land. Baniya claims that each house costs Rs 9-9.5 million just for the construction. He further says that the mere announcement of phase-II has attracted 17 bookings already. Pokhara Homes is also constructing 20 colonies and 14 separate houses near Chorsanghu in Pokhara. The houses and apartments in this area will be less expensive than the ones in Gharipatan.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">All housing companies in Pokhara are conducting business with prior approval from the authorities concerned – i.e. municipality and Pokhara Valley Town Development Committee. “Due to close proximity of Gharipatan area to the airport, we are not allowed to construct buildings higher than two-and-a-half-stories,” says Bhupendra Shrestha, the Marketing Director of Fishtail Residency. The company which started work about four years ago on 21 ropanis of land has already sold 40 of the total 66 units constructed. The buyers have already started residing in 30 of these units, each one a two-and-a-half-storied, four-bedroom bungalow costing over Rs 10 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Gandaki Real Estate Pvt Ltd that was primarily dealing in real estate holdings thus far has started constructing housing units on 81 ropanis of land in Talchowk of Lekhnath-8. The company has a target of building 30 units within a year, each unit occupying 5.5-8 annas land and priced between Rs 9 and 15 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Suman Kumar Gurung, the Pokhara Branch Manager of Road Show Real Estate said that a total of 108 units will be constructed in Deep of Pokhara-16. The units built on 5-9 annas are targeted at the upper and middle class consumers. The housing complex will have kindergarten, tennis court, swimming pool, cable television, telephone and power generator among other facilities. </span></div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">The stakeholders of Pokhara’s housing industry include locals as well as the rich from the capital. Nepal Army’s retired general Pyar Jung Thapa and Galaxy School’s founder Gita Rana have already bought properties in the city. Besides the established businessmen, the newly rich people as well as&nbsp;retired soldiers of foreign armies have shown tremendous interest in Pokhara’s community housing units. Gurung says, “Peaceful environment, security and a modern lifestyle is attracting retired professionals immensely.” He adds that the housing industry in Pokhara has a great future because the very name of the city rings a bell in people’s ears since it is considered ‘heaven on earth’. Political instability, the Central Bank’s endless directives and lack of investment climate have affected the housing sector as well. But the housing entrepreneurs remain optimistic that the flourishing housing business outside the Kathmandu Valley will be provided encouragement by the government.</span></p>',
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			'title' => 'We Need To Reinvigorate The Real Estate Climate (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bijay Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">Chairman and Managing Director</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">CE Construction Pvt Ltd<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we can't expect the individuals to completely stop building independent residences.</div>
<p>
	&nbsp;</p>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">You have been in the housing industry for some time now.&nbsp;Where do you stand currently? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Real Estate is our core strength but at the same time, we have been operating in other sectors as well. We have a wide range of properties in different locations in and outside of Kathmandu and our ultimate objective in the real estate is to serve the mass. Currently, the housing sector is experiencing a slow growth. Different stakeholders such as the government, regulatory body, financial institutions, developers, investors and individual buyers are somehow responsible for the slow pace of the housing industry.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The NRB has relaxed lending for the housing sector recently. How big is the relief? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	It has definitely provided relief to some extent. But the impact is yet to be seen because there is a liquidity crunch in the market and the banks have a problem maintaining credit-to-deposit ratio. We need to work very hard to regain a prosperous real estate climate.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">As the banks are shying away from investing further in this sector, how do you plan to take your projects forward?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We have been using different financial tools on a project-to-project basis and the major portion of our cash flow is coming through sales. There are basically two categories of buyers the speculative investors who intend to sell the property at later date at higher prices and the end users who really want to settle in those homes. Both types of people seem quite reluctant to invest in this sector at the moment because of political uncertainty and unclear policies. We are working hard to come up with innovative tools to cater to both the categories. At the same time, we are introducing attractive packages for the buyers. Project management being our strength, we periodically map our project execution plan, assess the risks and the uncertainties and act accordingly. Even though the banks are going through a difficult time, they have been extending cooperation towards us because of our credibility. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The interest rate has tremendously increased increasing the cost of housing development and eventually the price. Thus the properties are now beyond the general public's affordability. What do you suggest to tackle this problem?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, the housing sector is reeling from the impact of the interest hike, however, it is minimal. The projects are usually funded through equity, borrowings from the financial institutions, credit from the vendors and subcontractors and most importantly, from sales. In general, the share of bank funding in a project is about 30 to 45 per cent of the base cost. Of the sales price, the share of bank funding is only 25 to 35 percent. So, the interest hike of 5 per cent has an impact of about 1.25 to 1.75 per cent on the sales price. The developers should be willing to absorb that from his profit in view of this difficult time. Therefore, the slaes price need not go up just because the interest rate has gone up. In order to continue with the planned projects, the developers will have to resist hiking the price and be content with lower profit. This is the best strategy till the buyers are in wait and watch mentalality. The impact on sales is not because of the price of the product itself but due to the interest on loan which buyers take from the financial institutions. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Don't you think that the houses and apartments are priced unnaturally high? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">When we talk about the price of the housing products, one needs to take into account the basic components: the price of the land as well as the cost of the building and infrastructure. So, in the current context, developers can only play with the land price as the other two components are easy to calculate. We ask the buyers compute the price of the above mentioned components of our units and let them sum it up. As far as the land price is concerned, buyers can check the price in the project neighbourhood. Our price turns out to be 20 to 25 per cent less than what the buyers come up with after such calculation.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Since the buyers are getting the finished product, they save in the hassles that they may otherwise go through when they build their house on their own. If you assign monetary value also to these hassles, the houses that you buy from a developer are much cheaper than what you will have if you construct it on your own.&nbsp;In our case, it is even cheaper because we are the single real estate solution provider- we buy the land ourselves which saves in the service fee of the broker, we do in-house designing, we ourselves are the contractors and we buy local material in bulk and import many branded materials through our trading division. In comparison, individual house owners building their own house have to buy all these on their own in retail. In that process they end up paying higher for everything. And quality is the further value addition when you buy from a developer because the developers are equipped with resources like manpower, equipments and construction technology.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">It is said that apartments are not much preferred by Nepali people. Therefore, a lot of apartment units from the developers are lying unoccupied. How do you view this?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">&nbsp;This is very true but at the same time, we do need to understand that any change takes time. Currently, a number of units of completed apartments are either still unsold or unoccupied even if they are sold. Therefore, progress of many projects is slowed. However, this slowdown in the progress is not only due to inadequate sales but also due to lack of fund as bank lending is curtailed. Many developers fear that if they borrow at high cost and finish the units but they remain unsold for long, they may have to incur very high maintenance cost for such apartments.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	However, we in CE are trying to complete all our projects on time to send a positive message across. Presently, the criteria for the buyers selection of a property are: the credibility of the developers and the physical status of the project. Buyers are comfortable in buying finished products because it is like buying any other commodity. Counselling as well as other marketing tools might not be that effective at the moment as compared to putting on sale the finished product.<br />
	 </div>
<div style="text-align: justify;">
	No matter how the people at present may view the apartments, the apartment projects are viable because the price that the buyers of such apartments will be paying will be lot cheaper when compared to the upgraded lifestyle that the buyer can enjoy in such apartments. It is just a matter of time before people shed their inhibitions about buying apartments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">What are the required measures to improve this sector?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.05pt;">First of all, the country needs to assess whether real estate is a need for us or not. If yes, all the concerned parties including the developers need to extend their full cooperation. To gain the confidence of the buyers, I have different recommendations to my colleagues. Those who have not started their projects must have a thorough plan to work out the cash flow before they start the project. They must also have a full proof marketing plan. As for those who have started their projects, their primary responsibility should be to complete the sold units fast and meet the contract conditions as well as reschedule construction of unsold component of the project based on cash flow and sales forecast. This strategy will not only help win the confidence of the buyers and investors but also that of the financial institutions.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: -0.15pt;">The average age of a building is around 50 years. What will happen to those living in the apartments and individual houses developed by housing developers after this time period? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The age of a building depends on the technology used to build it. The property is insured against earthquake, fire or any other kind of damage. If something happens during the lifetime of a building, either a community housing or an apartment building, it will usually be compensated through insurance.&nbsp;Once the building's lifetime expires, the law clearly states that the ownership of the property will be ascertained on a pro-rata basis. You have two options - either to rebuild the property with the same proportion of ownership or if all the flat owners of a particular property agree to sell it, they will get the sales proceeds divided amon themselves on a pro-rata basis. If the property value grows tremendously during the lifetime of the building or afterwards, the owners will have the option to demolish and come up with a different product. For example, it can be a commercial complex or any other product that may yield higher return. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Is there an issue with the ownership of the flats? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Well, there is no issue whatsoever at all regarding flat ownership. Once you buy a flat, you get an ownership certificate from the Land Revenue Office. When a building is complete, the municipality and the department of urban development and physical planning inspect it and issue the completion certificate. It then recommends the Land Revenue Office which issues you the certificate of ownership.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">How long will it take to change the housing culture from independent houses to community living in flats and condominiums ?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we cant expect the individuals completely stopping to build independent residences on their own. This is because housing projects will not be able to meet the individual requirements of all the people.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Tell us something about your ongoing projects? </span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">CE's current housing projects include: Vinayak Colony (176 units of independent houses) in Bhaisepati, Grande Towers (529 High-End apartments) in Dhapasi, Veena's Residency (76 units independent houses) and Harmony Housing (74 units independent houses). Similarly, we have recently completed Vinayank Colony-phase 1 in Bhaisepati, Rio Apartment in Kupondol and The Retreat Apartment in Bijayshwori. We are also coming up with two affordable independent housing projects in Sitapaila and Budhanilkatha.</span></p>',
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		'Article' => array(
			'id' => '374',
			'article_category_id' => '40',
			'title' => 'Developers-built Housing Market Is On The Rise (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Om Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">CEO and Chairman</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Comfort Housing Pvt Ltd</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher prices. And they will continue holding as long as they have the capacity to hold.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you evaluate the housing industry at present?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I started my career as a developer and we are the pioneer in promoting community living concept in Nepal and real estate as an industry. My aim is to establish this as a professional institution because this is a very large industry where everyone can be adjusted. Human life does not exist without real estate because any building, whether it is hospital or a theatre or a residence, belongs to this sector. So, this sector should be developed in a proper way. When we compare Nepal with any other country, our urbanisation is largely unplanned. Housing industry is dependent on three elements - government, individuals and the developers. Our government has a different agenda and the government people are not bothered about well managed urbanisation. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you look at the future of this industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal's 15 per cent population live in urban areas whereas the global urban population today is 50 per cent. By 2030, our expected urban population will be around 30 per cent while the global urban population will reach 70 per cent.&nbsp;According to a survey, in Nepal, we require nearly 270,000 housing units annually. In 10 years time, one million units will need repair and maintenance. Likewise, within the Kathmandu Valley, we will have a deficiency of around 40,300 units every year. So, it has a bright future and huge potential. On the other hand, secondary transaction is equally important. In my opinion, in community living, there is 10 to 15 per cent secondary transaction. The secondary transaction also generates revenue for the government.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can the housing sector be revived from the current problems, such as the restrictive rule of Nepal Rastra Bank?</strong></div>
<div style="text-align: justify;">
	A number of factors affect the housing market. They are: government policies, financial institutions, building materials, building technology, households, land prices and the real estate agents. We have different policies coming from the government and the Nepal Rastra Bank (NRB). There are a few aspects in the government policy that need to be addressed immediately.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">First is&nbsp;the capital gain tax rate that is 10 per cent for any transactions within five years and five per cent after five years. Thre is difficulty for people to afford 10 per cent capital gain tax. So, when the people sell the property in the secondary market, they report transaction figure to the government, they show a lower than the actual figure. This ultimately affects government revenue. For example, if I buy a property for Rs 10 million and sell that in a year-and-a-half for Rs 20 million, then my capital gain is Rs 10 million. And from that Rs 10 million, I am expected to pay Rs 1 million as capital gain tax to the government.&nbsp;To avoid such taxes, people are showing Rs 12 million on paper though the actual transaction is for Rs 20 million. This way, the government is losing revenue. Once the property is liquidated, the money is normally deposited in the bank. But while depositing the money in the bank, you have to show the source of the money. Hence, only Rs 10 million can be deposited. The rest Rs 8 million remains out of the system. This is one of the reasons for the current liquidity crisis.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Second, while buying land of more than Rs 3 million, it is mandatory to declare income source. This is the other concern that needs to be addressed immediately.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Housing must be recognised as an industry so that the revenue goes into the state coffers. The NRB limitation has now been relaxed and a new loan portfolio category - home loan - has been created as well. I think the banking sector too should have a positive attitude towards housing industry. There are three different perceptions among the banks - some say that the real estate is an industry and profits can be made from this. That’s why they have made investments in this sector. Others say that the real estate is a future industry and they need some experience in this sector. So they have made limited investments. There are yet others who regard as a very risky industry. Therefore, they have made very small investment in this sector.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	We are currently at the bottom of the real estate cycle. To recover from such a state, these government policies and the perception of the banking sector towards this industry should change.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Though the NRB has relaxed lending, some of the housing developers say it is yet to make its impact in the market. Why such slow response?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher price. And they will continue holding as long as they have the capacity to hold. Some investors are keen on recovering the principal amount if they are not in a position to make profits. Some other investors are willing to liquidate even at a loss so that they may not need to continue bearing the financial burden. We are at a stage where even if we can't make profits, we have to liquidate the property. Our strength will be tested in mid-July because there will be pressure from banks. Our inventory holding capacity too will get revealed. Today, if you can sustain yourself, you will emerge winner but if you can't, you will have to liquidate to get the return on interest and principal. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>When the bank's investment was curbed, how severely were your projects affected? How did the companies manage to take their projects forward?</strong></div>
<div style="text-align: justify;">
	As per the data from the government authorities, fiscal years 2007-08 and 2008-09 witnessed the highest number of new projects registration while 2009-10 had very few and in 2010-11, there are no new projects registered at all. The projects approved in the past are making progress, but some of them are progressing very slow or they have downsized.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">An investor will definitely look for maximum returns. But people do not have much confidence in the real estate industry at present. So people are not putting in money. Similarly, banks are also not investing which is why this industry has slowed down.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">One indication of low sales of apartments is that Nepalis are not much attracted towards group housing. What should be done to assure them that such houses are better than individually constructed residences?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I personally feel that people have gained more confidence in group housing now. A decade ago, this concept was very new. Today, a number of developers have entered the market with their projects because the concept has been accepted by the people. The success or failure of a project is a different issue altogether. The concept of community living has been largely accepted by the Nepali people. Now, the percentage of owner-built houses is declining while the developers-built housing market is on the rise. In developed countries, all the people buy houses from developers only. Once you are very rich, then you may want to go for custom-built houses.<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">People complain that the developer-built houses and flats are unreasonably priced. How can the price be brought down to make the houses affordable for more people?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">In my opinion, the prices of the developer-built houses are reasonable at present. Therefore, the prices are not going to come down from what they are. Though some investors and developers may sell their property at even lower price than what it is at present, that will be only in case of financial distress. The land purchased by the developers was very expensive in the first place. The interest on the capital borrowed is very high. Similarly, there is a high uncertainty cost. Besides, human resource cost is getting expensive by the day. In all ways, if you compare with yesterday's price, today's price is at the same level. But the expenses have certainly increased. So, the developers have cut down on their profit. They are at a point where they can't come down any further in price.&nbsp;</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>that means there is no plan to build more affordable housing?&nbsp;</strong></div>
<div style="text-align: justify;">
	It is true that developers are not coming up with affordable housing. As a developer, we should come up with low priced products targeting the wider mass. While we at Comfort Housing are planning to come up with affordable housing, some colleagues in&nbsp;inthis industry have already brought such products to the market. So, the products will come to the market as per the demand in the market. The problem is that while the people have low budget, they have a high value house in their mind. They should also know how much they can afford and what they will get within that.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Commercial and residential housing projects are centred in few cities, mainly in the capital. Why are developers not interested to take such projects in the semi-urban areas and small towns?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Well, the concept has changed now. I had started a project in Dharan a long time ago. At that time, the community living concept was not popular. The migrant population of Kathmandu is 39.6 per cent. Everyone wants to own a house here as Kathmandu is the capital city. That is why developers are mainly concentrating in Kathmandu valley. Now that the peace process has progressed to some extent, development outside the Kathmandu valley is bound to take place in a year or two. The land prices in all the commercial towns have gone up like anything and that is one of the indicators. Even in the Kathmandu valley, the projects have come up in the suburbs. Our urban area is expanding by 4.6 per cent every year. Today, three to five kilometres periphery of the ring road is also considered urban area. So, the developers are going beyond the ring road and that is why we see a lot of housing projects centred within this belt. I feel that we should go further beyond that. We should focus on the development of suburban areas so that we can minimise the load on the carrying capacity of the city.</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The Supreme Court recently declared null and void the rule that required all transactions above Rs. 5 million to be made through bank. How much relief would it provide to the industry?</span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Not much because the problem is more with the worry and suspicion the people have about the situation tomorrow. They are not sure what sort of new charges may be levied then. However, this ruling by the Supreme Court will help to some extent.</span></p>',
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			'description' => 'Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling.........',
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	(int) 5 => array(
		'Article' => array(
			'id' => '373',
			'article_category_id' => '40',
			'title' => 'Developers Need To Be Transparent To Win Public Confidence(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Ashoke SJB Rana</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">President</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Nepal Bankers’ Association</span></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How does the banking community look at the overall prospect of the housing industry?</strong></div>
<div style="text-align: justify;">
	When we interact with Nepal Land and Housing Developer’s Association (NLHDA), they put forth their arguments why the housing developers should be encouraged. Their point is that it promotes infrastructure development that the government has failed to provide such as water, electricity and other facilities that come along with housing standards mentioned in the building code. So, I think this is very positive. It is only the speculative side we need to be wary of.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How much have the banks invested in this sector?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">Our estimate is that the banks have invested in average of 25 percent of their loan portfolio into this sector. However, this is an average only. I think that the NRB has put the cap at the right time to prevent the bubble from bursting. We were afraid that the share of housing industry in the total loan portfolio of the banking system might go higher because of the asset price bubble expanding till last year. If you can get regular income and recover your investments in 15 to 20 years, it’s good to invest in this sector. But when the price of the property and the development cost increases and the return comes around in 50 to 60 years that is not economically viable. The mortgage in the west is done usually for 15 to 20 years. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How will the banking sector benefit with the improvement in housing industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">One of the major aspects of the housing industry is infrastructure development. The NRB has welcomed this because that means value addition but it also wanted to control the speculative part. People were buying property on credit or with loan hoping the price would go up and they would he able to sell it for profit even before paying the entire price. And that was the dangerous part of the entire chain.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>A lot of housing and apartment units are unsold. In this market situation how confident are you of the banks recovering the loans they have given to this sector?</strong></div>
<div style="text-align: justify;">
	The NRB has recently changed its directive and allowed&nbsp;home loans of up to Rs 6 million to be considered as normal loan. This means people who want to buy a house can borrow up to Rs 6 million from the bank and manage the rest from the equity. High-end apartments cost around Rs 10 to 15 million. So, this loan amount is sufficient. There should not be any problem to recover such loans.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>As an investor, what kind of policy reforms do you think are required to improve this industry?</strong></div>
<div style="text-align: justify;">
	I think a little bit of transparency on the part of developers has to come. Just like the banks disclose about their capital, deposit, liquidity ratio and investment, the real estate developers too need to make certain disclosures to the public. The big fear is that the investors might be putting in money where the developers have not put any. It could be all borrowed. Investors want to know the strength of the developers. I think some kind of transparency and disclosure from developers can give confidence to the banks and the individual buyers.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0.15pt;">Till recently there was a rule which made it compulsory that all payments exceeding Rs. 5 million in a real estate transaction be made through a bank. Recently the Supreme Court declared that such a rule was illegal. What is your comment on it?</span></strong></div>
<div style="text-align: justify;">
	That provision was there because banks felt that dealing in cash is an expensive proposition. We try to encourage use of cheques. It has been now ruled out and it is unfortunate. I don’t think that the real problem was with payment through bank. The problem was with the disclosure of income source. Even if someone comes with cash, they still have to disclose the income source to the Land Revenue office while getting the transaction registered. I don’t think it is a meaningful ruling.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What are the requirements for granting loans to individual buyers of apartments? What is the current trend?</strong></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment. It’s not a project loan where there may be an implementation risk that the borrower may not implement the project in time. It’s about buying a home that the developer constructs. The bank has to properly evaluate the developer to minimise the implementation risk. So, I think the housing loan is a very structured product. I think that for the banks, it is an easier loan to recover.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	The risk is only when an institution is exposed high on the speculative side of real estate business. If the exposure is not high, the institution may be stuck with a project or two for sometime, but that will not impact much in the overall health of the bank.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is your suggestion to the real estate developers?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">We need to separate the good developers from the others, some of them may not be financially sound. The public should find out who the serious developers are and distinguish them from the inexperienced ones. There are developers who have no engineering knowledge and only believe that it is like a real estate transaction. If there are people who are trained engineers and have business plans like the ones from CE construction, it gives confidence to the entire sector. I think we need to support these people and ignore the others. <br />
	</span></p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;"><br />
	</span></p>',
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			'description' => 'The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly.......',
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	(int) 6 => array(
		'Article' => array(
			'id' => '372',
			'article_category_id' => '40',
			'title' => 'Real Estate Sector Must Develop Professionally (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bhaskar Mani Gyawali</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Executive Director-Banks and Financial Institutions Regulation Department</span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Nepal Rastra Bank</span></span></div>
<div style="text-align: justify;">
	<span style="font-size: 11px;"><br />
	</span></div>
<div style="text-align: justify;">
	The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own houses. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What actually does NRB want in the investment of commercial banks in the housing industry?</strong></div>
<div style="text-align: justify;">
	The NRB wants real estate and housing business to develop as a true industry. In this sector currently, a huge amount is invested from the banks, the developers and the general people. Concentration of such a huge amount in a single sector affects other sectors too.&nbsp;The NRB wants this sector to surge professionally. There will be investment as required and the transparency and honesty has to be maintained at the highest degree.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Is the investment in the housing industry feasible for the banks in Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own house. But we thought the trend of unnatural price hike driven by the investment for profit from money borrowed from the bank wouldn't be sustainable. Therefore, the NRB has put a limit for bank investment in this sector. However, it does not mean that the banks should not invest in this sector. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The NRB recently relaxed the cap it had imposed on bank lending in the real estate sector. Why was the NRB late in realising this sector's potential as an industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">What was happening in the past was: people were buying land with the help of bank borrowing and selling the same land to others for profit who in turn, were borrowing from the bank to pay for the purchase and selling the same land further for profit. It formed a never-ending chain that resulted in land prices being unnaturally hiked. The NRB is against such practice. We believe the real estate sector should develop in a professional way.&nbsp;Lending for purchasing real estate properties meant for personal use should not be stopped if the buyer of such property has enough income to service the loan obligations.&nbsp;Such real estate lending is to buy land for constructing personal residence, to construct a residential house on&nbsp;the borrower's land and to buy houses or flats in the community housing projects. So, we recently issued a directive to remove loans up to Rs 6 million from the category of the real estate loan. If the banks do not invest in houses and apartments, the people's right to have their own house will be a mere dream. In the long run, old houses will need to be replaced and with the increase in population, more people will need houses. We have not tried to discourage investment into this sector and that is why we relaxed the lending.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can you say that the real estate loan provided to under a new name 'home loan' would not result in similar adverse consequences as in the past?</strong></div>
<div style="text-align: justify;">
	The loans up to Rs 6 million have been removed from the category of real estate loan. This loan is provided by banks depending on the borrower's ability to pay back the instalments. Previously, the real estate loans went mostly for the speculative business of land plotting that created undesired consequences. But the home loan is not speculative and will not create problems.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>&nbsp;The developers complain that the NRB has been hurting their business by introducing adverse policies. What do you have to say about it?</strong></div>
<div style="text-align: justify;">
	Well, considering the demand of the real estate developers, we removed the loans of up to Rs 6 million for the purchase of apartments and houses from the category of 'real estate loan'. But the developers are demanding that this limit has to be lifted further. We believe that Rs 6 million is a huge amount of money and higher than required by an average Nepali to purchase a house. So, it is not possible to lift this limitation any further.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The Supreme Court recently nullified the earlier rule that required all the real estate transactions exceeding Rs. 5 million in value to be through a bank. What is the view of NRB on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The verdict of the Supreme Court is equivalent to law and we respect the decision. Cheques, cash or any other methods are just the instruments of payment. Looking at the international practice of making payments, it is difficult to say that payments through cheques would create problems and cash wouldn't.&nbsp;We recommend that transactions should be made through any other method other than cash. And a cheque is safer, simpler and easier. This is the intention of the banking system around the world and the NRB's wish is no different.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong>What are the possible measures that the NRB can initiate or facilitate for the smooth growth of the housing industry?</strong></div>
<div style="text-align: justify;">
	We have now brought the home loans of up to Rs 6 million under the category of personal loan. This indicates that the NRB wants this business to develop and move ahead in a healthy way. With the time and demand, there will always be room for necessary amendments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the current status on loan recovery from the housing industry?</strong></div>
<div style="text-align: justify;">
	The banks have to recover any lending within the stipulated time period. We have received information that the loans are being repaid.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the total investment of the banking industry in this sector? Do you see further investments coming into this sector in the coming years despite its present precarious position?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Currently, the total investment in this sector is Rs 97 billion which is 18.9 per cent of the total investments made by commercial banks. The real estate and housing sector is a growing business and there must be further investments in in this sector also in the future. The past practice of using bank's money to speculate on the real estate should not be there. However, to fulfil the people's need for houses and apartments, there must be further investments pumped into this sector.</span></p>',
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	(int) 7 => array(
		'Article' => array(
			'id' => '371',
			'article_category_id' => '40',
			'title' => 'Urban Infrastructure Development Has Failed To Keep Pace With Urbanisation (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 12px;"><strong><span style="line-height: 120%;"><br />
	Shivahari Sharma</span></strong></span><span style="font-size: 7pt; line-height: 120%;"><br />
	Deputy Director General</span><span style="font-size: 7pt; line-height: 115%;"><br />
	Department of Urban Development and Building Construction<br />
	<br />
	<br />
	</span><strong><span style="font-size: 9.5pt;"><br />
	How safe are the buildings constructed by housing developers in Kathmandu?<br />
	</span></strong><span style="font-size: 8.5pt;"><br />
	The housing companies that want to construct community housing get license only after fulfilling a few procedures. First, the developer should get a planning permit from the Town Development Committee (TDC) based on regulations and by-laws. Next, the developers plan and design buildings and apartments which are later approved by the Department of U</span><span style="font-size: 8.5pt;">rban Development and Building Construction (DUDBC). The approval is subject to fulfilling the requirements of the National Building Code on safety, power supply, fire hazards, other possible disasters and structural design. Following that, the project, if big one, must pass Environmental Impact Assessment (EIA). If it is small one, it must pass the Initial Environmental Examination (IEE). EIA is approved by the Ministry of Environment and IEE from the Ministry of Physical Planning and Works. Then the site map is passed by the concerned municipality or VDC. The housing and apartment complexes have been properly designed and approved. So I don't think they are unsafe. We have our monitoring mechanism in place. But we feel it is not adequate. So, we are in the process of strengthening it. We have planned a third party monitoring system which means outsourcing the job as we have human resource constraint.&nbsp;The pace of urbanisation in the last decade in the capital has been tremendous because of the conflict. However, the growth is largely a haphazard one and urban infrastructure development has failed to keep pace with that of urbanisation. I feel infrastructure development in the city must be able to meet the pressures of migration and rapid urbanisation and such infrastructure development should be carried out by the metropolitan city and local bodies.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Could you tell us more about your monitoring mechanism that ensures the housing companies adhere to safety standards? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">We do have our own in-house monitoring mechanism. However, monitoring of the environmental compliance has to be done by the concerned ministry as well. Similarly, adherence to the planning permit is evaluated by the TDC. The size of open space, size and number of units, ground coverage and some others aspects are specified in the planning permit. The monitoring by the division office of DUDBC has not been extensive due to resource scarcity.&nbsp;So, we are instituting a system of third party monitoring next year to evaluate the level of compliance. This will make the process more transparent.&nbsp;We have found cases where constructions have begun even before the approval.&nbsp;However, it has been tightened now and we have taken actions against such practices. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Do you have plans to limit the number of projects that come to you for approval?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">With the fast pace of urbanisation, there is a huge demand for housing.&nbsp;The competition is still not adequate in community living and group housing. The target buyers of such housing should be the middle and lower income groups. But at present, the housing companies have targeted only the higher income groups. The main reason behind this is the high land price and complex land management system.&nbsp;Unless the land price comes down, this market cannot become competitive. Rather than controlling, this sector needs regulation through set standards. There are flaws that need to be corrected so that this industry will improve. The demand was affected after tightening of the housing loan. Last year’ inflation in the land price also affected a number of housing projects. In 2007-08 and 2008-09, there were a lot of new projects which took license but now we hardly have any takers.&nbsp;At present, the average cost of apartments is around Rs 6.5 to 9 million. However, some companies have recently introduced flats for around Rs 1.7 million. When the price comes down to around Rs 0.8 to 1 million, we can have housing for the masses.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">After the recent relaxation by Nepal Rastra Bank in the control in housing loan, we can expect that the number of new projects may increase. Until 26 October 2010, 59 projects were given license and now there are 18 new projects in the process of acquiring licenses. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">It has been observed that the process of issuing licence is rather lengthy and the companies need to visit numerous authorities in this connection. What is being done to simplify it?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">This is also a big issue raised by the private sector. We have discussed about the one-door licensing process in the ministry. The process can be simplified but for now, they must visit four different authorities.&nbsp;EIA and IEE fall under the purview of a separate unit. Planning permit and map approval can be brought under one unit. They are currently under the purview of municipalities and TDC offices. But the existing law has to be amended first for such changes to take place.&nbsp;Developers have also demanded a change in the parameters for EIA and IEE. Their view is that the housing projects facilitate managed urbanisation and do not harm the environment much. We have discussed that too in the ministry and sent a proposal to the Ministry of Environment for consideration on this. It is true that the current procedure is time consuming but if all the requirements are met by the developers, it won't take much time.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">The geologists say the geology of Kathmandu is not suitable for constructing high rise buildings. Why then has the department given licenses to construct tall apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Nepal lies in 11th most risky area of the world in terms of earthquake. Kathmandu is located in one of the world's most seismically active zones. But let's not forget that despite frequent earthquakes in Japan, they have so many skyscrapers. Therefore, high rise apartments will not pose a major threat if appropriate design is made, the building code requirements are fulfilled, soil tests and geological studies are conducted properly and quality constructions materials are used. The important thing is that the specific local conditions of the construction area have to be considered while giving planning permit.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">People are concerned about the safety of the apartment buildings that are approved by the department. What is your evaluation of the safety in these apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">&nbsp;Going by the designs that are presented to us, I don't think people should be wary. The private sector has invested a lot of money in their projects. If something goes wrong with one particular project, it is bound to affect other projects as well. With the kind of massive investment they have put in, they wouldn't want to make it unsafe. With the current speed of urbanisation, there won't be an alternative to high rise apartments in the near future.&nbsp;So, it's imperative that the safety measures are of the highest standard to win the confidence of the general public. We have checked the designs for the apartment buildings and feel that they are safe enough. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Why isn't there an inter-departmental coordination for developing infrastructure like electricity supply, road, sewage and drinking water?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Somewhere along the line, the inter-departmental and inter-ministerial coordination is missing. But the scenario has definitely improved now and there is no haphazard digging like in the past. If a maintenance work has to be done, prior approval from the road department must be taken. The problem is that one department does not trust the other's work. And a lack of discussion about the matter hampers the cause further. We also don't have a regulation unit for urban infrastructure in cities. We have proposed a town development corporation which will look at the local bodies and the planning unit in Kathmandu. However, the proposed bill is yet to be passed by the parliament. The proposed bill has proposed the formation of Kathmandu Valley City Development Corporation which will include five municipalities of the valley as well as the VDCs in the suburbs. We believe that if such an authority existed, coordination would definitely be improved.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">By when do you think the city development mechanism will come through? How long will people have to continue to bear unmanaged and haphazard urbanisation? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">There are plans for Kathmandu but they have not been implemented yet. A clear policy regarding land use is not there. After the formation of the national urban and housing policies, we prepared the draft of the bill and sent it to the relevant ministry. The policies are there but it does not have ownership in the absence of the physical development act. First of all, the land must be managed in order to ensure urban planning. For example, if someone decides to build a house in the middle of a field he would want to take the road, electricity and other infrastructure to the house. If there is a physical development act, it will prohibit the construction of a building in the farmland and deny the basic infrastructure for such land. We have also prepared the draft for an act on real estate business and regulation and sent it to the parliamentary committee. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt; line-height: 115%;"><br />
	If that gets passed, the buying and selling of property can generate revenue for the government besides providing security to the buyers. The present haphazard situation is due to the absence of a proper law that would ensure a proper control mechanism. We want that the growing cities should not suffer the same fate as Kathmandu. There should be decentralisation of services and opportunities so that development can be spread throughout the country in a balanced proportion. The government is working towards it and we can certainly hope that there will be positive changes soon. </span></div>',
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The housing companies that want to construct community housing get license only after .....',
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			'id' => '344',
			'article_category_id' => '40',
			'title' => 'Nepal’s Trade Ratcheting Imports',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><i>By Pinaki Roy</i></span></div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> Nepal signed the Trade and Investment Framework Agreement (TIFA) with the United States recently which paves way for the promotion of more comprehensive trade agreements between Nepal and the US in the future.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; line-height: 115%; color: rgb(237, 28, 36);">*</span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The second meeting of Nepal-Tibet Trade Facilitation Committee (NTTFC) – a bilateral talks forum – is being held in Kathmandu from May 8 to 10. The main focus of the talks will be to cut the ballooning trade deficit with China by taking maximum advantage of zero tariff on imports from Nepal offered by China.</div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While these developments may sound all good, analysing the state of Nepal’s foreign trade over the last <img align="left" alt="" border="2" height="450" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover1.jpg" vspace="1" width="350" />decade or so presents a bleak picture. It’s unfortunate that Nepal has very few products at present that hold any promise of competing in the international market. Add to it the dismal environment of domestic business in the country and the chances of reaping tangible benefits from any agreement in the near future look extremely slim. Nepal’s faltering export scenario has been unable to check an unsustainable trade deficit. The eternal power shortage, fragile law and order situation and transportation woes are among the main impediments to the development of export-oriented sector. These erode the confidence of the private sector. With dwindling confidence of the investors, let alone foreign direct investments, Nepal can’t expect to see domestic investment in the foreseeable future either. In short, Nepal’s economy is in dire straits with grim hope of the growth of export-oriented industries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Escalating Trade Balance</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">During the first eight months of the current fiscal year 2010-11, exports have increased to Rs 43.24 billion, an improvement by Rs 2.99 billion over the same period last fiscal year. Meanwhile, imports increased to Rs 252.88 billion, an increase by Rs 4.61 billion over the same period. The trade deficit amounted to Rs 209.64 billion, an increase by Rs 1.61 billion. Imports are expected to continue to increase in more or less the same pattern it is following so far. This indicates that trade deficit is expected to further widen in 2012. Due to some major foreign currencies getting weaker, Nepal’s exchange rate is expected to appreciate which will make exports costlier abroad. Besides, the impact of rising inflation rate in Nepal is likely to make exports more uncompetitive in the next year. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The agriculture sector in Nepal has remained under-developed, with a very low productivity level. At the same time, the industrial sector suffers from a host of uncertainties. The inefficient structures of these important sectors of the economy have not only reduced the competitiveness of the economy but also resulted in a limited production base. It is far below the consumption needs of the people. As a result, Nepal depends heavily on import trade for meeting its large and varied needs. Despite a marginal increase in exports, the painfully slow growth of imports during the last decade doesn’t augur well for the country. Besides, most imports are confined to non productive and consumable items like vehicles, petroleum products and gold that does not directly contribute to economic activities. Therefore, it is an alarming situation and a challenge for the policy makers.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Infrastructural Bottlenecks</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The export sector is still plagued by the same problems that have adversely affected the entire economy. Supply-side constraints such as intermittent blockades, labour disputes, access to technology and credit, virtual absence of trade facilitation measures, lack of human capital, power outages and road transport among other infrastructural bottlenecks are eroding Nepal’s competitiveness in the international market. These factors also result in preventing diversification of its export basket. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Large gaps exist in trade efficiency based on indicators such as the cost incurred for the trade and number of days taken to close the deal. Infrastructures like roads, ports, information technology and communications network and other logistics, transit facilities, cross-border connectivity and customs facilities are also in short supply. Nepal is yet to enhance the capacities for trade strategies and negotiations, trade and investment finance and other capabilities related to export. The trade-related institutional, human resource and supply-side limitations constrain Nepal to take advantage from trade by meaningfully participating in multilateral and regional trading systems. Considering the problems, the new initiatives on Aid for Trade (AFT) could help overcome the problems and open up new trade opportunities for Nepal. But again, the said constraints could also impede the country from qualifying for such Aid. Structural reforms and infrastructure investments to reduce transportation and transactions costs are the key to improving the external competitiveness of Nepali products.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Limited Export Items</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Another feature of Nepali export is its limited items of export. As major export items like carpets, garments, pashmina and handicrafts are produced mainly in labour-intensive industries, the impact of trade on employment is considered significant. Vegetable ghee along with the products mentioned above constitute a significant part of Nepal’s total export. This indicates high dependency of export on very few products. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In the second half of the 1990s, the growth of export was higher than the growth of import reflecting a positive impact of adopting the liberal economic policies. However, this trend did not continue for long and experts attribute this primarily to the impact of the decade long conflict. Though the competitiveness of the export sector had increased in the early days of the liberalisation period, the policies were rendered ineffective during the conflict and the post conflict transition. As a result, the share of import to GDP has been far greater than that of export for the last decade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The progress in export has been slow due to a number of national and international events and circumstances. The 10th Plan had emphasised on identifying new exportable products of comparative advantage and improving their quality and export volume. It advocated rectifying the procedural hindrances to product-wise and country-wise diversification of foreign trade. It also looked at enhancing the competitiveness of the trade sector in harmony with the regional and multilateral agreements. The Plan envisaged strengthening institutional capacity of the government, non-government and the private sectors to enhance collection, processing and dissemination of information relating to export promotion. To make foreign trade simpler, more reliable and cost effective reforms were recommended in the areas of laws, regulations, policies, procedures and facilitation. It also recommended that organisational and managerial efforts be strengthened and export promotion prioritised in a coordinated manner. The Plan also talked about mobilising Nepali diplomatic network abroad in promoting foreign direct investment (FDI), export, and the economic interests of the nation so as to accelerate the industrial development and the expansion of export trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Quality Certification</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal already imports almost seven times more than it exports. The growth prospect of exports and the industrial sector look as gloomy as ever. Most constraints that we face today are non-economic ones. It has been increasingly realised that market access alone does not guarantee flourishing of international trade. Nepal, like any other LDC, lags in trade capacity due to non-availability of sufficient number of exportable products on the one hand and the quantity and quality of available products to meet standards of the importing countries, on the other. Nepal’s trade is faced with constraints on supply side in terms of development of testing and certification facilities, accreditation of laboratories and mutual recognition of test and certification in facilitating trade. The improvement of laboratories and testing facilities in Nepal has, for example, remained an important agenda in Nepal’s trade with India, its largest trading partner. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Trade Barriers</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal still pays a very high tariff to access major markets on the one hand and on the other, duty-free and quota-free initiatives have yet to prove fruitful due to hurdles imposed by non-tariff barriers. Non-tariff barriers (NTBs) in the form of regulatory requirements, quota restrictions, administrative procedures and rules of origin (ROO) are of major concern. Due to their technical complexity and non-transparent nature, they are the most difficult barriers to overcome. Standards-related NTBs such as sanitary and phyto-sanitary (SPS) restrictions act as major impediments to Nepal’s exports. Several instances have shown that process of discussions amongst the exporters and importers which results in better information sharing can itself help address more than half of such problems. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite Nepal gaining enhanced market access into the developed countries, it cannot take advantage from it until the government and the private sector join hands to expand and diversify the country’s exports. Trade is governed, to a large extent, by trade regulations and related administrative procedures. More often than not, the entry and exit from the market as well as the volume of trade rely on the transparent and simplicity of trade and administrative procedures. A study reveals that submission of unnecessary documents, administrative hassles at custom offices, additional detention charges and untimely delivery of goods increase the cost of transaction in formal trade. These activities and procedures enormously affect the trade affairs. Ultimately, it discourages the business fraternity in carrying out their businesses freely and fairly. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">WTO Challenges</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The WTO membership has brought both opportunities and challenges to Nepal. The main challenges before Nepal are to fulfill WTO commitments that need strengthening existing external trade institutions and legal mechanism, removal of supply side constraints to transform available market access into trade opportunities and restructuring of industrial sector to make it more competent and contemporary. In total, the benefits of membership depends on Nepal’s ability to identify and take advantage of trading opportunities, fulfill multilateral trade obligations, formulate and pursue development strategies within those framework and above all, defend its economic, financial and trade needs. Nepal could benefit from World Trade Organisation (WTO) only if it increases internal strength and quality of export items.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal finds it difficult to implement some of its WTO commitments. Since the benefits accruing from the implementation of these agreements are much lower than the associated cost of implementation, the resource-strapped Nepali economy cannot take this additional burden. Quite naturally, it is demanding support from its development partners to implement such commitments. The basic objectives of technical assistance for Nepal lies in promoting activities which add value to its production, help export diversification and most crucially to reduce its transport and other infrastructure costs thereby making it easier for businesses to operate. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Evolving Global Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The nature of trade is evolving globally. This is reflected in the changing composition of trade, from merchandise to services. This dynamic is largely driven by technological revolutions. While the transport revolution reduced transport costs and facilitated trade in merchandise goods, the information technology revolution has resulted in decreasing communication costs and increasing quality levels, thereby causing trade in services to be the fastest-growing component of global trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In addition to natural advantages, the three services sectors – health, education and high-end retail services hold immense export potential from Nepal’s perspective. Nepal has comparative advantages for the export of these sectors which are generally found to be cost effective. The attraction of these services is also due, in part, to a high level of market integration with northern India, if it can take advantage of the open border in the south. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In spite of liberalising the economy and changing trade and investment related laws, Nepal hasn’t been able to derive expected benefits. Trade is a technical subject. The deficiencies in knowledge concerning markets, access to distribution networks and use of the ICT, complicated regulatory procedures of shipments, weak transportation infrastructure and services and insufficient trade financing are major constraining factors. Addressing these problems would involve financial resources, time, efforts, proper management, and technical expertise. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Aid For Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The new initiative of the Aid for Trade could be a prime source of funding to enhance competitiveness. However, there is a gap between commitment and disbursement of AFT. Pledges are made through international forums for aid for trade initiatives but the pace of implementation and the disbursement rate is very slow.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Developed countries and development partners coming forward to support product development programmes, development of trade infrastructure like inland clearance depots, container freight stations, special economic zones, roads and other forms of transportation in order to enhance Nepal’s trade capacity is of prime importance. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Prosperous Neighbours</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The multilateral trading system has contributed significantly to the growth in exports that has been aptly exploited by countries like China and India. With respect to the markets created by these neighbouring countries, the disadvantage of Nepal as a land-locked country is significantly reduced because these two are after all, proximate markets. The economies of both the neighbouring countries are increasing enormously and Nepal can benefit or should be able to do so because of this. Despite increased industrialisation and trade activities in China and India, Nepal has failed to benefit from their economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s internal problems such as poor trade policy and implementation, lack of business-friendly labour laws and other rules and regulations, political instability, frequently changing trade and industrial policies, social unrest and chaos, frequent strikes, lockouts and load-shedding are also equally responsible for poor export. The reasons behind the fall in export can also be attributed to erosion of preferences for Nepali goods due to the decreased MFN (Most Favoured Nation) tariff in India. The Government of India has signed several free trade agreements with various countries. It has committed to lower customs duty as a non-LDC member of SAFTA and BIMSTEC free trade area and also announced the Duty Free Tariff Preferences (DFTP) scheme as part of commitments made in the Hong Kong ministerial meeting of WTO. The irony of Nepal’s trade is eminent in respect of decreasing tariff in Nepal. It is obvious that Nepal will continue losing export volume and find itself in a precarious situation in the absence of concrete measures to check and reverse the process of decreasing export. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s export to India is increasing at a snail’s pace. The growth rate of export is highly fluctuating. At the same time, import from India is far stable. It implies that import from India is in a better position than export. As the gap between export and import increases, trade deficit soars. The trade deficit with India was Rs 66.4 billion in FY 2005-06 but it has rocketed to Rs 174.4 billion in FY 2009-10. It is alarmingly high for Nepali economy. The major reason for the unfavourable balance of trade on Nepal’s part can be blamed on not finding proper markets for manufactured goods in Nepal, in India. The prominent factors include the inability to compete in the Indian market on the grounds of quality, price, supply capability etc. From a trading point of view, it could be quantitative restrictions and product disqualifications. It is understandable that unless a sizable export of manufactured products fail to find market, the trade balance proportion cannot be reduced. Therefore, finding a proper segment in the Indian market for Nepali products is critical.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Service Sector Emphasis</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The Government of Nepal launched Nepal Trade Integration Strategy (NTIS)-2010 last year which seeks to identify and develop key essential products and services to build its export base in a sustainable way. A total of 19 items were selected for driving export promotion. The 12 products and seven services were identified after careful scrutiny of potentiality for development along the value chains and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, increasing employment and government revenue is important. The seven services identified are namely Tourism, Labour Services, IT and BPO Services, Health, Education, Engineering and Hydro Electricity. It has been unanimously felt that Nepal has the potential to perform better in these service sectors provided there is an encouraging working environment. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Trade Facilitation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Trade treaty is only a means and not an end in itself towards enhancing greater market access. The growth of trade basically depends upon the conditions that are created within the national boundary in respect to measures related to investment promotion and improvement in governance. Speedy trade facilitation is the key to success. Trade facilitation at its core aims at developing competitive advantage. Work on trade facilitation like simplification of customs procedures, criteria for procedures of transit and standards verification and transforming policies and rules in accordance with those of its major trading partners India and China, are of immense importance. Improving productivity and strengthening supply capacity remain the basic consideration guiding the development of the commercial sector of the country. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Internal Preparations</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal is a country with major potential that needs to be realised and enhanced through various policies and related initiatives. At the same time, it has to address a number of difficulties linked to its logistical, financial and stability related concerns. The multilateral trading system can contribute towards Nepal’s potential gain in many ways. Trade-related aspirations to diversify trade and production bases into dynamic new products and services, integrating trade and trade capacity building policies into national development strategies, maximising benefits through development of effective labour market standards and institutions and striving for an ambitious, comprehensive, balanced, equitable and development-oriented outcome, are vital. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">To realise the benefits of the trade agenda, having hassle free market access through reduction of tariff and non tariff barriers, facilitation measures through increased connectivity, customs harmonisation, simplification of trade rules and procedures and efficient trade logistics and the enhancement of supply side capacity, are crucial. With the help of all the benefits – present and potential – Nepal will be in a better position to address the supply-side constraints, achieve better market access and help raise its domestic growth with greater equity. This assures help to increase above 4 per cent growth rate which Nepal has been stuck with, for some time. To increase export, there must be an increment in investment for production, both domestic and foreign, that can positively affect the investment and thereby exports. </span></div>',
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			'created' => '2011-06-03',
			'modified' => '2011-06-04',
			'keywords' => '',
			'description' => 'The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.',
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	(int) 9 => array(
		'Article' => array(
			'id' => '343',
			'article_category_id' => '40',
			'title' => '‘We Are Mainstreaming Trade Into National Development Programme’',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/purushottam ojha.jpg" style="width: 182px; height: 185px;" vspace="1" />Purushottam Ojha</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Secretary</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">Ministry of Commerce and Supplies</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are identified as priority items for trade by NTIS (Nepal Trade Integration Strategy). How sustainable are these 19 products?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes&nbsp;12 goods and seven services are identified. They have been identified after careful scrutiny of their potential for development along the value chain and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. These are products and services in which Nepal has comparative and competitive advantages. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, it is important to increase employment and government revenue. Identification and selection alone cannot meet our objectives. We have to create necessary environment in the country to develop these products in a manner that will ensure sustainable trade in the future. Most of these products are related to agriculture. It is important to enhance the productivity, productive capacity and product quality in them. For this, we have to go on adopting good agricultural practices, integrated pest management and quality control mechanism. At the same time, we need to focus on improving the quality of infrastructure, for example in tests and certifications to ensure acceptance of the products in the international market.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>It is said that improved supply-side performance is the key to achieving sustained economic growth. What is hindering the improvement in supply side capacity?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Over the years, we have been enjoying increased market access in various destinations as tariff barriers are being lowered. However, there are certain non-tariff barriers that are hindering the export from the least developed countries (LDC) like Nepal. We have to address these issues as well. Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade. The causes for the hindrance in improving&nbsp;the supply side capacity include lack of adequate infrastructure - particularly transport infrastructure, energy supply, rising problems of labour unrest and law and order situation.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can we overcome these supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">There are certain barriers for increasing our trade capacity as I mentioned earlier. We need to address these important issues to attract more investment and improve investment climate that will eventually help overcome supply side constraints. It is essential to bring more investment in the production as well as service sector. But it largely depends on political stability, law and order situation, industrial relations and adequacy of infrastructures. These need to be addressed in a coherent manner. We also need to increase our collaboration with development partners to get more support in the areas of economic cooperation and trade development. Enhancement of market access is crucial from the perspective of LDCs like Nepal since non-tariff barriers are being raised by importing countries in the name of plant and animal health, food safety, environmental concern and labour rights. Nepal is raising the voice against such barriers in bilateral, regional and multilateral forums.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepal been able to benefit from trade despite having huge markets in the north and the south?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that the economies of both our neighbouring countries are increasing by leaps and bounds. The GDP growth rate of China is almost in the double digits and India’s GDP is increasing by eight per cent annually. Statistics show that trade between India and China is also increasing and has reached US$ 60 billion. They are aiming at increasing it to US$ 100 billion in the next five years. Despite such increased industrialisation and trade activities in neighbouring countries, we have failed to benefit from this. We need to adopt appropriate policies within the country to link our trade and economic relations to get the spill-over benefit from our neighbouring countries. We also have functioning trade agreements with both these countries but we have not been able to harness the potential benefit of exporting our goods and services. There are certain inherent problems associated with it. There are several non-tariff barriers to our exports in India and China. We need to enhance our efforts to remove these barriers. We have entered into an agreement with the Government of PR China in April 2010 to provide duty free access to 4,721 products in six digits customs tariff line. However, our industries and exporters have not been able to fully utilise this opportunity. We have initiated the process for assessing the situation and the reasons behind non utilisation of market access opportunities. This would require a constructive dialogue and deliberation between the government and businesses on both sides. Besides, we need increased engagement with our neighbouring partners in the area of economic cooperation for enhancing productive capacity in sectors like agriculture, manufacturing, export trade and infrastructure.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepali economy benefited from trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is not true that Nepali economy is not benefiting from trade. But the question is about the level of benefit that we are harnessing.&nbsp;For this, we have to follow the path to sustainable and inclusive trade development. Trade is the output of total economic activities of the country. Trade cannot operate in isolation. Until and unless we develop our agriculture, forest, manufacturing and the service areas, trade cannot happen. All sectors of the economy should move towards the same direction and work in harmony so that there will be value addition in the export. Such a situation will help create employment, increase revenue to the government and bring more foreign currency. It will ultimately lead to the improvement in the macroeconomic situation of the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why do you think Nepal has not been able to capitalise on WTO membership?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The WTO membership has brought both opportunities and challenges to Nepal. Opportunities - because we have market access to all member countries and we can engage in constructive dialogue in the international trade forum through WTO. At the WTO, we can raise our voice together with likeminded countries to get more support from developed countries to remove market entry barriers and enhance our trade capacities. Besides, there are challenges. Ever since the liberalisation of tariff under multilateral trading system, our products have to compete with products from other countries particularly in big markets like the EU, the US and even in India. Since the tariff rate is going down, other competing countries are finding it easier to enter into these markets. This has proved to be a major challenge to maintain our market share in these markets. We have lost the export of some products like carpet, garments and pashmina in the international market and vegetable fats in Indian market during the last decade due to this reason.&nbsp;Accession to multilateral trading system and regional trade arrangement is not the panacea to remove the problems of trade. Rather, we need to develop our capacity to face increased competition on one side and utilise the opportunities available under regional and multilateral trading system on the other.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal currently has a huge trade deficit. How can this be lowered?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that we are facing a huge trade deficit. During the last couple of years, exports have not increased and imports are galloping. In the last fiscal year, we had the record trade gap of around Rs 315 billion. Most imports are consumption items like petroleum, cars and gold. The gold does not directly contribute to enhance the economic activities. So, it is an alarming situation and a challenge for the policy makers. In the midst of such a precarious situation, the Government of Nepal has launched Nepal Trade Integration Strategy (NTIS)-2010 which seeks to identify and develop some key essential products and services to build our export base in a sustainable way. We must correct the deficiency which is hampering the growth of economy and the investment climate. We have to improve law and order situation, industrial relations and management of government-owned industries. We also need to develop adequate infrastructure and improve the regulatory regime so as to help in building confidence among investors. Similarly, streamlining of the transit procedure, incentives for industries like tax rebate, monetary and non-monetary incentives and improving governance systems are among the suggested reforms. Until and unless we improve our investment climate, it will be difficult to motivate and convince potential investors to invest in the industries or in any other sectors. Unless we have investment, we can improve neither international trade nor the supply situation within the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The relatively stronger trade sector of the past has diminished gradually over the last decade. What can be done to revitalise trading sector again?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">During 1990s, we saw the growth of industries and trade in terms of export to India and other countries. But the industries we were nurturing during this period were not found sustainable. Carpet, garment and pashmina are no longer our niche products as many countries export similar goods. We were unable to improve the capacities of our industries in terms of economies of scale, quality and design of the products. The enhancement of productive capacities would require several steps as behind-the-border measures. One case in point is the development of Special Economic Zones (SEZ) for relocation of industries by providing one-stop services to industries in such zones combined with flexibility in labour regulations and tax rebates.&nbsp;The project for establishing special economic zones in the country was started some 12 years back but it is still in an indeterminate state as the development of physical infrastructure and creation of necessary legislation for regulating the zone is stagnant. Similarly, there is need to revisit laws related to the regulation of trade and investment regime, particularly the Industrial Enterprises Act and Foreign Investment and Technology Transfer Act (FITTA)-1992. The revival of Nepali trade will largely depend upon right choices of products and services in order to become sustainable. Efforts are to be made for maximising domestic value addition optimising the utilisation of human capital as well as other factors of production including land and natural resources which will culminate into healthy growth of economy. The growth of trade during 1990s was largely based on tariff arbitrage. When that arbitrage opportunity diminished, many such industries could not sustain. The Government of Nepal is now realigning trade through the manifestation made in NTIS-2010, Trade Policy-2009 and the current Three-Years Interim Plan (TYIP).&nbsp;Now, the challenge is to implement them in true spirit. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There are special privileges like zero tariffs &nbsp;for LDCs. How can we benefit from that?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal enjoys zero tariffs in many countries that belong to the Organisation for Economic Cooperation and Development (OECD). The European Union provides duty free access to the products from LDCs under the Everything but Arms (EBA) initiative. Countries like USA, Canada and Japan provide Generalised System of Preferences (GSP) facilities to many products from countries like Nepal.&nbsp;Besides, Nepali products also enjoy zero tariff facilities in Indian and Chinese markets. Therefore, it is not the problem of market as such. Nepal, together with other least developed countries around the world, is pleading duty-free quota-free (DFQF) market access in developed and developing countries right from Geneva to Washington DC.&nbsp;The most important aspect is to increase our supply side capacity and competitiveness. Since zero tariff is available to all LDCs, only those can export to these markets who are more competitive. This would require revisiting the trade and export policy with a focus on choices of right products, improvement in quality and diversification of design and reduction in the cost along the value chain.&nbsp;Being a landlocked country, the transit transport cost is generally higher. Simplification of transit procedures and reduction of cost of transit is vital for Nepali trade.&nbsp;</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A new concept ‘Aid for Trade’ has been gaining currency. What kind of reforms should Nepal make to get optimum benefit from it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Aid for Trade is a new concept that emerged during the last decade. There is consensus and commitment among developed countries to support LDCs for trade development. There is a notion that LDCs need trade and not aid and this view is often expressed in various international forums. Developed countries and development partners should come forward to support product development programmes, development of trade infrastructure like inland clearance depot, container freight station, special economic zones, roads and other forms of transportation in order to enhance the trade capacity of the LDCs. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. Pledges are made through international forums for aid for trade initiatives. However, the pace of implementation and the rate of disbursement are very slow.&nbsp;Some donors have played a tricky game just by renaming the regular official development assistance (ODA) as the aid for trade allocations which is not the spirit of these initiatives.&nbsp;Aid for trade is another stream of foreign assistance besides the regular allocation of ODA. In Nepal, we are considering creating a Fund for trade development in consultation with various development partners. An inter-ministerial task force is working on devising necessary regulatory framework for the administration of the Fund.&nbsp;&nbsp; </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The Government of Nepal has already taken steps for mainstreaming trade into national development agenda. Trade cannot be looked in isolation and is not a concern for the ministry of trade only. There are several entities and ministries associated with it. We have to bring them together to promote trade in goods and services. We are also aiming at getting adequate support from development partners to complement the national effort. If some products and services are important from trade perspective, they should get immediate attention for development and promotion. Support must go to the grassroots level, i.e. the enterprise level and the farm level so that benefits from export trickle down to the producers and growers. The assistance under aid for trade initiatives encompasses various sectors that contribute to trade development and thus various ministries and private sector entities have a role to play. The Ministry of Commerce and Supplies will work as the national focal point and coordinator for creating synergies of this effort. </span></div>',
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			'description' => 'Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification,...',
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		'Article' => array(
			'id' => '342',
			'article_category_id' => '40',
			'title' => '‘Dealing With Supply Side Constraints Will Help Our Export Prospects’',
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			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/vidya nath nepal.jpg" style="width: 189px; height: 213px;" vspace="1" />Vidya Nath Nepal</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">President </span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Centre for Public Policy Dialogue and Former Special Secretary of Commerce</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest &nbsp;of the world.</span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><br />
	</span></div>
<div style="text-align: justify;">
	<strong>How do you evaluate the current trade situation of Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">I have been observing the economy and policies for the last four decades. But the trade deficit was never this bad. Today, the deficit is in billions of rupees which is a painful situation. The import growth has spiralled while the exports have dwindled. Nepal’s value of exports for the year 2001-02 was more than Rs 45,000 million which reduced to only about Rs 41,000 million in 2007-08. On the other hand, imports in the same period increased from about Rs 103,000 million to Rs 154,000 million. Export to India remained almost stable while export to other countries decreased sharply. During this period, about 63 per cent of Nepal’s total exports went to India while about 59 per cent of its total imports were from India. Thus, Nepal’s total trade with India was about 60 per cent. The increased import has been largely for consumption materials rather than for raw material or industrial inputs. For example, gold and many other goods are imported into Nepal considering the Indian fiscal policy. Our liberal trade policy does not allow controlling imports. According to our law, we cannot prohibit any business, we can only restrict only a few items. Nepal is the most liberal country in entire South Asia in terms of its trade policy. We don’t have any import restriction and quantitative restriction. We have very small negative list for imports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How do you compare the current situation with the past?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Current trade situation has grown very weak when compared to the past. Increasing trade deficit is evident. An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest of the world. There is very little attention towards production of exportable goods. There is no favourable environment for that. Therefore the trade situation has worsened now. In 1996, a trade treaty was signed with India. In that treaty there were very little restrictions on export to India, the negative list was shorter and the rule of origin was not so strict. The treaty renewal in 2002 retracted such liberal provisions. The rule of origin was made tougher. Similarly, India exerted quantitative restrictions on some products. That disrupted our export. The political turmoil after 2002 and the resultant current transitional phase has led to poor trade situation compared to that of the past. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What are the main reasons for poor development of Nepali trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Trade has to be looked on the basis of import and export. The import is continuously increasing but that is not a reason to rejoice. To increase export, there must be an increment in investment for production. Investment can be both domestic and foreign. Forget about the foreign investment, even the domestic investors are not encouraged to invest. The main reason is the volatile and unstable political situation. Because of this, there are no new investment and production of exportable items. Apart from that, there are issues of labour, peace and security, industrial security and unstable policies that have put investors at bay. A policy must last for at least five to 10 years to attract investment. But in Nepal that is not the case. Government is changing frequently, and every change of government brings change in the policy too. Since last year, also the interest rate has sky rocketed due to liquidity crunch in the financial institutions. That has also affected the investment and thereby exports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal faces non-tariff barriers with its trading partners. How can such barriers be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We are the member of WTO, SAFTA and BIMSTEC along with our trade partners like China and India. WTO’s policy states that the non-tariff barriers must not be exerted unless it is justified. There should be certain tariff barriers but very little. The trade must be gradually made free by removing the restrictions. The facility given to one country must be provided to other country too. In spite of this, agriculture based products’ export to India face a lot of non-tariff barriers. For example, when some agro-products have to be exported to India from either Sunauli or Birgunj, quarantine tests have to be carried out at a far away laboratory. That adds huge cost for exports. One of the main problems with export trade of Nepal is transit cost which is usually prohibitive. The transport cost from here to Kolkata, the main port for Nepal, is to the tune of 14 to 40 per cent of the cost of material. With such high cost how can we compete in the international market? Documentation barriers are also severe as the documentation process takes months and that further hinders the export. Internally too, we have constraints in trade facilitation. In Indian ports too, there are numerous problems like unavailability of ships and lengthy procedures. Such non-tariff barriers added to the tariff barriers are hindering our export. Though India has provided customs free export from Nepal to India in certain goods it levies special duties on them. Sometimes, state governments in India levy additional duties according to their local rule. A complaint on such case gets lost in the Indian bureaucracy and as a result, Nepal’s exporters face harassment.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal also has severe supply side constraints. How can they be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true. Though various bilateral, regional trade agreements like SAFTA and multilateral trade arrangements like WTO have been providing us access to different markets through manner similar to reduced customs duties, we are not able to benefit form that. Under SAFTA, hundreds of items can enjoy concessional entry into other countries. WTO has the philosophy of liberalisation of trade by reducing tariffs. Compared to the last decade, the customs duties have declined even for entry into India. The trade access we got through bilateral, regional and multilateral agreements have not been fully utilised due to supply side constraints. What can we export when we can’t produce goods here? There is no investment environment and the cost of production is high while labour productivity is very low. There are problems with lengthy documentation, labour issues, peace and security and increased interest rate. If we do not have any supply side constraints, our export would definitely increase. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Industrial and trade policies are not translated into acts and regulations. Even if they are enacted, they are overlapping and contradictory. Labour issues are never settled. Quality of infrastructure like transport, power supply etc is very poor. The ADB report of 2009 says the syndicate system of trucks is common in the country and the transport cost has increased as high as 55 per cent. Research and development aspect has been largely neglected. Technologies are outdated and innovation is non-existent. Institutions in particular are weak and ineffective. Private sector is not properly promoted by the government. Unless we can correct ourselves on these counts, supply side constraints will prevail. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal enjoys numerous facilities under WTO regime as well as being an LDC. How can we utilise such advantages?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">WTO believes in MFN (Most Favoured Nation) treatment. There should not be any discrimination under this system for any country. There was a Ministerial meeting held in Doha where it was decided that WTO would provide various technical assistance to strengthen the supply side of the LDCs to increase their export potential. Little has been done on that front and that is insufficient. WTO’s provision of differential treatment to the LDCs has not been effectively implemented. Facilities like ‘Aid for Trade’ are just for name. We have not received any sufficient amount on this account. There is a need for strong and effective negotiation from LDCs as a group which is lacking so far.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Our government through our embassies abroad should strengthen economic diplomacy to promote trade to respective nations by identifying suitable products. We have failed to do so. There are a few products that we can export to India. For example, Nepal can take huge benefit if producers concentrate on exporting vegetable ghee, cardamom, GI pipe and noodles to India. Tea and ginger are exported to India but it re-exports them. From our side, it is better to export our products directly to the final destination. Nepal should identify the negative net trade of a particular country and work on exporting such goods to those countries. We have failed to move ahead in this direction. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Investors are reluctant to increase investment citing unfavourable investment environment. How can trade be enhanced amid such problems?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The main reason behind investments remaining stagnant is political instability, frequent changes in policy, labour issues and security problems. Foreign investors seek easy exit if they do not see profits. There is difficulty in such exits and liquidation procedure takes years. Foreign investors can’t wait that long. Nepali raw material based industries would be sustainable in terms of export trade. However, that concept is not necessary to apply in international trade in the course of industrialisation. Hong Kong and Singapore are examples of countries that do not have their own big manufacturing units, but have benefited by exporting assembled products. However, if we can export goods by processing our own raw materials, we would have more comparative advantage and we would not have to spend foreign currency in importing raw materials. A study shows that Nepal’s products that have highest potential of export in the long run are tourism and hydropower. However, remittance is the biggest source of foreign exchange earnings currently. At the moment, around 80 per cent of foreign exchange earnings is through remittance. Tourism ranks second. Hydropower projects are capital intensive. Nepali capital is hardly enough to run even one Tamakoshi project. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The government should be proactive in providing all facilities mentioned in industrial and trade policies to increase production and promoting exports. However, private sector should also run businesses on the basis of corporate culture with new technology and increase their competitiveness. On an average, it takes about 31 days to clear seven procedures to do business in Nepal. This process time is the longest among the SAARC countries. Similarly, it requires 41 days to export products out of Nepal. Thus, the businessmen are suffering from over regulations, corruption, dishonesty, lack of transparency and political interference. According to WEF report of 2010, Nepal ranks the lowest among all SAARC countries in quality institutions. Therefore, the expectation is that the private sector will increase production and export in spite of the weak government. They have the initiative and the mission while the government is indifferent as well as inefficient.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are selected by the NTIS as priority products. How realistic is this selection?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">They have selected 19 goods and services following a lot of studies. Among them, seven are from the service sector like IT, health, education and tourism among others. I feel we can do better in these service sectors and have the potential if there is good working environment. There are agro based products too but I don’t think they are sufficient. Since our production depends on imported technology, we must select products that generate high profit in low volume items. If we can focus in the coming decades on these 19 products by creating favourable environment for investment that would certainly benefit our trade prospects. </span></div>',
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			'description' => 'An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest  of the world.',
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	(int) 11 => array(
		'Article' => array(
			'id' => '341',
			'article_category_id' => '40',
			'title' => '‘Aid For Trade Can Do Nothing About Our Governance Problem’',
			'sub_title' => '',
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			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" height="226" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/ratnakar.jpg" vspace="2" width="200" />Ratnakar Adhikari</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">General Secretary </span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">South Asia Watch on Trade, Economics and Environment (SAWTEE)</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to &nbsp;inefficient industries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The trade policy of Nepal is more liberal than some other developing countries. Why then has trade failed to contribute to our national economy and development?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Having a liberal trade policy alone is not sufficient to increase export potential. Second, Nepal is still not more liberal than Sri Lanka and Bangladesh. Other countries have become more liberal, not only in terms of tariff and non tariff barriers but also in terms of trade to GDP ratio. If you see that the trade to GDP ratio is increasing, you can conclude that the country is more integrated into the global market. Theoretically, we have to be in a position to gain because we are liberalised. That is the classical theory of anti-export bias produced by Bhagwati and Kreuger in 1978. They say that if you protect your domestic industry, you will be raising the barrier for export because protection of domestic industry through tariff will in a way raise the price of import which will be used in the export processing sector. Eventually, your export will suffer. However, theories apart, in today’s world, having a liberal economy is no guarantee that you will be able to export too. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There is a heated debate under the Doha Round between the developed and developing countries. How justified are the arguments of the developing countries?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Agriculture is our livelihood and we should be in a position to protect our agriculture sector when required. The special safeguard measures proposed by the developing countries are useful. If you open up the entire agriculture sector in which the protection is already lower compared to industrial products, there could be other problems like food security, livelihood, social tension and others. In agriculture, I fully agree with the position of the developing countries. In terms of industrial products, most of the developing countries which are liberal today and most of the OECD or developed countries had protected their industrial sector during their respective process of economic transformation. So, it is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to inefficient industries. You have to allow a certain degree of competitive atmosphere. If you think that they will be able to do better in the long run, then you have to provide protection for a limited period of time.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">On non tariff barriers, there are two things that we have to understand. The first is that certain non tariff barriers are related to environment, consumer preferences and health and safety of the consumers. Such conditions on the basis of scientific evidence are imposed in the form of non-tariff measures. For example, if Aflatoxin causes cancer and we export certain agricultural products containing Aflatoxin which is at a level higher than globally accepted, then our product gets rejected. It’s not the fault of the importing country. We have to be able to improve our infrastructure, laboratory system, human resources and legislative arrangements in order to be able to fulfil the requirements. But there are certain non-tariff barriers which are protectionist in nature. We oppose these protectionist barriers. In terms of services, the developing countries are demanding the liberalisation of labour movement from one country to another. It has been proved that three per cent increase in labour force from the developing countries would result in global welfare gain of 300 billion dollars. This is something that needs to be pondered upon.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Finally, on trade remedy measures, developing countries do not have a serious position except saying that the developed countries are using trade remedy measures as a protectionist device. That may not necessarily be the case. So, on the whole, their position in the Doha Round is quite justified given the socio, economic and political situation of these countries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs find it difficult to implement some of their WTO commitments. How would ‘Aid for Trade’ help to implement such commitments?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Aid for Trade (AFT) does provide necessary help to the developing countries and LDCs to implement some of the WTO commitments including drafting of legislations, preparing of regulations and putting in place the institutional mechanism that are required to take advantage of the export opportunities offered by the WTO.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can ‘Aid for Trade’ help overcome supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Supply side constraints need to be divided into two different categories. One is supply- side constraints that results from our fluid political situation. The strikes and various political demonstrations make us unable to ship our goods on time. AFT cannot do anything about this. Then, there are supply side constraints that are resulting from our lack of resources or our inability to utilise resources properly in certain areas like infrastructure, development of roads, transportation, electricity and skills. People do not have the necessary skills to produce goods in a competitive manner. We have customs infrastructure which does not even measure up to regional standards. That needs to be improved. Besides, we do not use the required technology to be more productive and competitive in the international market. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Some people interpret ‘Aid for Trade’ as the same money from the same window as human rights aid. What is your take on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">That is not true. AFT includes only six components. The first is the economic infrastructure which is the money provided for road, electricity, and communication. The second category is the money provided for building productive capacity in agriculture, industries and services sectors. The third is a trade development category which is basically the money provided for export promotion and development of trade. The fourth category is trade policy and regulations for helping countries to implement their WTO commitments, including enactment of legislations and capacity building of various institutions in the country. The fifth one is called trade related adjustment which is basically the money provided to countries to implement trade liberalisation measures and protect the country from negative affects of trade liberalisation. It involves retraining people who lose their job because of trade liberalisation and finding alternative employment opportunities for them. The sixth category is ‘others’. Others could be anything if the donors and recipients agree to call a particular aid as AFT. The other way of looking at this is: AFT is Overseas Development Assistance (ODA) minus the money provided for various areas, for example, health, education, environmental conservation, human rights, women empowerment and peace and conflict. Human Rights is of course a separate area altogether.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you think ‘Aid for Trade’ will succeed in Nepal as many other aid programmes have failed to generate the desired output?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">There is no evidence to say that aid has not helped Nepal’s economic growth. The opinion is divided here. As a researcher, I would be reluctant to say that aid hasn’t helped. At the same time, I wouldn’t vouch that foreign aid has helped tremendously. However, it has certainly helped in meeting the saving and investment gap. If the foreign aid was not provided in some areas, for example, the health sector, it is difficult to say whether we would be able to do something. In the case of AFT, I am not very excited. If there is real additional money coming as AFT, that would definitely be helpful, but not if it is repackaging of money diverted from other areas. Next, it has to be predictable. If certain donor countries are going to provide certain amount of money, they have to guarantee the fund for a multi-year period.&nbsp;It is also the issue of sustainability which is not only about donors providing money on time. It should be taken into account whether the government is ready to take charge of the projects once the donor funding ceases. If a donor provides money for three years, you can’t ask the donor to provide money for the entire period of the project even if the results are good. If you can operate the project on a commercial basis, the private sector will take over. If you are not working on the commercial basis, then government should step in and provide sustainability to the project. The final issue is the effectiveness of the aid. The Paris declaration of aid effectiveness should be the guiding principles for enhancing the effectiveness of AFT. These criteria would actually determine the success of the project. If these criteria are met, the chances of AFT working for the country are fairly good. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts say we lack basic trade infrastructure. What kind of problems and challenges do you see that hinder Nepal’s sustainable trade development? What should be done?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Basic infrastructure is necessary for the country to be able to expand its export on a sustainable basis. A study shows that if a shipment is delayed by one day because of lousy infrastructure, it is equivalent to adding 0.8 per cent to the total tariff that you pay to the importing country. Another study says that if export is delayed by one day, the total export potential will be reduced by one per cent. Infrastructure should be the number one priority for Nepal to be able to trade on a sustainable basis. AFT is not going to be enough because we have our own governance problems to tackle. Governance issue is equally important. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts opine that international community should not only provide market access but also help LDCs in enhancing their trade capacity. If everything is to be done by other countries, what should LDCs like Nepal prioritise in their agenda?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal should fully mainstream trade in national development strategy first. In the new Plan document that is going to be prepared, it has to be included. Apart from that, mainstreaming has to be done at the sectoral level too. For example, if tea export is to be increased, then its priority has to be mainstreamed not only at the level of the Ministry of Industry but also at the Ministry of Agriculture which is responsible for promotion and growth of tea. So, all these ministries and sectors have to take into account the fact that mainstreaming is vital. The second issue is that we have to address supply-side constraints through effective governance reform as well as utilisation of AFT. But there are two aspects we have to ensure ourselves besides the sustainability issue. First, we have to improve our absorptive capacity. The government is unable to even spend the budget amount that has been allocated. How would it spend the money allocated by an external agency? However, we have seen some gradual improvement in our absorbing capacity but it needs to be enhanced further. Another critical issue is that of coordination.&nbsp;There must be coordination on how much money is coming, how it is being utilised and which sector is being prioritised. There has to be a coordination mechanism between the ministries of commerce, industry, tourism, agriculture and other related ministries that have a role in promoting trade so that there is better coordination and effective utilisation of resources.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs are worried that the current intellectual property protection regime does not recognise their contributions. How can countries like ours raise their voice to eliminate the danger of losing patent rights to compete in the international market?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Some of our properties of genetic resources and traditional knowledge are taken away by some multinational companies and universities. But in order to address that kind of problem, we have to keep our house in order. We need to pass the legislation on access and beneficiary by the parliament which is pending for six years now. The draft was prepared in 2004-05 but has not been adopted as a law. We need to ensure this as it will take care of three aspects. First, it will guide us on regulating access to our genetic resources and traditional knowledge. Second, it would make sure that when the access is provided, it is done on the basis of a prior informed consent of the local communities who are involved in conserving those resources. Third, it would ensure that those communities are appropriately remunerated. They would be appropriately remunerated for the job they have done so far to conserve the resources. With that kind of legislation, many countries have protected their bio diversity, genetic resources. It’s our fault that we have failed to follow suit. Global regime is unfair, however, we have not been able to create a mechanism at the local level to counter the unfair tendency of some global rules. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Being an LDC, Nepal enjoys numerous benefits like zero tariff. How should Nepal utilise such concessions to gain optimum benefits?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, we do have zero tariff access in selected markets. The European Union is definitely among them but we don’t have zero tariff access in the US market. The process for the same has begun but it will take a long time before such access is provided. Even if you have zero tariff access, you still have to fulfil the rules of origin (ROO) requirement. Once you fulfil the ROO, you are back to the supply-side issues because you have to create backward linkages. If a shirt has to be exported, it’s better to have the fabric manufactured in Nepal itself rather than relying on countries like China and India for the supply of materials. If we continue to get the materials from these countries, we will not be able to fulfil the ROO criteria. We have the full potential for export In some areas where ROO is not a problem. One such example is coffee which can be exported to European, Japanese or any other market in desired quantity without having to fulfil the ROO criteria because it’s an indigenous product and there could be more than 90 per cent value addition and processing in our country itself. However, we cannot export if we are not able to produce in desired quantity. Apart from production, we also have the problem of competitiveness. Even if our cost of production is lower than other countries in the world, our products will cost more by the time it reaches the final market. Let me give you an example. Imagine a situation in Gulmi where you have to organise a few farmers in the form of cooperatives while trying to export coffee to Japan. You collect 12 tonnes of total consignment and put it on the truck and try to send it. But there is a strike so you are stuck there for two days. Finally, you manage somehow and reach Birgunj customs. In order to clear the export consignment, it takes two days. Once cleared, the consignment moves to Kolkata port. It should normally take a maximum of two days to reach Kolkata port but sometimes it takes six days because there is a strike in Bihar or West Bengal which falls on the way. Once at Kolkata port, the consignment is not enough to reserve the entire ship. Now, it takes four days for the ship to fill up. Eventually, it moves from Kolkata. Kolkata is not a deep sea port but a shallow port so it can’t go directly to Japan. Therefore, the consignment on board the ship travels to Visakhapatnam, Colombo or Singapore. The consignment is transferred to the mother vessel at one of these ports and then it goes to Tokyo. In the process, you lose so much of time that you will not be competitive in the global market. So, it is not only the question of productivity and production, but also the question of being competitive in export trading. </span></div>
<div style="text-align: justify;">
	 </div>',
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			'created' => '2011-06-03',
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			'description' => 'It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to  inefficient industries.',
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		'Article' => array(
			'id' => '272',
			'article_category_id' => '40',
			'title' => 'FISCAL FACE OF NEPAL'S FEDERALISM',
			'sub_title' => '',
			'summary' => null,
			'content' => '<p style="text-align: justify;">
	<i><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut  wagle.jpg" style="width: 114px; height: 147px;" vspace="2" />By Achyut Wagle</i></p>
<div style="text-align: justify;">
	Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda. The preamble of the Interim Constitution of Nepal 2007 has baptized the country as the Federal Democratic Republic Nepal. The Article 138 of the same Constitution has provided basis for restructuring the state.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Both, the constitutional and circumstantial yokes now guide Nepal, for better or worse, to perhaps irreversible journey to federalism. But, matter of factly, that is all in theory. Practically, there is a wide political space to be covered between the present unitary state to a judiciously delineated, stable yet functionally acceptable-to-all federal structure of future Nepal. Yet again, the federal Nepal is impossible to imagine without bringing the fiscal frame of federalism into forefront of the state restructuring discourse, which now seems to have obliqued by hyperboles on either side of the political debate.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Despite an euphoria of a sort to resolutely adopt a federal system, the objectives envisaged by the Interim Constitution in this particular regard appear rather slanted. The very concept incorporated in the Article 138 does not accept federalism by-and-large as an economic phenomenon. It proposed to ‘end the disparities’ of various forms, but hardly prescribes modality for prosperity and optimal use and scientific redistribution of resources. The worst proposition in the constitution is: it has authorised the government, not the Constituent Assembly (CA) to constitute the State Restructuring Commission, which is supposed to give impartial technical inputs.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	It is apparent that the federal structure of the nation cannot be finalised without technical report from the Commission, and thus, organising constitution writing process would not <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img.jpg" style="width: 367px; height: 182px;" vspace="2" />complete without the Commission and its inputs. Apart from this, the constitutional provision regarding the Commission gives more ominous than the virtuous signal. The authority given to the government to form this Commission provides an edge to the party in power to make it comfortable to itself and therefore, chances of its report being politically biased remain higher. Why was not the responsibility of constituting such a commission vested to the all powerful CA is a question unanswered so far.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Nevertheless, Nepal has no alternative to writing a new constitution, sooner or later. That new constitutional framework must embrace the federal set of polity and structures. Of all the structures, fiscal federalism will be both – defining and delineating basis of the sub-national administrative units, and also the means to ensuring justifiable (re)distribution of resources, prosperity and welfare. For all these reasons, the fiscal federalism is and should be at the centre, in all discourses related to the federal restructuring of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Essence of Federalism</strong></div>
<div style="text-align: justify;">
	Federalism is unique and in a way paradoxical concept. First, it seeks to consolidate the national unity while creating newer and larger number of sub-national units; ostensibly by divisions. Second, its objective is to recognise the social, linguistic and/or cultural identity without diluting the overall national identity. And, the third, it strives to bring the government nearer to the people that has a better sense of autonomy in deciding their own fate, but without severing its ties and dependence to the farther government – the one at the centre.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For many, federalism is merely an administrative re-mapping of the political geography of the nation. Creation of sub-national structures, that may be called state, province, prefecture or anything of the kind, seems to the prime objective of Nepal’s ongoing debate on federalism. But, how these new structures evolve and exercise the state power – mainly to meet the economic needs of the citizenry – would determine whether any nation is essentially federal or not. Nepal cannot be exception to this fundamental theoretical premise.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The functions, duties and rights of the federal unit are defined by the extent of power a unit can exercise. Its authority depends on the adoption of universally accepted models to extract power from among the – delegation, decentralisation or devolution, or combination of all of these. And, at the heart of all of these lies – the democracy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	There are very large nation-states world over with varying number of sub-regional administrative units. But, in absence of democratic dispensation, right from the grassroots, these units can only exercise very limited state authority delegated or marginally decentralised by the centre. Only power devolved by democratic exercise can only create a federal state, true to its sense.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Fiscal Federalism at the Centre</strong></div>
<div style="text-align: justify;">
	The concept of fiscal federalism, and for all practical purposes, the entire frame of federalism, is generally summed-up in three major</div>
<div style="text-align: justify;">
	<br />
	components – namely the tax-point transfers, equalisation grants and convincingly justifiable distribution of resources mainly the natural resources among the sub-national units. There are other peripheral, operational or fringe issues too. But in effect, the main three would largely incorporate them all. There are also several models of both ‘fiscal’ and ‘general’ federalism. But, they too do not necessarily go beyond these three fundamentals of federalism.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Also, there are views against the perspective of limiting the ‘entire federalism’ to the ‘fiscal alone’ proposition. It is <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover img1.jpg" style="width: 406px; height: 461px;" vspace="2" />more apparent in Nepal’s discourse on federalism. Even the top-hats of major political parties who would be deciding the ultimate frame of Federal Nepal also tend to believe that without specific mention of issues like political inclusion, rights-based access to state and recognition of racial and ethical identities, the very purpose of federalism, at least for them, could be defeated. The level of understanding of our CA members on such technical and essentially academic issues is better not to raise here.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In fact, unlike the popular beliefs, the issues of inclusion and identity are rather purely economic issues. For example, the inclusion is not sought in any abstract issues, it is rather meant to ensure inclusion in employment, benefits and other economic opportunities. Even the preservation of identity either is an economic activity in itself, or it has a cost to develop and preserve the different facets that give an identity to people and communities – like language, scriptures, rituals, customs, traditions and culture.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	These realities make it imperative that Nepal’s discourse on federalism needs an immediate and meaningful re-orientation, so as keeping the fiscal federalism at the centre of all exercises aimed at state restructuring. And, highly extensive technical and factual details and their analyses would require deciding on the size and the borders of new sub-national states. Nepal does not seem to have even initiated the process of those financial and other statistical number crunching, so far. Therefore, the claims that constitution could be written within a month ‘if’ the parties agrees are unrealistic platitudes. Expert believe that it would take at least six months of rigorous effort for a highly competent professional team to finalise the issues related to fiscal federalism – i.e. tax, distribution of natural resources and, of course, demography and geography.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In the hindsight, this is also an indication that it is impossible to complete the constitution writing by the stipulated deadline of 27 March 2011. Also, political campaigning to create new states on the basis of caste, community or even some extreme demands like ‘One Terai, One Province’ do not present potentiality for financially viable provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Technical Considerations</strong></div>
<div style="text-align: justify;">
	Financially justifiable and economically functional sub-national delineation is going to be perhaps the most challenging aspect to give Nepal a federal shape. All three major aspects – tax point transfers, equalisation grant and distribution of natural resources among the provinces – involve larger number of murkier issues than the easier ones.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Apart from these, several other components of fiscal relations between the central and sub-national governments, financial management and its processes within the state must also be decided to effectively devolve power to the people at the grassroots. Such issues may relate, but not limited to planning, economic diplomacy, money market and specialised institutions for both fiscal and financial architecture. Given Nepal’s poor governance and slanted nature of understanding about fiscal federalism even at the top-rung of political leadership, the country seems to be making ommitive than spontaneous jump to fiscal federal structure. These are some of the reasons why these issues deserve more <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img2.jpg" style="width: 342px; height: 158px;" vspace="2" />meaningful discussion, before the country could decide on the actual frame of federalism, essentially the fiscal federalism.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Tax Point Transfers</strong></div>
<div style="text-align: justify;">
	One of the key components of federalism is the decision on the jurisdiction of major tax collection points, i.e. which sub-national government will administer or operate a particular tax point, the types of taxes a province would collect and how the collected revenue would be distributed between the centre and the state, and, sometimes among the states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In case of Nepal, the decision on the jurisdiction of tax points could face double pronged problem. First, only six customs points collect over 90 per cent of the customs revenue <i>(Table 1)</i>. And, the amount of collection at only the points that lie in two zones – Bagmati and Narayani of the Central Region, account for well above sixty per cent. The customs revenue generally accounts for 25.3 per cent of the total revenue.</div>
<div style="text-align: justify;">
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<div style="text-align: justify;">
	Similarly, the revenue contribution of four districts is above 80 per cent and this reaches to 94 per cent if added another four districts.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	This situation does not only present high tax concentration in the Kathmandu Valley and the central region but also poses a serious challenge to divide the provinces so as each of them can have reasonably attractive tax collection points within their territory. It also indicates to the reality that despite adoption of federal structure, the financial dependence of the provinces could yet remain with Kathmandu. And, even worse, this economic factor cannot be drastically altered soon by a mere political decision.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	In addition to deciding on the tax point jurisdiction, decision on the kind of taxes that provinces can impose and the taxes that would directly go to central accounts is also going to be a difficult one. Generally, property and service taxes are levied by the local bodies, sales and value added taxes go to the provincial government and customs and income taxes go to the central government accounts. This assumption appears suitable in the case of Nepal too, as our vertical administration is accordingly stratified in three tiers.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Equalisation Grants</strong></div>
<div style="text-align: justify;">
	Despite tall asks of autonomous and semi-autonomous provinces on different bases, the fiscal and financial fundamentals do not support the possibility of creating such states. The basis of autonomy is the abundance of physical and financial resources available within any given political unit. As evident in the tax collection patterns, the revenue resource does not support such an ‘autonomous state’ except the one created at the centre, incorporating Kathmandu.</div>
<div style="text-align: justify;">
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<div style="text-align: justify;">
	Until the state-to-be-created in the federal set-up are capable of mobilising their own resources, the equalisation grant, the money given by the centre, will be the most dependable source to finance the development and public delivery of goods in the provinces. Even on this count, our debate on federalism seems unduly titled to political considerations alone. In the most ideal cases of revenue and grant sources of funds, dependence to centre remains pretty high. For example, the provinces of Switzerland are entitled to keep 50 per cent of the revenue collected and Canadian ones can hold up 47 per cent of it. These are the highest rates of centre-province revenue sharing the world over. In this light, the ‘autonomous’ state advocated in Nepal appears pure farce.</div>
<div style="text-align: justify;">
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<div style="text-align: justify;">
	But, in our case, the ‘sustainability’ or ‘survival’ side of the new states has never been debated thoroughly as the issue deserved. There are also demands of creating separate provinces like ‘Karnali’. One could easily imagine the level of would-be financial dependence of such states to the centre. Such scenario implicitly infer that centre must once again remain strong as it will have to continuously dole out money to so called autonomous provinces, and, it in turn, has to be strong in effect to gather enough amount of resources to be able to meet the needs of all these new ‘baby’ states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Natural Resources</strong></div>
<div style="text-align: justify;">
	The distribution of natural resources among the new provinces is another difficult and unavoidable task on effecting federalism. There are several examples of serious disputes between the provinces regarding the rights to use such resources. The Kaveri and Narmada river disputes in India are classic examples to it.</div>
<div style="text-align: justify;">
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<div style="text-align: justify;">
	In Nepal, water, forest, mines and minerals and land (mainly cultivable) are considered major natural resources.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For us, one advantage of this resource vis-a-vis federal imperatives is that, it is fairly evenly distributed given that we agree to justifiably allocate them to generally acceptable size and number of states; say five to nine.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Recently, some campaigns misinterpreting the international instruments like ILO Article 169 have compounded the problem. But, lately the people involved in the indigenous rights movements themselves are becoming somehow disillusioned to deliberate misleading campaigns of yesteryears. However, natural resources will still remain a major basis of re-delineation and the process will surely be difficult.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Other Issues</strong></div>
<div style="text-align: justify;">
	There are several other issues which have to come to the forefront in the discourse on federalism. They include, whether a province should have authority to carry its own economic diplomacy to accept or endow financial assistance from and to international community; whether it can have its own finance bill; or would it have own supervisory and regulatory authorities independent of central oversight or would they just function as extended line agencies, etc. Equally complex is the issue of large infrastructure projects, their management, ownership and return – if any.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Unfortunately, Nepal as the country as a whole, and CA in particular as the only responsible constitutional organ to debate all these provisions to include in the new constitution, have remained far short of initiating meaningful deliberations. Whatsoever, Nepal in executing the federal structure must ensure unfringeable private property rights universally in all the states, freedom to movement of products and services as well as people, unhindered trade and business transactions between the states and uniform (underently different) tax structure, among others. n</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Article 138 of the Interim Constitution</div>
<div style="text-align: justify;">
	138. <b>Progressive restructuring of the State: </b></div>
<div style="text-align: justify;">
	(1) <span>&nbsp;&nbsp; There shall be made progressive restructuring of the State with inclusive, democratic federal system of governance, by doing away with the centralized and unitary structure of the State so as to end discriminations based on class, caste, language, gender, culture, religion and region.</span></div>
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	 </div>
<div style="text-align: justify;">
	(1a)&nbsp;Recognizing the desire of the indigenous peoples and of the people of backward and other area including Madhesi people towards autonomous provinces Nepal shall be a federal democratic republican state. Provinces shall be autonomous and vested with full authority. The boundaries, number, names and structures, as well as full details of the lists, of autonomous provinces and the center and allocation of means, resources and powers shall be determined by the Constituent Assembly, while maintaining the sovereignty, unity and integrity of Nepal.</div>
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<div style="text-align: justify;">
	(2) &nbsp;There shall be constituted a high level commission to make suggestions on the restructuring of the State as referred to in Clauses (1) and (1a)&nbsp;The composition, function, duty, power and condition of service of such commission shall be as determined by the Government of Nepal.</div>
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	 </div>
<div style="text-align: justify;">
	(3) <span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The final settlement on the matters relating to the restructuring of the State and the form of federal system of governance shall be as determined by the Constituent Assembly.</span></div>',
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			'description' => 'Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda.',
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			'title' => 'Bases For Fiscal Federalism',
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			'content' => '<div style="text-align: justify;">
	The following article represents Dr Devendra Raj Panday’s research-based paper presented at a symposium titled “Fiscal Federalism in Nepal” in August 2009 in Kathmandu. The extract is printed here with his consent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The studies on fiscal and financial federalism concentrate on how financial and monetary institutions’ functions might be arranged and a mechanism for coherent policy making and monitoring established for the state to produce expected outputs. It involves the assigning of spending, taxing and borrowing powers between the centre and the other tiers of government and the focus of responsibility and accountability in fiscal management. In many ways, it is an act of political decision and bargaining – in the course of finalising the constitution and making yearly decisions especially on taxation, revenue sharing and allocation of grants by the centre for various purposes. In all this, efficiency and equity, often in conflict with each other, become issues of major concern. In order to do the needful, the national economy has to run efficiently, produce growth and provide stability that is necessary for broader development. At the same time, the aggregate growth must not create or sustain imbalances, vertically and horizontally. It means that further continuation of centre within the periphery syndromes in governance is not acceptable from both economic and political standpoints. The discrepancies in economic and social status of various regional or provincial economies must be narrowed down with the ‘marginal benefits’ of growth going disproportionately to the disadvantaged and economically and socially excluded people across the country. There are several ways in which fiscal efficiency balanced well with equity considerations can be pursued.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	First, allowing ‘independent fiscal regime’ for the provinces should not dilute the common market character of the federation. Simultaneously, it should also be kept in mind that the free flow of goods and services and investment across the provinces can result in favour of better-equipped regions that may already be relatively better off than others. In theory, there should be economic convergence of different regions under free trade with the mobility of factors as well as goods and services. But we know from Nepal’s experience as a player in the international economy as to how difficult it is for a least developed country (or a region within a country) to compete with better endowed, resourceful and experienced economies. Less developed provinces in the federation deserve the same treatment politically, economically and morally as historically, Nepal as a least developed nation has demanded internationally, including in SAARC mechanisms.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Second, there has to be an understanding and a political consensus on the degree of competition and the spirit of cooperation to be pursued among the constituent units of the federation. The neo-liberal economic approaches sometimes display contradictory positions in this respect. On the one hand, there is the market preservation argument which expects the federation to work in harmony and have the states produce and trade goods without any barriers that would endanger the national market’s efficient working. On the other, there is a view that there should be constitutional guarantees against regulating inter-state flow of goods and services, to perhaps avoid the kind of situation in India where there is no harmony in some taxes levied in the states and on their policies concerning inter-state movement of goods and services. Meanwhile, the liberal ideology also illustrates the idea of ‘competitive governments’ and argues that the states must compete with one another in providing incentives to attract mobile capital and other factors into their territory to punish the laggards. The preference for competitive federalism where the states may compete among themselves to maximise their own welfare at the cost of other provinces may reflect the ‘beggar thy neighbour’ strategy of yesteryears. This is a critical point since, like in the overall design of economic liberalisation, only the relatively prosperous states would benefit from competitive economic and fiscal policies. In post-1990 India where the states are encouraged to compete with each other for attracting investments into their territory, some states have done well, but at the cost of growing inter-state disparities and regional imbalances. Nepal can ill afford a similar practice. It would also run counter to the social objective of federalism which is to reduce disparities and imbalances, not to increase them. Once again, purposeful pragmatism calls for an approach that would optimise people’s welfare at the provincial and local levels and encourage entrepreneurship and investment all around without the states jeopardising each other’s interests and the overall interest of the national economy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Third, in the practical task of expenditure and revenue assignment, efficiency consideration is implicit in the widely held opinion that before considering taxation, assignment of expenditures among different tiers of government should be taken care of. The idea in this ‘money to follow work’ principle is that taxation and borrowing powers of the states and assumedly, the centre’s should not be independent of specific obligations they undertake for discharging public functions and the volume of expenditures required for that purpose. The idea is to ensure that all states are empowered to provide comparable public services regardless of their revenue capacities. Beyond this, the expenditure assignment is expected to be guided by economic considerations whereby the central as well as provincial and local governments provide services whose benefits accrue to the residents within its jurisdiction and where the costs of the provisions incurred can be internalised within that jurisdiction. To put it simply, the responsibility for the provision – where the benefits from a given service are distributed nation-wide such as the country’s defence, the Supreme Court or the national highway system – lies with the centre. If the benefit incidence of a given service is limited to primary and secondary education or water supply and sanitation, the provision is best readied by provincial and local governments. The opportunity to save on transaction costs and the possibility of harnessing the economy of scale in fiscal operations are associated elements of the process.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fourth, in a developing country where both the expectations and the requirements of the people are high, assigning expenditures for the centre and the constituent states does not only mean slicing the existing budget into central and provincial items of expenditure and dividing tax revenue accordingly. It also means taking into account the responsibilities to deliver services that the people could not have earlier. It also means undertaking various development works for generating social goods that can be provided or ensured to finance them. The challenge will arise from policy matters and in the pursuit of related priorities. For agriculture, education and health among others, the centre may wish to promote certain norms and targets considered desirable from the national viewpoint. The states in charge of these assignments can have different ideas especially if the same political party or the coalition of parties is not in charge at the centre and specific states. The centre will have other concerns including those that are part of its international commitments. Such commitments can be about trade and environment as they can be about national and international human rights standards concerning the status of women, children, indigenous people etc. And there are commitments about Millennium Development Goals (MDGs) with further complications arising from the possibility that many of the related functions will come under the purview of provincial governments. Consequently, expenditure assignment also becomes responsibility and accountability assignment against which the availability of matching revenue needs to be guaranteed. The centre has an obligation to address these issues as it negotiates the tax sharing arrangements and, particularly, the conditional and unconditional grants’ transfers from the centre to the provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fifth, there are four areas of concern that should guide the process on taxation. One, every jurisdiction needs adequate tax revenue to finance the assigned and necessary expenditures. To make up for the shortfall in one jurisdiction, the better endowed among others should have the incentive to engage in revenue sharing. Two, efficiency consideration will be as important in the assignment of taxing power as in spending, more so due to its direct impact on the working of the common market. The incentives and disincentives in the tax structure on a given jurisdiction, especially for the mobile factors and the consumers of public services are critical. Taxation assignment requires appropriate study of tax bases, possible overlapping of incidence, the spill-over effects and the population that stands to benefit from the spending facilitated by such taxes. Three, the distribution of taxing authority among the different tiers of government has a significant bearing on equity. The residence based taxes on income and property may be appropriate for the provincial and local governments, but any tax with significant redistributive power, such as progressive income tax becomes suitable only for the national government to enforce national priorities on equity and broader development. Four, administrative efficiency including transaction cost considerations will also guide the assignment of taxing power. On this basis, some taxes become suitable even for sub-provincial or local governments for eventual sharing vertically where local conditions and administrative set up can help administer it better.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Sixth, apart from the question of specific taxes to be assigned to the centre and the provinces, a decision about the collecting agency is also important. Some taxes available for meeting public expenditures may be collected and used by only one jurisdiction. One such example could be the property tax levied and collected by local governments. Such tax base can also be shared between the local and provincial governments. Some taxes may be collected in one jurisdiction and used by all. For example, income tax can be collected by the centre and shared with others. In all these cases, the tax base, its incidence and the administrative cost of collection will be important considerations. From a political perspective, the perceived or pursued autonomy of the provinces vis-a-vis the centre will play its part. There is a potential conflict in the way one asserts ‘states power’ and the compromises needed in the interest of efficiency as well as equity in the interest of national bonding.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Seventh, as in Nepal’s case of federalism by ‘devolution’ and not ‘aggregation’, the central government retains its basic strength and power which applies to fiscal arrangements too. The centre must have absolute power to collect taxes from the domains of individual provinces and use the funds collected to meet expenditures it deems important across the country. In almost all the important federal countries, the share of the central government in total public revenue (collected by the centre, the provinces and the local governments) is above 50 per cent. In Nepal, the economic reality – the likely wide variations in the economic status and revenue bases of different regions and the social imperative of redistribution – will undoubtedly vest the centre with considerable authority and responsibility in this respect.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Finally, besides redistribution, it is critical that the central government be adequately empowered to undertake stabilisation functions, on the one hand, and monitor the economic and distribution effects of inter-jurisdiction competition, on the other. It is prudent and practical to let the centre have exclusive authority over stabilisation function and use its power of the purse in a way where the provincial governments have an incentive to follow the national priorities even as they are bound to come into conflict with priorities established by them in their provincial interests.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<i>(Dr Panday retired from government service as Secretary of Finance and became the Finance Minister in the first government formed after the restoration of democracy in 1991.)</i></div>',
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			'title' => '‘We Need A Strong Central Government With Fiscal Redistribution Power’',
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			'content' => '<div style="text-align: justify;">
	<b><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/Dr Ram Sharan Mahat.jpg" style="width: 192px; height: 217px;" vspace="2" />Dr Ram Sharan Mahat</b></div>
<div style="text-align: justify;">
	Former Finance Minister</div>
<div style="text-align: justify;">
	The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How would mobilisation of resources take place under the federal structure?</strong></div>
<div style="text-align: justify;">
	Mobilisation of resources is imperative to run the government irrespective of whether there is a federal structure or not. Under the federal structure, there will be governments both at the central and provincial levels. Therefore, resources will be mobilised at both ends. Apart from the revenue sources under their respective jurisdictions listed in the constitution, there will be a concurrent list of revenue sources imposed at both levels. In federal countries, the centre as well as the provinces impose taxes and duties such as income tax and excise duty which raises the burden on the taxpayers. Duties are normally collected by the centre at a single point for administrative convenience but shared at both levels. In addition to the central tax, the provinces piggyback to a certain extent, however, remaining within limits defined by the respective framework legislation. For example, if the central income tax is 25 per cent, the province may add another 5 per cent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The source of revenue in Nepal at present are centralised in a few districts. Under such situation, how can fiscal balance be maintained when Nepal becomes federal?</strong></div>
<div style="text-align: justify;">
	This is definitely a big challenge. The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run. People think that once they have a separate province, they will have all the autonomy and freedom. But if the province has no resource of its own and depends on the central allocation even for day-to-day administration, the autonomy has no meaning. Therefore, one has to be very careful while carving out the provinces. The decision should also be based on long term viability and economic sustainability of the regions, in addition to other considerations. Unfortunately, at present the most vocal demand relates to provinces based on ethnicities.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you see the danger of regional disparity due to unequal distribution of resources and sources of revenue?</strong></div>
<div style="text-align: justify;">
	The common fallacy among the ardent federalists in Nepal is that regional disparity will be narrowed and poverty banished once there is a federal structure. This is wrong. Resources and development potential are unequally distributed and so are the revenue sources. Competition among provinces with differing resource endowments could accentuate regional disparities instead of narrowing down unless there is intervention from the centre. For this, the centre must be strong with redistributive power. In the USA, there are serious regional disparities. West Virginia’s per capita income is less than half of Connecticut’s. In India, Haryana’s per capita income compared to UP and Bihar is three to five times higher. Please note that India is not the perfect example of a federal structure. India, at best, can be regarded as a quasi federation with a strong centre. So, this situation in India is despite central intervention.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What should federal Nepal’s fiscal policy focus on to ensure appropriate and equal distribution of resources among the provinces?</strong></div>
<div style="text-align: justify;">
	There is no alternative to a strong central government with fiscal redistribution power to ensure equity and economic justice. All provinces should have uniform access to basic services like education, health, electricity, roads and other socio-economic services. For this to happen, poorer provinces will need central support through a mechanism called Equalization Fund. A fiscal mechanism to ensure transfer of resources from rich to poor provinces is necessary. It is precisely for this and other reasons that revenue from major sources like customs, income tax, and partially VAT and excise must go to the centre. If you look at Nepal’s case at present, these sources practically yield no revenue. If they are brought under provincial jurisdiction, most federal units will have no income at all.&nbsp;</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t there been a meaningful debate on state restructuring and the form of federal system?</strong></div>
<p style="text-align: justify;">
	It is not that there are no debates taking place. But generally speaking, the focus has largely been on ethnic lines rather than on long term sustainability and from development perspective. Most people have a vague idea about federalism and what it will deliver. State restructuring is not just about the country’s division into federal units. It is more than that – such as ensuring people’s empowerment at the basic level. Democracy is after all the empowerment of individuals, beyond communities and societies. It could be ensured with strong decentralisation but there has hardly been any debate on that.</p>',
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			'title' => 'Downtown Housing Company(june 2011)',
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			'content' => '<p style="text-align: justify;">
	<span style="font-size: 10pt;">D</span><span style="font-size: 9.5pt;">owntown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has provided products and services to accommodate the urban middle class by developing high-quality residential properties. Today, Downtown Housing Company is one of the most respected and diversified service firms available with dedicated people who serve a growing client base that reaches far and beyond.</span></p>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Downtown Housing manages the process from conception through completion - an approach that has been perfected over time to exceed the clients’ expectations. Downtown proactively works to ensure every property as once-in-a-lifetime investment opportunity for its clients, giving it the special care and attention to detail that enhances value for living within.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">City View provides clients with the kind of peace and tranquillity they want. Only 38 exclusive apartments (including 2. duplex pent houses) have been built here, with rich and stylish complex.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	 </div>
<div style="margin: 0in 0in 5.65pt; text-align: center;">
	<span style="font-size: 15.5pt;">Guna Colony </span></div>
<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 11pt; letter-spacing: -0.2pt;">E</span><span style="letter-spacing: -0.2pt;">stablished in 1998, Guna Colony Pvt Ltd is a large and reputable company involved in property development. It has already completed properties like Stupa Housing in Sinamangal, Stupa Colony in Buddhanagar, Reliable Colony in Bhainsepati and LP Apartment in Lazimpat. New projects such as Bhainsepati Apartments, BN Apartment and GN Apartments in Gwarko have already been launched.</span></div>',
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			'description' => 'Downtown Housing Company Pvt Ltd, a parent company of Downtown and City View Apartments, was founded in 1992 as a developer and manager of high-quality property units. Over the years it has.........',
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			'title' => 'Housing In BirgunjSlow Growth, High Hopes(june 2011)',
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			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 14px;"><strong><i>By Bimmi Sharma</i></strong></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">H</span><span style="font-size: 9.5pt;">ousing business may be mushrooming in the Kathmandu Valley. But the story is different in Birgunj. People with diffent backgrounds find it quite normal to live in separate flats and apartments within the same building in the capital city.&nbsp;But such concept of community living hasn’t gone down well with Birgunj locals. They still prefer to stay separate from people of other religion, caste or culture. It is this mindset that is the major impediment for a flourishing housing industry in the city, lament housing entrepreneurs. They complain of having a difficult time implementing the idea of community housing that was first conceptualised here 14 years ago. So far, all Birgunj could manage are three apartment complexes and a fourth one under construction. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nanakchand Ashwani and Shyam Rungta were the first ones to enter the housing business here. They have built two apartment complexes - ‘Ganesh’ and ‘Lakshmi’. These two five-storied apartment complexes have a total of 40 units. The flats at Ganesh were priced at Rs. 900,000 and at Laxmi at Rs 1.35 million per unit. However, these flats remained unsold for a long time. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Eight years after these attempts, Triveni Group constructed a 10-storied apartment complex ‘Triveni Gopal’ in Birta area of Birgunj. Built at a cost of Rs 50 million by Birendra Sanghai of the Triveni Group, the complex has 72 units in total. Sajjan Kumar Chimariya, the manager of the complex says, “Apartment culture is yet to pick up in Birgunj because people are more comfortable with the idea of building houses on their own land and to enjoy complete ownership.” He adds that the project barely managed to recover the investment and did not yield any profit whatsoever. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite the apartments having all facilities including electricity, water, garden, park and security, people find these rather expensive and inconvenient. Out of the 72 flats in ‘Triveni Gopal’, 50 are occupied while the owners of the rest 22 units haven’t started residing here. They rather want to sell their properties. “The country’s volatile situation is primarily responsible for the lukewarm response towards housing in Birgunj,” says Chimariya. He adds, “There is no future for housing business in Birgunj. It’s advisable that the new entrants don’t enter the market here.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">‘Prasanna Apartments’ which came into being a year ago has started getting residents moving in already. Tara Shumsher Rana, a Director of ‘Prasanna’ apartments opines, “The housing business is experiencing a low right now but it has a good future in Birgunj due to the impending development of infrastructure in and around this city.” The construction of Nijgadh International Airport close to Birgunj, Kathmandu-Nijgadh Fast Track Road, Integrated Customs Checkpoint, Birgunj-Thori Road, Birgunj University and a well developed agriculture market are bound to make Birgunj a more attractive place to live. These developments will have a positive impact on the housing industry, opines Rana. His company Prasanna Constructions is in the business of constructing buildings for its clients for 25 years now. Built at an investment of Rs 50 million, ‘Prasanna Apartments’ has 20 flats altogether and costs anything between Rs 3.2-4 million. Of the 20 flats, only thee are remaining to be sold, Rana informs. “Though the present situation is not conducive, once there is political stability and economic progress begins, housing business in Birgunj will definitely flourish,” Rana says optimistically. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle; text-align: justify;">
	<span style="font-size: 9.5pt;">Ashok Kumar Baid, an industrialist who owns Shalimar Cement has joined the housing business and plans to build ‘Kamdhenu Apartment Homes’ using the ‘Kamadhenu’ brand under franchise from the Indian owner of the brand. To be constructed at an investment of Rs 800 million, this 12-storied apartment with 134 units will be ready for occupancy in two years’ time. Each flat in this ‘first apartment complex of international standard in Birgunj’, as the developer calls it, will cost Rs 7-8 million. “Interested buyers will need to pay 20 per cent of the total amount upfront. The facilities include swimming pool, health club, gym, park, garden and provision store,” says Baid. He says he is confident of selling all the units of his project which will come up at Ward 13, Adarshanagar in Birgunj. Like Rana, Baid too is optimistic that housing industry in Birgunj will grow as various developments are taking place in and around Birgunj. He says, “Birgunj is a leading business destination and the development projects being implemented in and around here will definitely benefit the housing industry as well as other businesses.”</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">‘Kamdhenu Apartment Homes’ will be the fourth apartment complex in Birgunj. The previous three apartment houses have a collecgive investment of Rs 150 million. When the investment proposed for Kamadhenu and some other projects that are in the pipeline are added up, the total investment goes up to Rs. 1 billion. Ashok Kumar Temani, the President of Birgunj Chamber of Commerce and Industry is upbeat about the business potential of apartment complexes. “In the future, Birgunj will be like Shanghai or Mumbai. Once the projects which are being constructed at break-neck speed are completed, we will see skilled workers flocking to this city for work,” Temani predicts. He continues, “These people’s housing requirements ensure a bright future for the housing industry here.” </span></p>',
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			'description' => 'Housing business may be mushrooming in the Kathmandu Valley. But the story is different in Birgunj. People with diffent backgrounds find it quite normal to live in separate flats and apartments within the...........',
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		'Article' => array(
			'id' => '376',
			'article_category_id' => '40',
			'title' => 'Growing Housingin Pokhara(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="font-size: 12px;"><i>Text and photos: Deepak K Shrestha</i></span></div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">With increasing urbanisation and modernisation, the housing industry in Pokhara is gaining momentum though not as fast as in Kathmandu. Along with tourism, education and the health sector, housing is fast becoming an attractive investment prospect for investors here. In terms of population growth and migration, Pokhara is second only to Kathmandu. However, the community housing business has not grown in the same proportion. Entrepreneurs believe that since it is a new concept, people will take time to get attracted to this concept. However, it is already a seven-year-old industry in Pokhara, with two companies already in it while other two are preparing to enter the fray.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Annapurna Developers Pvt Ltd (with the brand name ‘Fishtail Residency’) and Pokhara Homes Pvt Ltd have started operations already in Gharipatan of Pokhara Sub Metropolitan City. These companies claim to provide facilities at par with the housing complexes in Kathmandu such as good roads, water and power availability as well as health club. This has attracted buyers who have the means and desire to live in such housing complexes. Besides these, Road Show Real Estate Pvt Ltd and Gandaki Real Estate Pvt Ltd have entered this business recently. While the Road show has its project at a location called ‘Deep’ that is in the Ward No 16 of Pokhara Sub-Metropolitan City, Gandaki has its project at Lekhnath Municipality under the brand name ‘Lekhnath Dream Colony’.&nbsp;Investors claim that the consumers have shown significant interest lately for buying such property.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While renowned contractor and industrialist Surya Bahadur KC is the investor for Pokhara Homes Pvt Ltd, Dhruba Kumar Shrestha, Kalu Gurung and Bindu Kumar Thapa are the investors in Fishtail Residency, Road Show and Gandaki Housing respectively.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Pokhara Homes started building houses on 70 ropanis of land about seven years ago but faced adversity for the first few years. Tej Baniya, the Operations Manager of the company said, “We started doing good business only about three-four years ago.” A total of 54 houses were built under phase-I out of which 52 have been sold already. “We are starting phase-II in the next six months which will have 32 units,” Baniya informs. The company sells two-and-a-half-storied bungalows, complete with five bedrooms, built on 8-10 annas of land. Baniya claims that each house costs Rs 9-9.5 million just for the construction. He further says that the mere announcement of phase-II has attracted 17 bookings already. Pokhara Homes is also constructing 20 colonies and 14 separate houses near Chorsanghu in Pokhara. The houses and apartments in this area will be less expensive than the ones in Gharipatan.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">All housing companies in Pokhara are conducting business with prior approval from the authorities concerned – i.e. municipality and Pokhara Valley Town Development Committee. “Due to close proximity of Gharipatan area to the airport, we are not allowed to construct buildings higher than two-and-a-half-stories,” says Bhupendra Shrestha, the Marketing Director of Fishtail Residency. The company which started work about four years ago on 21 ropanis of land has already sold 40 of the total 66 units constructed. The buyers have already started residing in 30 of these units, each one a two-and-a-half-storied, four-bedroom bungalow costing over Rs 10 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Gandaki Real Estate Pvt Ltd that was primarily dealing in real estate holdings thus far has started constructing housing units on 81 ropanis of land in Talchowk of Lekhnath-8. The company has a target of building 30 units within a year, each unit occupying 5.5-8 annas land and priced between Rs 9 and 15 million.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Suman Kumar Gurung, the Pokhara Branch Manager of Road Show Real Estate said that a total of 108 units will be constructed in Deep of Pokhara-16. The units built on 5-9 annas are targeted at the upper and middle class consumers. The housing complex will have kindergarten, tennis court, swimming pool, cable television, telephone and power generator among other facilities. </span></div>
<p style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">The stakeholders of Pokhara’s housing industry include locals as well as the rich from the capital. Nepal Army’s retired general Pyar Jung Thapa and Galaxy School’s founder Gita Rana have already bought properties in the city. Besides the established businessmen, the newly rich people as well as&nbsp;retired soldiers of foreign armies have shown tremendous interest in Pokhara’s community housing units. Gurung says, “Peaceful environment, security and a modern lifestyle is attracting retired professionals immensely.” He adds that the housing industry in Pokhara has a great future because the very name of the city rings a bell in people’s ears since it is considered ‘heaven on earth’. Political instability, the Central Bank’s endless directives and lack of investment climate have affected the housing sector as well. But the housing entrepreneurs remain optimistic that the flourishing housing business outside the Kathmandu Valley will be provided encouragement by the government.</span></p>',
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	(int) 3 => array(
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			'id' => '375',
			'article_category_id' => '40',
			'title' => 'We Need To Reinvigorate The Real Estate Climate (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bijay Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">Chairman and Managing Director</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">CE Construction Pvt Ltd<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we can't expect the individuals to completely stop building independent residences.</div>
<p>
	&nbsp;</p>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">You have been in the housing industry for some time now.&nbsp;Where do you stand currently? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Real Estate is our core strength but at the same time, we have been operating in other sectors as well. We have a wide range of properties in different locations in and outside of Kathmandu and our ultimate objective in the real estate is to serve the mass. Currently, the housing sector is experiencing a slow growth. Different stakeholders such as the government, regulatory body, financial institutions, developers, investors and individual buyers are somehow responsible for the slow pace of the housing industry.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The NRB has relaxed lending for the housing sector recently. How big is the relief? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	It has definitely provided relief to some extent. But the impact is yet to be seen because there is a liquidity crunch in the market and the banks have a problem maintaining credit-to-deposit ratio. We need to work very hard to regain a prosperous real estate climate.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">As the banks are shying away from investing further in this sector, how do you plan to take your projects forward?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We have been using different financial tools on a project-to-project basis and the major portion of our cash flow is coming through sales. There are basically two categories of buyers the speculative investors who intend to sell the property at later date at higher prices and the end users who really want to settle in those homes. Both types of people seem quite reluctant to invest in this sector at the moment because of political uncertainty and unclear policies. We are working hard to come up with innovative tools to cater to both the categories. At the same time, we are introducing attractive packages for the buyers. Project management being our strength, we periodically map our project execution plan, assess the risks and the uncertainties and act accordingly. Even though the banks are going through a difficult time, they have been extending cooperation towards us because of our credibility. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The interest rate has tremendously increased increasing the cost of housing development and eventually the price. Thus the properties are now beyond the general public's affordability. What do you suggest to tackle this problem?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, the housing sector is reeling from the impact of the interest hike, however, it is minimal. The projects are usually funded through equity, borrowings from the financial institutions, credit from the vendors and subcontractors and most importantly, from sales. In general, the share of bank funding in a project is about 30 to 45 per cent of the base cost. Of the sales price, the share of bank funding is only 25 to 35 percent. So, the interest hike of 5 per cent has an impact of about 1.25 to 1.75 per cent on the sales price. The developers should be willing to absorb that from his profit in view of this difficult time. Therefore, the slaes price need not go up just because the interest rate has gone up. In order to continue with the planned projects, the developers will have to resist hiking the price and be content with lower profit. This is the best strategy till the buyers are in wait and watch mentalality. The impact on sales is not because of the price of the product itself but due to the interest on loan which buyers take from the financial institutions. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Don't you think that the houses and apartments are priced unnaturally high? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">When we talk about the price of the housing products, one needs to take into account the basic components: the price of the land as well as the cost of the building and infrastructure. So, in the current context, developers can only play with the land price as the other two components are easy to calculate. We ask the buyers compute the price of the above mentioned components of our units and let them sum it up. As far as the land price is concerned, buyers can check the price in the project neighbourhood. Our price turns out to be 20 to 25 per cent less than what the buyers come up with after such calculation.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	Since the buyers are getting the finished product, they save in the hassles that they may otherwise go through when they build their house on their own. If you assign monetary value also to these hassles, the houses that you buy from a developer are much cheaper than what you will have if you construct it on your own.&nbsp;In our case, it is even cheaper because we are the single real estate solution provider- we buy the land ourselves which saves in the service fee of the broker, we do in-house designing, we ourselves are the contractors and we buy local material in bulk and import many branded materials through our trading division. In comparison, individual house owners building their own house have to buy all these on their own in retail. In that process they end up paying higher for everything. And quality is the further value addition when you buy from a developer because the developers are equipped with resources like manpower, equipments and construction technology.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">It is said that apartments are not much preferred by Nepali people. Therefore, a lot of apartment units from the developers are lying unoccupied. How do you view this?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">&nbsp;This is very true but at the same time, we do need to understand that any change takes time. Currently, a number of units of completed apartments are either still unsold or unoccupied even if they are sold. Therefore, progress of many projects is slowed. However, this slowdown in the progress is not only due to inadequate sales but also due to lack of fund as bank lending is curtailed. Many developers fear that if they borrow at high cost and finish the units but they remain unsold for long, they may have to incur very high maintenance cost for such apartments.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	However, we in CE are trying to complete all our projects on time to send a positive message across. Presently, the criteria for the buyers selection of a property are: the credibility of the developers and the physical status of the project. Buyers are comfortable in buying finished products because it is like buying any other commodity. Counselling as well as other marketing tools might not be that effective at the moment as compared to putting on sale the finished product.<br />
	 </div>
<div style="text-align: justify;">
	No matter how the people at present may view the apartments, the apartment projects are viable because the price that the buyers of such apartments will be paying will be lot cheaper when compared to the upgraded lifestyle that the buyer can enjoy in such apartments. It is just a matter of time before people shed their inhibitions about buying apartments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">What are the required measures to improve this sector?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.05pt;">First of all, the country needs to assess whether real estate is a need for us or not. If yes, all the concerned parties including the developers need to extend their full cooperation. To gain the confidence of the buyers, I have different recommendations to my colleagues. Those who have not started their projects must have a thorough plan to work out the cash flow before they start the project. They must also have a full proof marketing plan. As for those who have started their projects, their primary responsibility should be to complete the sold units fast and meet the contract conditions as well as reschedule construction of unsold component of the project based on cash flow and sales forecast. This strategy will not only help win the confidence of the buyers and investors but also that of the financial institutions.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: -0.15pt;">The average age of a building is around 50 years. What will happen to those living in the apartments and individual houses developed by housing developers after this time period? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The age of a building depends on the technology used to build it. The property is insured against earthquake, fire or any other kind of damage. If something happens during the lifetime of a building, either a community housing or an apartment building, it will usually be compensated through insurance.&nbsp;Once the building's lifetime expires, the law clearly states that the ownership of the property will be ascertained on a pro-rata basis. You have two options - either to rebuild the property with the same proportion of ownership or if all the flat owners of a particular property agree to sell it, they will get the sales proceeds divided amon themselves on a pro-rata basis. If the property value grows tremendously during the lifetime of the building or afterwards, the owners will have the option to demolish and come up with a different product. For example, it can be a commercial complex or any other product that may yield higher return. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Is there an issue with the ownership of the flats? <br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Well, there is no issue whatsoever at all regarding flat ownership. Once you buy a flat, you get an ownership certificate from the Land Revenue Office. When a building is complete, the municipality and the department of urban development and physical planning inspect it and issue the completion certificate. It then recommends the Land Revenue Office which issues you the certificate of ownership.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">How long will it take to change the housing culture from independent houses to community living in flats and condominiums ?<br />
	<br />
	</span></strong></div>
<div style="text-align: justify;">
	Housing culture has been in practice for almost a decade now. It is certainly getting popular as it provides infrastructure facilities like security, drinking water, electricity, internet, common space and other facilities. However, despite the growing trend of community housing, we cant expect the individuals completely stopping to build independent residences on their own. This is because housing projects will not be able to meet the individual requirements of all the people.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">Tell us something about your ongoing projects? </span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">CE's current housing projects include: Vinayak Colony (176 units of independent houses) in Bhaisepati, Grande Towers (529 High-End apartments) in Dhapasi, Veena's Residency (76 units independent houses) and Harmony Housing (74 units independent houses). Similarly, we have recently completed Vinayank Colony-phase 1 in Bhaisepati, Rio Apartment in Kupondol and The Retreat Apartment in Bijayshwori. We are also coming up with two affordable independent housing projects in Sitapaila and Budhanilkatha.</span></p>',
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	(int) 4 => array(
		'Article' => array(
			'id' => '374',
			'article_category_id' => '40',
			'title' => 'Developers-built Housing Market Is On The Rise (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Om Rajbhandary</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">CEO and Chairman</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Comfort Housing Pvt Ltd</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher prices. And they will continue holding as long as they have the capacity to hold.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you evaluate the housing industry at present?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I started my career as a developer and we are the pioneer in promoting community living concept in Nepal and real estate as an industry. My aim is to establish this as a professional institution because this is a very large industry where everyone can be adjusted. Human life does not exist without real estate because any building, whether it is hospital or a theatre or a residence, belongs to this sector. So, this sector should be developed in a proper way. When we compare Nepal with any other country, our urbanisation is largely unplanned. Housing industry is dependent on three elements - government, individuals and the developers. Our government has a different agenda and the government people are not bothered about well managed urbanisation. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How do you look at the future of this industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal's 15 per cent population live in urban areas whereas the global urban population today is 50 per cent. By 2030, our expected urban population will be around 30 per cent while the global urban population will reach 70 per cent.&nbsp;According to a survey, in Nepal, we require nearly 270,000 housing units annually. In 10 years time, one million units will need repair and maintenance. Likewise, within the Kathmandu Valley, we will have a deficiency of around 40,300 units every year. So, it has a bright future and huge potential. On the other hand, secondary transaction is equally important. In my opinion, in community living, there is 10 to 15 per cent secondary transaction. The secondary transaction also generates revenue for the government.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can the housing sector be revived from the current problems, such as the restrictive rule of Nepal Rastra Bank?</strong></div>
<div style="text-align: justify;">
	A number of factors affect the housing market. They are: government policies, financial institutions, building materials, building technology, households, land prices and the real estate agents. We have different policies coming from the government and the Nepal Rastra Bank (NRB). There are a few aspects in the government policy that need to be addressed immediately.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">First is&nbsp;the capital gain tax rate that is 10 per cent for any transactions within five years and five per cent after five years. Thre is difficulty for people to afford 10 per cent capital gain tax. So, when the people sell the property in the secondary market, they report transaction figure to the government, they show a lower than the actual figure. This ultimately affects government revenue. For example, if I buy a property for Rs 10 million and sell that in a year-and-a-half for Rs 20 million, then my capital gain is Rs 10 million. And from that Rs 10 million, I am expected to pay Rs 1 million as capital gain tax to the government.&nbsp;To avoid such taxes, people are showing Rs 12 million on paper though the actual transaction is for Rs 20 million. This way, the government is losing revenue. Once the property is liquidated, the money is normally deposited in the bank. But while depositing the money in the bank, you have to show the source of the money. Hence, only Rs 10 million can be deposited. The rest Rs 8 million remains out of the system. This is one of the reasons for the current liquidity crisis.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Second, while buying land of more than Rs 3 million, it is mandatory to declare income source. This is the other concern that needs to be addressed immediately.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Housing must be recognised as an industry so that the revenue goes into the state coffers. The NRB limitation has now been relaxed and a new loan portfolio category - home loan - has been created as well. I think the banking sector too should have a positive attitude towards housing industry. There are three different perceptions among the banks - some say that the real estate is an industry and profits can be made from this. That’s why they have made investments in this sector. Others say that the real estate is a future industry and they need some experience in this sector. So they have made limited investments. There are yet others who regard as a very risky industry. Therefore, they have made very small investment in this sector.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	We are currently at the bottom of the real estate cycle. To recover from such a state, these government policies and the perception of the banking sector towards this industry should change.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Though the NRB has relaxed lending, some of the housing developers say it is yet to make its impact in the market. Why such slow response?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling as&nbsp;they are waiting for higher price. And they will continue holding as long as they have the capacity to hold. Some investors are keen on recovering the principal amount if they are not in a position to make profits. Some other investors are willing to liquidate even at a loss so that they may not need to continue bearing the financial burden. We are at a stage where even if we can't make profits, we have to liquidate the property. Our strength will be tested in mid-July because there will be pressure from banks. Our inventory holding capacity too will get revealed. Today, if you can sustain yourself, you will emerge winner but if you can't, you will have to liquidate to get the return on interest and principal. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>When the bank's investment was curbed, how severely were your projects affected? How did the companies manage to take their projects forward?</strong></div>
<div style="text-align: justify;">
	As per the data from the government authorities, fiscal years 2007-08 and 2008-09 witnessed the highest number of new projects registration while 2009-10 had very few and in 2010-11, there are no new projects registered at all. The projects approved in the past are making progress, but some of them are progressing very slow or they have downsized.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">An investor will definitely look for maximum returns. But people do not have much confidence in the real estate industry at present. So people are not putting in money. Similarly, banks are also not investing which is why this industry has slowed down.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">One indication of low sales of apartments is that Nepalis are not much attracted towards group housing. What should be done to assure them that such houses are better than individually constructed residences?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">I personally feel that people have gained more confidence in group housing now. A decade ago, this concept was very new. Today, a number of developers have entered the market with their projects because the concept has been accepted by the people. The success or failure of a project is a different issue altogether. The concept of community living has been largely accepted by the Nepali people. Now, the percentage of owner-built houses is declining while the developers-built housing market is on the rise. In developed countries, all the people buy houses from developers only. Once you are very rich, then you may want to go for custom-built houses.<br />
	<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">People complain that the developer-built houses and flats are unreasonably priced. How can the price be brought down to make the houses affordable for more people?</span></strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">In my opinion, the prices of the developer-built houses are reasonable at present. Therefore, the prices are not going to come down from what they are. Though some investors and developers may sell their property at even lower price than what it is at present, that will be only in case of financial distress. The land purchased by the developers was very expensive in the first place. The interest on the capital borrowed is very high. Similarly, there is a high uncertainty cost. Besides, human resource cost is getting expensive by the day. In all ways, if you compare with yesterday's price, today's price is at the same level. But the expenses have certainly increased. So, the developers have cut down on their profit. They are at a point where they can't come down any further in price.&nbsp;</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>that means there is no plan to build more affordable housing?&nbsp;</strong></div>
<div style="text-align: justify;">
	It is true that developers are not coming up with affordable housing. As a developer, we should come up with low priced products targeting the wider mass. While we at Comfort Housing are planning to come up with affordable housing, some colleagues in&nbsp;inthis industry have already brought such products to the market. So, the products will come to the market as per the demand in the market. The problem is that while the people have low budget, they have a high value house in their mind. They should also know how much they can afford and what they will get within that.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Commercial and residential housing projects are centred in few cities, mainly in the capital. Why are developers not interested to take such projects in the semi-urban areas and small towns?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">Well, the concept has changed now. I had started a project in Dharan a long time ago. At that time, the community living concept was not popular. The migrant population of Kathmandu is 39.6 per cent. Everyone wants to own a house here as Kathmandu is the capital city. That is why developers are mainly concentrating in Kathmandu valley. Now that the peace process has progressed to some extent, development outside the Kathmandu valley is bound to take place in a year or two. The land prices in all the commercial towns have gone up like anything and that is one of the indicators. Even in the Kathmandu valley, the projects have come up in the suburbs. Our urban area is expanding by 4.6 per cent every year. Today, three to five kilometres periphery of the ring road is also considered urban area. So, the developers are going beyond the ring road and that is why we see a lot of housing projects centred within this belt. I feel that we should go further beyond that. We should focus on the development of suburban areas so that we can minimise the load on the carrying capacity of the city.</span></div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0pt;">The Supreme Court recently declared null and void the rule that required all transactions above Rs. 5 million to be made through bank. How much relief would it provide to the industry?</span></strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Not much because the problem is more with the worry and suspicion the people have about the situation tomorrow. They are not sure what sort of new charges may be levied then. However, this ruling by the Supreme Court will help to some extent.</span></p>',
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			'description' => 'Over the past three years, the land prices have risen astronomically high and it has become a speculative market. Investors have invested because they saw prospects for profit. Such investors are not selling.........',
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	(int) 5 => array(
		'Article' => array(
			'id' => '373',
			'article_category_id' => '40',
			'title' => 'Developers Need To Be Transparent To Win Public Confidence(june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Ashoke SJB Rana</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="font-size: 7pt; line-height: 120%;">President</span></div>
<div style="text-align: justify;">
	<span style="font-size: 7pt; line-height: 115%;">Nepal Bankers’ Association</span></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How does the banking community look at the overall prospect of the housing industry?</strong></div>
<div style="text-align: justify;">
	When we interact with Nepal Land and Housing Developer’s Association (NLHDA), they put forth their arguments why the housing developers should be encouraged. Their point is that it promotes infrastructure development that the government has failed to provide such as water, electricity and other facilities that come along with housing standards mentioned in the building code. So, I think this is very positive. It is only the speculative side we need to be wary of.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How much have the banks invested in this sector?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">Our estimate is that the banks have invested in average of 25 percent of their loan portfolio into this sector. However, this is an average only. I think that the NRB has put the cap at the right time to prevent the bubble from bursting. We were afraid that the share of housing industry in the total loan portfolio of the banking system might go higher because of the asset price bubble expanding till last year. If you can get regular income and recover your investments in 15 to 20 years, it’s good to invest in this sector. But when the price of the property and the development cost increases and the return comes around in 50 to 60 years that is not economically viable. The mortgage in the west is done usually for 15 to 20 years. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How will the banking sector benefit with the improvement in housing industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.1pt;">One of the major aspects of the housing industry is infrastructure development. The NRB has welcomed this because that means value addition but it also wanted to control the speculative part. People were buying property on credit or with loan hoping the price would go up and they would he able to sell it for profit even before paying the entire price. And that was the dangerous part of the entire chain.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>A lot of housing and apartment units are unsold. In this market situation how confident are you of the banks recovering the loans they have given to this sector?</strong></div>
<div style="text-align: justify;">
	The NRB has recently changed its directive and allowed&nbsp;home loans of up to Rs 6 million to be considered as normal loan. This means people who want to buy a house can borrow up to Rs 6 million from the bank and manage the rest from the equity. High-end apartments cost around Rs 10 to 15 million. So, this loan amount is sufficient. There should not be any problem to recover such loans.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>As an investor, what kind of policy reforms do you think are required to improve this industry?</strong></div>
<div style="text-align: justify;">
	I think a little bit of transparency on the part of developers has to come. Just like the banks disclose about their capital, deposit, liquidity ratio and investment, the real estate developers too need to make certain disclosures to the public. The big fear is that the investors might be putting in money where the developers have not put any. It could be all borrowed. Investors want to know the strength of the developers. I think some kind of transparency and disclosure from developers can give confidence to the banks and the individual buyers.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong><span style="letter-spacing: 0.15pt;">Till recently there was a rule which made it compulsory that all payments exceeding Rs. 5 million in a real estate transaction be made through a bank. Recently the Supreme Court declared that such a rule was illegal. What is your comment on it?</span></strong></div>
<div style="text-align: justify;">
	That provision was there because banks felt that dealing in cash is an expensive proposition. We try to encourage use of cheques. It has been now ruled out and it is unfortunate. I don’t think that the real problem was with payment through bank. The problem was with the disclosure of income source. Even if someone comes with cash, they still have to disclose the income source to the Land Revenue office while getting the transaction registered. I don’t think it is a meaningful ruling.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What are the requirements for granting loans to individual buyers of apartments? What is the current trend?</strong></div>
<div style="text-align: justify;">
	The home loan is based on the repayment capacity of the borrower. This depends on the borrower’s income. The borrower’s income should be sufficient to pay the EMI (Equated Monthly Instalment). Under this system, the bank can quickly notice if a borrower defaults on his or her scheduled payment. It’s not a project loan where there may be an implementation risk that the borrower may not implement the project in time. It’s about buying a home that the developer constructs. The bank has to properly evaluate the developer to minimise the implementation risk. So, I think the housing loan is a very structured product. I think that for the banks, it is an easier loan to recover.<br />
	<br />
	 </div>
<div style="text-align: justify;">
	The risk is only when an institution is exposed high on the speculative side of real estate business. If the exposure is not high, the institution may be stuck with a project or two for sometime, but that will not impact much in the overall health of the bank.</div>
<div style="text-align: justify;">
	<br />
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is your suggestion to the real estate developers?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">We need to separate the good developers from the others, some of them may not be financially sound. The public should find out who the serious developers are and distinguish them from the inexperienced ones. There are developers who have no engineering knowledge and only believe that it is like a real estate transaction. If there are people who are trained engineers and have business plans like the ones from CE construction, it gives confidence to the entire sector. I think we need to support these people and ignore the others. <br />
	</span></p>
<p style="text-align: justify;">
	 </p>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;"><br />
	</span></p>',
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	(int) 6 => array(
		'Article' => array(
			'id' => '372',
			'article_category_id' => '40',
			'title' => 'Real Estate Sector Must Develop Professionally (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 14px;"><b><span style="line-height: 120%;">Bhaskar Mani Gyawali</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Executive Director-Banks and Financial Institutions Regulation Department</span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="font-size: 11px;"><span style="line-height: 120%;">Nepal Rastra Bank</span></span></div>
<div style="text-align: justify;">
	<span style="font-size: 11px;"><br />
	</span></div>
<div style="text-align: justify;">
	The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own houses. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What actually does NRB want in the investment of commercial banks in the housing industry?</strong></div>
<div style="text-align: justify;">
	The NRB wants real estate and housing business to develop as a true industry. In this sector currently, a huge amount is invested from the banks, the developers and the general people. Concentration of such a huge amount in a single sector affects other sectors too.&nbsp;The NRB wants this sector to surge professionally. There will be investment as required and the transparency and honesty has to be maintained at the highest degree.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>Is the investment in the housing industry feasible for the banks in Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The banks should invest in the housing industry because real estate sector too must develop. This is required to ensure the right of the people to live in their own house. But we thought the trend of unnatural price hike driven by the investment for profit from money borrowed from the bank wouldn't be sustainable. Therefore, the NRB has put a limit for bank investment in this sector. However, it does not mean that the banks should not invest in this sector. There must be investments in this sector and this sector must develop but all this has to be transparent and healthy. </span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The NRB recently relaxed the cap it had imposed on bank lending in the real estate sector. Why was the NRB late in realising this sector's potential as an industry?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">What was happening in the past was: people were buying land with the help of bank borrowing and selling the same land to others for profit who in turn, were borrowing from the bank to pay for the purchase and selling the same land further for profit. It formed a never-ending chain that resulted in land prices being unnaturally hiked. The NRB is against such practice. We believe the real estate sector should develop in a professional way.&nbsp;Lending for purchasing real estate properties meant for personal use should not be stopped if the buyer of such property has enough income to service the loan obligations.&nbsp;Such real estate lending is to buy land for constructing personal residence, to construct a residential house on&nbsp;the borrower's land and to buy houses or flats in the community housing projects. So, we recently issued a directive to remove loans up to Rs 6 million from the category of the real estate loan. If the banks do not invest in houses and apartments, the people's right to have their own house will be a mere dream. In the long run, old houses will need to be replaced and with the increase in population, more people will need houses. We have not tried to discourage investment into this sector and that is why we relaxed the lending.</span></div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>How can you say that the real estate loan provided to under a new name 'home loan' would not result in similar adverse consequences as in the past?</strong></div>
<div style="text-align: justify;">
	The loans up to Rs 6 million have been removed from the category of real estate loan. This loan is provided by banks depending on the borrower's ability to pay back the instalments. Previously, the real estate loans went mostly for the speculative business of land plotting that created undesired consequences. But the home loan is not speculative and will not create problems.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>&nbsp;The developers complain that the NRB has been hurting their business by introducing adverse policies. What do you have to say about it?</strong></div>
<div style="text-align: justify;">
	Well, considering the demand of the real estate developers, we removed the loans of up to Rs 6 million for the purchase of apartments and houses from the category of 'real estate loan'. But the developers are demanding that this limit has to be lifted further. We believe that Rs 6 million is a huge amount of money and higher than required by an average Nepali to purchase a house. So, it is not possible to lift this limitation any further.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>The Supreme Court recently nullified the earlier rule that required all the real estate transactions exceeding Rs. 5 million in value to be through a bank. What is the view of NRB on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: 0.15pt;">The verdict of the Supreme Court is equivalent to law and we respect the decision. Cheques, cash or any other methods are just the instruments of payment. Looking at the international practice of making payments, it is difficult to say that payments through cheques would create problems and cash wouldn't.&nbsp;We recommend that transactions should be made through any other method other than cash. And a cheque is safer, simpler and easier. This is the intention of the banking system around the world and the NRB's wish is no different.<br />
	<br />
	</span></div>
<div style="text-align: justify;">
	<strong>What are the possible measures that the NRB can initiate or facilitate for the smooth growth of the housing industry?</strong></div>
<div style="text-align: justify;">
	We have now brought the home loans of up to Rs 6 million under the category of personal loan. This indicates that the NRB wants this business to develop and move ahead in a healthy way. With the time and demand, there will always be room for necessary amendments.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the current status on loan recovery from the housing industry?</strong></div>
<div style="text-align: justify;">
	The banks have to recover any lending within the stipulated time period. We have received information that the loans are being repaid.</div>
<div style="text-align: justify;">
	<br />
	 </div>
<div style="text-align: justify;">
	<strong>What is the total investment of the banking industry in this sector? Do you see further investments coming into this sector in the coming years despite its present precarious position?</strong></div>
<p style="text-align: justify;">
	<span style="font-size: 11pt; line-height: 115%;">Currently, the total investment in this sector is Rs 97 billion which is 18.9 per cent of the total investments made by commercial banks. The real estate and housing sector is a growing business and there must be further investments in in this sector also in the future. The past practice of using bank's money to speculate on the real estate should not be there. However, to fulfil the people's need for houses and apartments, there must be further investments pumped into this sector.</span></p>',
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	(int) 7 => array(
		'Article' => array(
			'id' => '371',
			'article_category_id' => '40',
			'title' => 'Urban Infrastructure Development Has Failed To Keep Pace With Urbanisation (june 2011)',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 12px;"><strong><span style="line-height: 120%;"><br />
	Shivahari Sharma</span></strong></span><span style="font-size: 7pt; line-height: 120%;"><br />
	Deputy Director General</span><span style="font-size: 7pt; line-height: 115%;"><br />
	Department of Urban Development and Building Construction<br />
	<br />
	<br />
	</span><strong><span style="font-size: 9.5pt;"><br />
	How safe are the buildings constructed by housing developers in Kathmandu?<br />
	</span></strong><span style="font-size: 8.5pt;"><br />
	The housing companies that want to construct community housing get license only after fulfilling a few procedures. First, the developer should get a planning permit from the Town Development Committee (TDC) based on regulations and by-laws. Next, the developers plan and design buildings and apartments which are later approved by the Department of U</span><span style="font-size: 8.5pt;">rban Development and Building Construction (DUDBC). The approval is subject to fulfilling the requirements of the National Building Code on safety, power supply, fire hazards, other possible disasters and structural design. Following that, the project, if big one, must pass Environmental Impact Assessment (EIA). If it is small one, it must pass the Initial Environmental Examination (IEE). EIA is approved by the Ministry of Environment and IEE from the Ministry of Physical Planning and Works. Then the site map is passed by the concerned municipality or VDC. The housing and apartment complexes have been properly designed and approved. So I don't think they are unsafe. We have our monitoring mechanism in place. But we feel it is not adequate. So, we are in the process of strengthening it. We have planned a third party monitoring system which means outsourcing the job as we have human resource constraint.&nbsp;The pace of urbanisation in the last decade in the capital has been tremendous because of the conflict. However, the growth is largely a haphazard one and urban infrastructure development has failed to keep pace with that of urbanisation. I feel infrastructure development in the city must be able to meet the pressures of migration and rapid urbanisation and such infrastructure development should be carried out by the metropolitan city and local bodies.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Could you tell us more about your monitoring mechanism that ensures the housing companies adhere to safety standards? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">We do have our own in-house monitoring mechanism. However, monitoring of the environmental compliance has to be done by the concerned ministry as well. Similarly, adherence to the planning permit is evaluated by the TDC. The size of open space, size and number of units, ground coverage and some others aspects are specified in the planning permit. The monitoring by the division office of DUDBC has not been extensive due to resource scarcity.&nbsp;So, we are instituting a system of third party monitoring next year to evaluate the level of compliance. This will make the process more transparent.&nbsp;We have found cases where constructions have begun even before the approval.&nbsp;However, it has been tightened now and we have taken actions against such practices. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Do you have plans to limit the number of projects that come to you for approval?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">With the fast pace of urbanisation, there is a huge demand for housing.&nbsp;The competition is still not adequate in community living and group housing. The target buyers of such housing should be the middle and lower income groups. But at present, the housing companies have targeted only the higher income groups. The main reason behind this is the high land price and complex land management system.&nbsp;Unless the land price comes down, this market cannot become competitive. Rather than controlling, this sector needs regulation through set standards. There are flaws that need to be corrected so that this industry will improve. The demand was affected after tightening of the housing loan. Last year’ inflation in the land price also affected a number of housing projects. In 2007-08 and 2008-09, there were a lot of new projects which took license but now we hardly have any takers.&nbsp;At present, the average cost of apartments is around Rs 6.5 to 9 million. However, some companies have recently introduced flats for around Rs 1.7 million. When the price comes down to around Rs 0.8 to 1 million, we can have housing for the masses.<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">After the recent relaxation by Nepal Rastra Bank in the control in housing loan, we can expect that the number of new projects may increase. Until 26 October 2010, 59 projects were given license and now there are 18 new projects in the process of acquiring licenses. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
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<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">It has been observed that the process of issuing licence is rather lengthy and the companies need to visit numerous authorities in this connection. What is being done to simplify it?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">This is also a big issue raised by the private sector. We have discussed about the one-door licensing process in the ministry. The process can be simplified but for now, they must visit four different authorities.&nbsp;EIA and IEE fall under the purview of a separate unit. Planning permit and map approval can be brought under one unit. They are currently under the purview of municipalities and TDC offices. But the existing law has to be amended first for such changes to take place.&nbsp;Developers have also demanded a change in the parameters for EIA and IEE. Their view is that the housing projects facilitate managed urbanisation and do not harm the environment much. We have discussed that too in the ministry and sent a proposal to the Ministry of Environment for consideration on this. It is true that the current procedure is time consuming but if all the requirements are met by the developers, it won't take much time.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">The geologists say the geology of Kathmandu is not suitable for constructing high rise buildings. Why then has the department given licenses to construct tall apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Nepal lies in 11th most risky area of the world in terms of earthquake. Kathmandu is located in one of the world's most seismically active zones. But let's not forget that despite frequent earthquakes in Japan, they have so many skyscrapers. Therefore, high rise apartments will not pose a major threat if appropriate design is made, the building code requirements are fulfilled, soil tests and geological studies are conducted properly and quality constructions materials are used. The important thing is that the specific local conditions of the construction area have to be considered while giving planning permit.<br />
	<br />
	<br />
	</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">People are concerned about the safety of the apartment buildings that are approved by the department. What is your evaluation of the safety in these apartment buildings?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">&nbsp;Going by the designs that are presented to us, I don't think people should be wary. The private sector has invested a lot of money in their projects. If something goes wrong with one particular project, it is bound to affect other projects as well. With the kind of massive investment they have put in, they wouldn't want to make it unsafe. With the current speed of urbanisation, there won't be an alternative to high rise apartments in the near future.&nbsp;So, it's imperative that the safety measures are of the highest standard to win the confidence of the general public. We have checked the designs for the apartment buildings and feel that they are safe enough. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">Why isn't there an inter-departmental coordination for developing infrastructure like electricity supply, road, sewage and drinking water?<br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">Somewhere along the line, the inter-departmental and inter-ministerial coordination is missing. But the scenario has definitely improved now and there is no haphazard digging like in the past. If a maintenance work has to be done, prior approval from the road department must be taken. The problem is that one department does not trust the other's work. And a lack of discussion about the matter hampers the cause further. We also don't have a regulation unit for urban infrastructure in cities. We have proposed a town development corporation which will look at the local bodies and the planning unit in Kathmandu. However, the proposed bill is yet to be passed by the parliament. The proposed bill has proposed the formation of Kathmandu Valley City Development Corporation which will include five municipalities of the valley as well as the VDCs in the suburbs. We believe that if such an authority existed, coordination would definitely be improved.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<br />
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 11pt; vertical-align: middle;">
	<strong><span style="font-size: 9.5pt;">By when do you think the city development mechanism will come through? How long will people have to continue to bear unmanaged and haphazard urbanisation? <br />
	<br />
	</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt;">There are plans for Kathmandu but they have not been implemented yet. A clear policy regarding land use is not there. After the formation of the national urban and housing policies, we prepared the draft of the bill and sent it to the relevant ministry. The policies are there but it does not have ownership in the absence of the physical development act. First of all, the land must be managed in order to ensure urban planning. For example, if someone decides to build a house in the middle of a field he would want to take the road, electricity and other infrastructure to the house. If there is a physical development act, it will prohibit the construction of a building in the farmland and deny the basic infrastructure for such land. We have also prepared the draft for an act on real estate business and regulation and sent it to the parliamentary committee. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 8.5pt; line-height: 115%;"><br />
	If that gets passed, the buying and selling of property can generate revenue for the government besides providing security to the buyers. The present haphazard situation is due to the absence of a proper law that would ensure a proper control mechanism. We want that the growing cities should not suffer the same fate as Kathmandu. There should be decentralisation of services and opportunities so that development can be spread throughout the country in a balanced proportion. The government is working towards it and we can certainly hope that there will be positive changes soon. </span></div>',
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			'description' => 'How safe are the buildings constructed by housing developers in Kathmandu?
The housing companies that want to construct community housing get license only after .....',
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	(int) 8 => array(
		'Article' => array(
			'id' => '344',
			'article_category_id' => '40',
			'title' => 'Nepal’s Trade Ratcheting Imports',
			'sub_title' => '',
			'summary' => null,
			'content' => '<div style="text-indent: 0in; text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><i>By Pinaki Roy</i></span></div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; color: rgb(237, 28, 36);">*</span> Nepal signed the Trade and Investment Framework Agreement (TIFA) with the United States recently which paves way for the promotion of more comprehensive trade agreements between Nepal and the US in the future.</div>
<div style="text-align: justify;">
	<span style="font-size: 6.5pt; line-height: 115%; color: rgb(237, 28, 36);">*</span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The second meeting of Nepal-Tibet Trade Facilitation Committee (NTTFC) – a bilateral talks forum – is being held in Kathmandu from May 8 to 10. The main focus of the talks will be to cut the ballooning trade deficit with China by taking maximum advantage of zero tariff on imports from Nepal offered by China.</div>
<div style="text-align: justify;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">While these developments may sound all good, analysing the state of Nepal’s foreign trade over the last <img align="left" alt="" border="2" height="450" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover1.jpg" vspace="1" width="350" />decade or so presents a bleak picture. It’s unfortunate that Nepal has very few products at present that hold any promise of competing in the international market. Add to it the dismal environment of domestic business in the country and the chances of reaping tangible benefits from any agreement in the near future look extremely slim. Nepal’s faltering export scenario has been unable to check an unsustainable trade deficit. The eternal power shortage, fragile law and order situation and transportation woes are among the main impediments to the development of export-oriented sector. These erode the confidence of the private sector. With dwindling confidence of the investors, let alone foreign direct investments, Nepal can’t expect to see domestic investment in the foreseeable future either. In short, Nepal’s economy is in dire straits with grim hope of the growth of export-oriented industries. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Escalating Trade Balance</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">During the first eight months of the current fiscal year 2010-11, exports have increased to Rs 43.24 billion, an improvement by Rs 2.99 billion over the same period last fiscal year. Meanwhile, imports increased to Rs 252.88 billion, an increase by Rs 4.61 billion over the same period. The trade deficit amounted to Rs 209.64 billion, an increase by Rs 1.61 billion. Imports are expected to continue to increase in more or less the same pattern it is following so far. This indicates that trade deficit is expected to further widen in 2012. Due to some major foreign currencies getting weaker, Nepal’s exchange rate is expected to appreciate which will make exports costlier abroad. Besides, the impact of rising inflation rate in Nepal is likely to make exports more uncompetitive in the next year. </span></div>
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	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The agriculture sector in Nepal has remained under-developed, with a very low productivity level. At the same time, the industrial sector suffers from a host of uncertainties. The inefficient structures of these important sectors of the economy have not only reduced the competitiveness of the economy but also resulted in a limited production base. It is far below the consumption needs of the people. As a result, Nepal depends heavily on import trade for meeting its large and varied needs. Despite a marginal increase in exports, the painfully slow growth of imports during the last decade doesn’t augur well for the country. Besides, most imports are confined to non productive and consumable items like vehicles, petroleum products and gold that does not directly contribute to economic activities. Therefore, it is an alarming situation and a challenge for the policy makers.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Infrastructural Bottlenecks</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The export sector is still plagued by the same problems that have adversely affected the entire economy. Supply-side constraints such as intermittent blockades, labour disputes, access to technology and credit, virtual absence of trade facilitation measures, lack of human capital, power outages and road transport among other infrastructural bottlenecks are eroding Nepal’s competitiveness in the international market. These factors also result in preventing diversification of its export basket. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Large gaps exist in trade efficiency based on indicators such as the cost incurred for the trade and number of days taken to close the deal. Infrastructures like roads, ports, information technology and communications network and other logistics, transit facilities, cross-border connectivity and customs facilities are also in short supply. Nepal is yet to enhance the capacities for trade strategies and negotiations, trade and investment finance and other capabilities related to export. The trade-related institutional, human resource and supply-side limitations constrain Nepal to take advantage from trade by meaningfully participating in multilateral and regional trading systems. Considering the problems, the new initiatives on Aid for Trade (AFT) could help overcome the problems and open up new trade opportunities for Nepal. But again, the said constraints could also impede the country from qualifying for such Aid. Structural reforms and infrastructure investments to reduce transportation and transactions costs are the key to improving the external competitiveness of Nepali products.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Limited Export Items</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Another feature of Nepali export is its limited items of export. As major export items like carpets, garments, pashmina and handicrafts are produced mainly in labour-intensive industries, the impact of trade on employment is considered significant. Vegetable ghee along with the products mentioned above constitute a significant part of Nepal’s total export. This indicates high dependency of export on very few products. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In the second half of the 1990s, the growth of export was higher than the growth of import reflecting a positive impact of adopting the liberal economic policies. However, this trend did not continue for long and experts attribute this primarily to the impact of the decade long conflict. Though the competitiveness of the export sector had increased in the early days of the liberalisation period, the policies were rendered ineffective during the conflict and the post conflict transition. As a result, the share of import to GDP has been far greater than that of export for the last decade. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The progress in export has been slow due to a number of national and international events and circumstances. The 10th Plan had emphasised on identifying new exportable products of comparative advantage and improving their quality and export volume. It advocated rectifying the procedural hindrances to product-wise and country-wise diversification of foreign trade. It also looked at enhancing the competitiveness of the trade sector in harmony with the regional and multilateral agreements. The Plan envisaged strengthening institutional capacity of the government, non-government and the private sectors to enhance collection, processing and dissemination of information relating to export promotion. To make foreign trade simpler, more reliable and cost effective reforms were recommended in the areas of laws, regulations, policies, procedures and facilitation. It also recommended that organisational and managerial efforts be strengthened and export promotion prioritised in a coordinated manner. The Plan also talked about mobilising Nepali diplomatic network abroad in promoting foreign direct investment (FDI), export, and the economic interests of the nation so as to accelerate the industrial development and the expansion of export trade. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Quality Certification</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal already imports almost seven times more than it exports. The growth prospect of exports and the industrial sector look as gloomy as ever. Most constraints that we face today are non-economic ones. It has been increasingly realised that market access alone does not guarantee flourishing of international trade. Nepal, like any other LDC, lags in trade capacity due to non-availability of sufficient number of exportable products on the one hand and the quantity and quality of available products to meet standards of the importing countries, on the other. Nepal’s trade is faced with constraints on supply side in terms of development of testing and certification facilities, accreditation of laboratories and mutual recognition of test and certification in facilitating trade. The improvement of laboratories and testing facilities in Nepal has, for example, remained an important agenda in Nepal’s trade with India, its largest trading partner. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
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	<strong><span style="font-size: 11.5pt;">Trade Barriers</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal still pays a very high tariff to access major markets on the one hand and on the other, duty-free and quota-free initiatives have yet to prove fruitful due to hurdles imposed by non-tariff barriers. Non-tariff barriers (NTBs) in the form of regulatory requirements, quota restrictions, administrative procedures and rules of origin (ROO) are of major concern. Due to their technical complexity and non-transparent nature, they are the most difficult barriers to overcome. Standards-related NTBs such as sanitary and phyto-sanitary (SPS) restrictions act as major impediments to Nepal’s exports. Several instances have shown that process of discussions amongst the exporters and importers which results in better information sharing can itself help address more than half of such problems. </span></div>
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<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Despite Nepal gaining enhanced market access into the developed countries, it cannot take advantage from it until the government and the private sector join hands to expand and diversify the country’s exports. Trade is governed, to a large extent, by trade regulations and related administrative procedures. More often than not, the entry and exit from the market as well as the volume of trade rely on the transparent and simplicity of trade and administrative procedures. A study reveals that submission of unnecessary documents, administrative hassles at custom offices, additional detention charges and untimely delivery of goods increase the cost of transaction in formal trade. These activities and procedures enormously affect the trade affairs. Ultimately, it discourages the business fraternity in carrying out their businesses freely and fairly. </span></div>
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">WTO Challenges</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The WTO membership has brought both opportunities and challenges to Nepal. The main challenges before Nepal are to fulfill WTO commitments that need strengthening existing external trade institutions and legal mechanism, removal of supply side constraints to transform available market access into trade opportunities and restructuring of industrial sector to make it more competent and contemporary. In total, the benefits of membership depends on Nepal’s ability to identify and take advantage of trading opportunities, fulfill multilateral trade obligations, formulate and pursue development strategies within those framework and above all, defend its economic, financial and trade needs. Nepal could benefit from World Trade Organisation (WTO) only if it increases internal strength and quality of export items.</span></div>
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	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal finds it difficult to implement some of its WTO commitments. Since the benefits accruing from the implementation of these agreements are much lower than the associated cost of implementation, the resource-strapped Nepali economy cannot take this additional burden. Quite naturally, it is demanding support from its development partners to implement such commitments. The basic objectives of technical assistance for Nepal lies in promoting activities which add value to its production, help export diversification and most crucially to reduce its transport and other infrastructure costs thereby making it easier for businesses to operate. </span></div>
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<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Evolving Global Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The nature of trade is evolving globally. This is reflected in the changing composition of trade, from merchandise to services. This dynamic is largely driven by technological revolutions. While the transport revolution reduced transport costs and facilitated trade in merchandise goods, the information technology revolution has resulted in decreasing communication costs and increasing quality levels, thereby causing trade in services to be the fastest-growing component of global trade. </span></div>
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	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In addition to natural advantages, the three services sectors – health, education and high-end retail services hold immense export potential from Nepal’s perspective. Nepal has comparative advantages for the export of these sectors which are generally found to be cost effective. The attraction of these services is also due, in part, to a high level of market integration with northern India, if it can take advantage of the open border in the south. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">In spite of liberalising the economy and changing trade and investment related laws, Nepal hasn’t been able to derive expected benefits. Trade is a technical subject. The deficiencies in knowledge concerning markets, access to distribution networks and use of the ICT, complicated regulatory procedures of shipments, weak transportation infrastructure and services and insufficient trade financing are major constraining factors. Addressing these problems would involve financial resources, time, efforts, proper management, and technical expertise. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Aid For Trade</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The new initiative of the Aid for Trade could be a prime source of funding to enhance competitiveness. However, there is a gap between commitment and disbursement of AFT. Pledges are made through international forums for aid for trade initiatives but the pace of implementation and the disbursement rate is very slow.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Developed countries and development partners coming forward to support product development programmes, development of trade infrastructure like inland clearance depots, container freight stations, special economic zones, roads and other forms of transportation in order to enhance Nepal’s trade capacity is of prime importance. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Prosperous Neighbours</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The multilateral trading system has contributed significantly to the growth in exports that has been aptly exploited by countries like China and India. With respect to the markets created by these neighbouring countries, the disadvantage of Nepal as a land-locked country is significantly reduced because these two are after all, proximate markets. The economies of both the neighbouring countries are increasing enormously and Nepal can benefit or should be able to do so because of this. Despite increased industrialisation and trade activities in China and India, Nepal has failed to benefit from their economic growth.</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s internal problems such as poor trade policy and implementation, lack of business-friendly labour laws and other rules and regulations, political instability, frequently changing trade and industrial policies, social unrest and chaos, frequent strikes, lockouts and load-shedding are also equally responsible for poor export. The reasons behind the fall in export can also be attributed to erosion of preferences for Nepali goods due to the decreased MFN (Most Favoured Nation) tariff in India. The Government of India has signed several free trade agreements with various countries. It has committed to lower customs duty as a non-LDC member of SAFTA and BIMSTEC free trade area and also announced the Duty Free Tariff Preferences (DFTP) scheme as part of commitments made in the Hong Kong ministerial meeting of WTO. The irony of Nepal’s trade is eminent in respect of decreasing tariff in Nepal. It is obvious that Nepal will continue losing export volume and find itself in a precarious situation in the absence of concrete measures to check and reverse the process of decreasing export. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal’s export to India is increasing at a snail’s pace. The growth rate of export is highly fluctuating. At the same time, import from India is far stable. It implies that import from India is in a better position than export. As the gap between export and import increases, trade deficit soars. The trade deficit with India was Rs 66.4 billion in FY 2005-06 but it has rocketed to Rs 174.4 billion in FY 2009-10. It is alarmingly high for Nepali economy. The major reason for the unfavourable balance of trade on Nepal’s part can be blamed on not finding proper markets for manufactured goods in Nepal, in India. The prominent factors include the inability to compete in the Indian market on the grounds of quality, price, supply capability etc. From a trading point of view, it could be quantitative restrictions and product disqualifications. It is understandable that unless a sizable export of manufactured products fail to find market, the trade balance proportion cannot be reduced. Therefore, finding a proper segment in the Indian market for Nepali products is critical.&nbsp;</span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Service Sector Emphasis</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">The Government of Nepal launched Nepal Trade Integration Strategy (NTIS)-2010 last year which seeks to identify and develop key essential products and services to build its export base in a sustainable way. A total of 19 items were selected for driving export promotion. The 12 products and seven services were identified after careful scrutiny of potentiality for development along the value chains and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, increasing employment and government revenue is important. The seven services identified are namely Tourism, Labour Services, IT and BPO Services, Health, Education, Engineering and Hydro Electricity. It has been unanimously felt that Nepal has the potential to perform better in these service sectors provided there is an encouraging working environment. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Trade Facilitation</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Trade treaty is only a means and not an end in itself towards enhancing greater market access. The growth of trade basically depends upon the conditions that are created within the national boundary in respect to measures related to investment promotion and improvement in governance. Speedy trade facilitation is the key to success. Trade facilitation at its core aims at developing competitive advantage. Work on trade facilitation like simplification of customs procedures, criteria for procedures of transit and standards verification and transforming policies and rules in accordance with those of its major trading partners India and China, are of immense importance. Improving productivity and strengthening supply capacity remain the basic consideration guiding the development of the commercial sector of the country. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="margin: 11pt 0in 0.0001pt; vertical-align: middle; text-align: justify;">
	<strong><span style="font-size: 11.5pt;">Internal Preparations</span></strong></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	<span style="font-size: 9.5pt;">Nepal is a country with major potential that needs to be realised and enhanced through various policies and related initiatives. At the same time, it has to address a number of difficulties linked to its logistical, financial and stability related concerns. The multilateral trading system can contribute towards Nepal’s potential gain in many ways. Trade-related aspirations to diversify trade and production bases into dynamic new products and services, integrating trade and trade capacity building policies into national development strategies, maximising benefits through development of effective labour market standards and institutions and striving for an ambitious, comprehensive, balanced, equitable and development-oriented outcome, are vital. </span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; text-indent: 14.15pt; line-height: 11pt; vertical-align: middle;">
	 </div>
<div style="text-align: justify;">
	<span style="font-size: 9.5pt; line-height: 115%;">To realise the benefits of the trade agenda, having hassle free market access through reduction of tariff and non tariff barriers, facilitation measures through increased connectivity, customs harmonisation, simplification of trade rules and procedures and efficient trade logistics and the enhancement of supply side capacity, are crucial. With the help of all the benefits – present and potential – Nepal will be in a better position to address the supply-side constraints, achieve better market access and help raise its domestic growth with greater equity. This assures help to increase above 4 per cent growth rate which Nepal has been stuck with, for some time. To increase export, there must be an increment in investment for production, both domestic and foreign, that can positively affect the investment and thereby exports. </span></div>',
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			'description' => 'The Annual Report of the World Trade Organisation (WTO) states that worldwide exports during 2010 registered a growth of 14.5 per cent, the highest since 1950. It also expects this trend to continue to improve in 2011.',
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			'id' => '343',
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			'title' => '‘We Are Mainstreaming Trade Into National Development Programme’',
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			'summary' => null,
			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/purushottam ojha.jpg" style="width: 182px; height: 185px;" vspace="1" />Purushottam Ojha</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Secretary</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">Ministry of Commerce and Supplies</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are identified as priority items for trade by NTIS (Nepal Trade Integration Strategy). How sustainable are these 19 products?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes&nbsp;12 goods and seven services are identified. They have been identified after careful scrutiny of their potential for development along the value chain and their linkages with poverty alleviation. These products possess immense potentialities of backward linkages within the country. These are products and services in which Nepal has comparative and competitive advantages. To sustain trade in the future, contributing to overall economic development by making trade more inclusive, it is important to increase employment and government revenue. Identification and selection alone cannot meet our objectives. We have to create necessary environment in the country to develop these products in a manner that will ensure sustainable trade in the future. Most of these products are related to agriculture. It is important to enhance the productivity, productive capacity and product quality in them. For this, we have to go on adopting good agricultural practices, integrated pest management and quality control mechanism. At the same time, we need to focus on improving the quality of infrastructure, for example in tests and certifications to ensure acceptance of the products in the international market.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>It is said that improved supply-side performance is the key to achieving sustained economic growth. What is hindering the improvement in supply side capacity?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Over the years, we have been enjoying increased market access in various destinations as tariff barriers are being lowered. However, there are certain non-tariff barriers that are hindering the export from the least developed countries (LDC) like Nepal. We have to address these issues as well. Production and development of the right product at the right time and capacity to supply it to the destination market in an efficient manner are crucial to enhance supply side capacity. Therefore, identification, selection and development of products in which Nepal has comparative and competitive advantage is the major issue in the development of Nepal’s trade. The causes for the hindrance in improving&nbsp;the supply side capacity include lack of adequate infrastructure - particularly transport infrastructure, energy supply, rising problems of labour unrest and law and order situation.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can we overcome these supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.1pt;">There are certain barriers for increasing our trade capacity as I mentioned earlier. We need to address these important issues to attract more investment and improve investment climate that will eventually help overcome supply side constraints. It is essential to bring more investment in the production as well as service sector. But it largely depends on political stability, law and order situation, industrial relations and adequacy of infrastructures. These need to be addressed in a coherent manner. We also need to increase our collaboration with development partners to get more support in the areas of economic cooperation and trade development. Enhancement of market access is crucial from the perspective of LDCs like Nepal since non-tariff barriers are being raised by importing countries in the name of plant and animal health, food safety, environmental concern and labour rights. Nepal is raising the voice against such barriers in bilateral, regional and multilateral forums.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepal been able to benefit from trade despite having huge markets in the north and the south?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that the economies of both our neighbouring countries are increasing by leaps and bounds. The GDP growth rate of China is almost in the double digits and India’s GDP is increasing by eight per cent annually. Statistics show that trade between India and China is also increasing and has reached US$ 60 billion. They are aiming at increasing it to US$ 100 billion in the next five years. Despite such increased industrialisation and trade activities in neighbouring countries, we have failed to benefit from this. We need to adopt appropriate policies within the country to link our trade and economic relations to get the spill-over benefit from our neighbouring countries. We also have functioning trade agreements with both these countries but we have not been able to harness the potential benefit of exporting our goods and services. There are certain inherent problems associated with it. There are several non-tariff barriers to our exports in India and China. We need to enhance our efforts to remove these barriers. We have entered into an agreement with the Government of PR China in April 2010 to provide duty free access to 4,721 products in six digits customs tariff line. However, our industries and exporters have not been able to fully utilise this opportunity. We have initiated the process for assessing the situation and the reasons behind non utilisation of market access opportunities. This would require a constructive dialogue and deliberation between the government and businesses on both sides. Besides, we need increased engagement with our neighbouring partners in the area of economic cooperation for enhancing productive capacity in sectors like agriculture, manufacturing, export trade and infrastructure.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t Nepali economy benefited from trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is not true that Nepali economy is not benefiting from trade. But the question is about the level of benefit that we are harnessing.&nbsp;For this, we have to follow the path to sustainable and inclusive trade development. Trade is the output of total economic activities of the country. Trade cannot operate in isolation. Until and unless we develop our agriculture, forest, manufacturing and the service areas, trade cannot happen. All sectors of the economy should move towards the same direction and work in harmony so that there will be value addition in the export. Such a situation will help create employment, increase revenue to the government and bring more foreign currency. It will ultimately lead to the improvement in the macroeconomic situation of the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why do you think Nepal has not been able to capitalise on WTO membership?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The WTO membership has brought both opportunities and challenges to Nepal. Opportunities - because we have market access to all member countries and we can engage in constructive dialogue in the international trade forum through WTO. At the WTO, we can raise our voice together with likeminded countries to get more support from developed countries to remove market entry barriers and enhance our trade capacities. Besides, there are challenges. Ever since the liberalisation of tariff under multilateral trading system, our products have to compete with products from other countries particularly in big markets like the EU, the US and even in India. Since the tariff rate is going down, other competing countries are finding it easier to enter into these markets. This has proved to be a major challenge to maintain our market share in these markets. We have lost the export of some products like carpet, garments and pashmina in the international market and vegetable fats in Indian market during the last decade due to this reason.&nbsp;Accession to multilateral trading system and regional trade arrangement is not the panacea to remove the problems of trade. Rather, we need to develop our capacity to face increased competition on one side and utilise the opportunities available under regional and multilateral trading system on the other.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal currently has a huge trade deficit. How can this be lowered?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true that we are facing a huge trade deficit. During the last couple of years, exports have not increased and imports are galloping. In the last fiscal year, we had the record trade gap of around Rs 315 billion. Most imports are consumption items like petroleum, cars and gold. The gold does not directly contribute to enhance the economic activities. So, it is an alarming situation and a challenge for the policy makers. In the midst of such a precarious situation, the Government of Nepal has launched Nepal Trade Integration Strategy (NTIS)-2010 which seeks to identify and develop some key essential products and services to build our export base in a sustainable way. We must correct the deficiency which is hampering the growth of economy and the investment climate. We have to improve law and order situation, industrial relations and management of government-owned industries. We also need to develop adequate infrastructure and improve the regulatory regime so as to help in building confidence among investors. Similarly, streamlining of the transit procedure, incentives for industries like tax rebate, monetary and non-monetary incentives and improving governance systems are among the suggested reforms. Until and unless we improve our investment climate, it will be difficult to motivate and convince potential investors to invest in the industries or in any other sectors. Unless we have investment, we can improve neither international trade nor the supply situation within the country.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The relatively stronger trade sector of the past has diminished gradually over the last decade. What can be done to revitalise trading sector again?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">During 1990s, we saw the growth of industries and trade in terms of export to India and other countries. But the industries we were nurturing during this period were not found sustainable. Carpet, garment and pashmina are no longer our niche products as many countries export similar goods. We were unable to improve the capacities of our industries in terms of economies of scale, quality and design of the products. The enhancement of productive capacities would require several steps as behind-the-border measures. One case in point is the development of Special Economic Zones (SEZ) for relocation of industries by providing one-stop services to industries in such zones combined with flexibility in labour regulations and tax rebates.&nbsp;The project for establishing special economic zones in the country was started some 12 years back but it is still in an indeterminate state as the development of physical infrastructure and creation of necessary legislation for regulating the zone is stagnant. Similarly, there is need to revisit laws related to the regulation of trade and investment regime, particularly the Industrial Enterprises Act and Foreign Investment and Technology Transfer Act (FITTA)-1992. The revival of Nepali trade will largely depend upon right choices of products and services in order to become sustainable. Efforts are to be made for maximising domestic value addition optimising the utilisation of human capital as well as other factors of production including land and natural resources which will culminate into healthy growth of economy. The growth of trade during 1990s was largely based on tariff arbitrage. When that arbitrage opportunity diminished, many such industries could not sustain. The Government of Nepal is now realigning trade through the manifestation made in NTIS-2010, Trade Policy-2009 and the current Three-Years Interim Plan (TYIP).&nbsp;Now, the challenge is to implement them in true spirit. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There are special privileges like zero tariffs &nbsp;for LDCs. How can we benefit from that?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal enjoys zero tariffs in many countries that belong to the Organisation for Economic Cooperation and Development (OECD). The European Union provides duty free access to the products from LDCs under the Everything but Arms (EBA) initiative. Countries like USA, Canada and Japan provide Generalised System of Preferences (GSP) facilities to many products from countries like Nepal.&nbsp;Besides, Nepali products also enjoy zero tariff facilities in Indian and Chinese markets. Therefore, it is not the problem of market as such. Nepal, together with other least developed countries around the world, is pleading duty-free quota-free (DFQF) market access in developed and developing countries right from Geneva to Washington DC.&nbsp;The most important aspect is to increase our supply side capacity and competitiveness. Since zero tariff is available to all LDCs, only those can export to these markets who are more competitive. This would require revisiting the trade and export policy with a focus on choices of right products, improvement in quality and diversification of design and reduction in the cost along the value chain.&nbsp;Being a landlocked country, the transit transport cost is generally higher. Simplification of transit procedures and reduction of cost of transit is vital for Nepali trade.&nbsp;</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A new concept ‘Aid for Trade’ has been gaining currency. What kind of reforms should Nepal make to get optimum benefit from it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">Aid for Trade is a new concept that emerged during the last decade. There is consensus and commitment among developed countries to support LDCs for trade development. There is a notion that LDCs need trade and not aid and this view is often expressed in various international forums. Developed countries and development partners should come forward to support product development programmes, development of trade infrastructure like inland clearance depot, container freight station, special economic zones, roads and other forms of transportation in order to enhance the trade capacity of the LDCs. Other possible areas of cooperation include enhancing the quality of infrastructure for test and certification of products, capacity building for trade negotiations and institutional development. All these require adequate technical as well as financial assistance. Pledges are made through international forums for aid for trade initiatives. However, the pace of implementation and the rate of disbursement are very slow.&nbsp;Some donors have played a tricky game just by renaming the regular official development assistance (ODA) as the aid for trade allocations which is not the spirit of these initiatives.&nbsp;Aid for trade is another stream of foreign assistance besides the regular allocation of ODA. In Nepal, we are considering creating a Fund for trade development in consultation with various development partners. An inter-ministerial task force is working on devising necessary regulatory framework for the administration of the Fund.&nbsp;&nbsp; </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">The Government of Nepal has already taken steps for mainstreaming trade into national development agenda. Trade cannot be looked in isolation and is not a concern for the ministry of trade only. There are several entities and ministries associated with it. We have to bring them together to promote trade in goods and services. We are also aiming at getting adequate support from development partners to complement the national effort. If some products and services are important from trade perspective, they should get immediate attention for development and promotion. Support must go to the grassroots level, i.e. the enterprise level and the farm level so that benefits from export trickle down to the producers and growers. The assistance under aid for trade initiatives encompasses various sectors that contribute to trade development and thus various ministries and private sector entities have a role to play. The Ministry of Commerce and Supplies will work as the national focal point and coordinator for creating synergies of this effort. </span></div>',
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			'title' => '‘Dealing With Supply Side Constraints Will Help Our Export Prospects’',
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			'content' => '<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/vidya nath nepal.jpg" style="width: 189px; height: 213px;" vspace="1" />Vidya Nath Nepal</span></b></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">President </span></span></div>
<div style="text-align: justify; text-indent: 0in;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">Centre for Public Policy Dialogue and Former Special Secretary of Commerce</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest &nbsp;of the world.</span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><br />
	</span></div>
<div style="text-align: justify;">
	<strong>How do you evaluate the current trade situation of Nepal?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">I have been observing the economy and policies for the last four decades. But the trade deficit was never this bad. Today, the deficit is in billions of rupees which is a painful situation. The import growth has spiralled while the exports have dwindled. Nepal’s value of exports for the year 2001-02 was more than Rs 45,000 million which reduced to only about Rs 41,000 million in 2007-08. On the other hand, imports in the same period increased from about Rs 103,000 million to Rs 154,000 million. Export to India remained almost stable while export to other countries decreased sharply. During this period, about 63 per cent of Nepal’s total exports went to India while about 59 per cent of its total imports were from India. Thus, Nepal’s total trade with India was about 60 per cent. The increased import has been largely for consumption materials rather than for raw material or industrial inputs. For example, gold and many other goods are imported into Nepal considering the Indian fiscal policy. Our liberal trade policy does not allow controlling imports. According to our law, we cannot prohibit any business, we can only restrict only a few items. Nepal is the most liberal country in entire South Asia in terms of its trade policy. We don’t have any import restriction and quantitative restriction. We have very small negative list for imports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How do you compare the current situation with the past?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Current trade situation has grown very weak when compared to the past. Increasing trade deficit is evident. An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest of the world. There is very little attention towards production of exportable goods. There is no favourable environment for that. Therefore the trade situation has worsened now. In 1996, a trade treaty was signed with India. In that treaty there were very little restrictions on export to India, the negative list was shorter and the rule of origin was not so strict. The treaty renewal in 2002 retracted such liberal provisions. The rule of origin was made tougher. Similarly, India exerted quantitative restrictions on some products. That disrupted our export. The political turmoil after 2002 and the resultant current transitional phase has led to poor trade situation compared to that of the past. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What are the main reasons for poor development of Nepali trade?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Trade has to be looked on the basis of import and export. The import is continuously increasing but that is not a reason to rejoice. To increase export, there must be an increment in investment for production. Investment can be both domestic and foreign. Forget about the foreign investment, even the domestic investors are not encouraged to invest. The main reason is the volatile and unstable political situation. Because of this, there are no new investment and production of exportable items. Apart from that, there are issues of labour, peace and security, industrial security and unstable policies that have put investors at bay. A policy must last for at least five to 10 years to attract investment. But in Nepal that is not the case. Government is changing frequently, and every change of government brings change in the policy too. Since last year, also the interest rate has sky rocketed due to liquidity crunch in the financial institutions. That has also affected the investment and thereby exports.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal faces non-tariff barriers with its trading partners. How can such barriers be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">We are the member of WTO, SAFTA and BIMSTEC along with our trade partners like China and India. WTO’s policy states that the non-tariff barriers must not be exerted unless it is justified. There should be certain tariff barriers but very little. The trade must be gradually made free by removing the restrictions. The facility given to one country must be provided to other country too. In spite of this, agriculture based products’ export to India face a lot of non-tariff barriers. For example, when some agro-products have to be exported to India from either Sunauli or Birgunj, quarantine tests have to be carried out at a far away laboratory. That adds huge cost for exports. One of the main problems with export trade of Nepal is transit cost which is usually prohibitive. The transport cost from here to Kolkata, the main port for Nepal, is to the tune of 14 to 40 per cent of the cost of material. With such high cost how can we compete in the international market? Documentation barriers are also severe as the documentation process takes months and that further hinders the export. Internally too, we have constraints in trade facilitation. In Indian ports too, there are numerous problems like unavailability of ships and lengthy procedures. Such non-tariff barriers added to the tariff barriers are hindering our export. Though India has provided customs free export from Nepal to India in certain goods it levies special duties on them. Sometimes, state governments in India levy additional duties according to their local rule. A complaint on such case gets lost in the Indian bureaucracy and as a result, Nepal’s exporters face harassment.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal also has severe supply side constraints. How can they be removed?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">It is true. Though various bilateral, regional trade agreements like SAFTA and multilateral trade arrangements like WTO have been providing us access to different markets through manner similar to reduced customs duties, we are not able to benefit form that. Under SAFTA, hundreds of items can enjoy concessional entry into other countries. WTO has the philosophy of liberalisation of trade by reducing tariffs. Compared to the last decade, the customs duties have declined even for entry into India. The trade access we got through bilateral, regional and multilateral agreements have not been fully utilised due to supply side constraints. What can we export when we can’t produce goods here? There is no investment environment and the cost of production is high while labour productivity is very low. There are problems with lengthy documentation, labour issues, peace and security and increased interest rate. If we do not have any supply side constraints, our export would definitely increase. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Industrial and trade policies are not translated into acts and regulations. Even if they are enacted, they are overlapping and contradictory. Labour issues are never settled. Quality of infrastructure like transport, power supply etc is very poor. The ADB report of 2009 says the syndicate system of trucks is common in the country and the transport cost has increased as high as 55 per cent. Research and development aspect has been largely neglected. Technologies are outdated and innovation is non-existent. Institutions in particular are weak and ineffective. Private sector is not properly promoted by the government. Unless we can correct ourselves on these counts, supply side constraints will prevail. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Nepal enjoys numerous facilities under WTO regime as well as being an LDC. How can we utilise such advantages?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">WTO believes in MFN (Most Favoured Nation) treatment. There should not be any discrimination under this system for any country. There was a Ministerial meeting held in Doha where it was decided that WTO would provide various technical assistance to strengthen the supply side of the LDCs to increase their export potential. Little has been done on that front and that is insufficient. WTO’s provision of differential treatment to the LDCs has not been effectively implemented. Facilities like ‘Aid for Trade’ are just for name. We have not received any sufficient amount on this account. There is a need for strong and effective negotiation from LDCs as a group which is lacking so far.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Our government through our embassies abroad should strengthen economic diplomacy to promote trade to respective nations by identifying suitable products. We have failed to do so. There are a few products that we can export to India. For example, Nepal can take huge benefit if producers concentrate on exporting vegetable ghee, cardamom, GI pipe and noodles to India. Tea and ginger are exported to India but it re-exports them. From our side, it is better to export our products directly to the final destination. Nepal should identify the negative net trade of a particular country and work on exporting such goods to those countries. We have failed to move ahead in this direction. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Investors are reluctant to increase investment citing unfavourable investment environment. How can trade be enhanced amid such problems?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The main reason behind investments remaining stagnant is political instability, frequent changes in policy, labour issues and security problems. Foreign investors seek easy exit if they do not see profits. There is difficulty in such exits and liquidation procedure takes years. Foreign investors can’t wait that long. Nepali raw material based industries would be sustainable in terms of export trade. However, that concept is not necessary to apply in international trade in the course of industrialisation. Hong Kong and Singapore are examples of countries that do not have their own big manufacturing units, but have benefited by exporting assembled products. However, if we can export goods by processing our own raw materials, we would have more comparative advantage and we would not have to spend foreign currency in importing raw materials. A study shows that Nepal’s products that have highest potential of export in the long run are tourism and hydropower. However, remittance is the biggest source of foreign exchange earnings currently. At the moment, around 80 per cent of foreign exchange earnings is through remittance. Tourism ranks second. Hydropower projects are capital intensive. Nepali capital is hardly enough to run even one Tamakoshi project. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">The government should be proactive in providing all facilities mentioned in industrial and trade policies to increase production and promoting exports. However, private sector should also run businesses on the basis of corporate culture with new technology and increase their competitiveness. On an average, it takes about 31 days to clear seven procedures to do business in Nepal. This process time is the longest among the SAARC countries. Similarly, it requires 41 days to export products out of Nepal. Thus, the businessmen are suffering from over regulations, corruption, dishonesty, lack of transparency and political interference. According to WEF report of 2010, Nepal ranks the lowest among all SAARC countries in quality institutions. Therefore, the expectation is that the private sector will increase production and export in spite of the weak government. They have the initiative and the mission while the government is indifferent as well as inefficient.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>A total of 19 goods and services are selected by the NTIS as priority products. How realistic is this selection?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.05pt;">They have selected 19 goods and services following a lot of studies. Among them, seven are from the service sector like IT, health, education and tourism among others. I feel we can do better in these service sectors and have the potential if there is good working environment. There are agro based products too but I don’t think they are sufficient. Since our production depends on imported technology, we must select products that generate high profit in low volume items. If we can focus in the coming decades on these 19 products by creating favourable environment for investment that would certainly benefit our trade prospects. </span></div>',
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			'description' => 'An NRB source says that in the first five months of FY 2009-10, export of goods has declined by 16.8 per cent while import of goods has increased by 30.4 per cent. This has created huge trade deficit of 48.6 per cent. Volume of trade deficit with India is higher than with the rest  of the world.',
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			'title' => '‘Aid For Trade Can Do Nothing About Our Governance Problem’',
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			'content' => '<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><b><span style="font-size: 8pt; line-height: 120%;"><img align="left" alt="" border="2" height="226" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/ratnakar.jpg" vspace="2" width="200" />Ratnakar Adhikari</span></b></span></div>
<div style="margin-bottom: 0.0001pt; text-align: justify; line-height: 120%; vertical-align: middle;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 120%;">General Secretary </span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);"><span style="font-size: 7pt; line-height: 115%;">South Asia Watch on Trade, Economics and Environment (SAWTEE)</span></span></div>
<div style="text-align: justify;">
	<span style="color: rgb(178, 34, 34);">It is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to &nbsp;inefficient industries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The trade policy of Nepal is more liberal than some other developing countries. Why then has trade failed to contribute to our national economy and development?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Having a liberal trade policy alone is not sufficient to increase export potential. Second, Nepal is still not more liberal than Sri Lanka and Bangladesh. Other countries have become more liberal, not only in terms of tariff and non tariff barriers but also in terms of trade to GDP ratio. If you see that the trade to GDP ratio is increasing, you can conclude that the country is more integrated into the global market. Theoretically, we have to be in a position to gain because we are liberalised. That is the classical theory of anti-export bias produced by Bhagwati and Kreuger in 1978. They say that if you protect your domestic industry, you will be raising the barrier for export because protection of domestic industry through tariff will in a way raise the price of import which will be used in the export processing sector. Eventually, your export will suffer. However, theories apart, in today’s world, having a liberal economy is no guarantee that you will be able to export too. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>There is a heated debate under the Doha Round between the developed and developing countries. How justified are the arguments of the developing countries?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Agriculture is our livelihood and we should be in a position to protect our agriculture sector when required. The special safeguard measures proposed by the developing countries are useful. If you open up the entire agriculture sector in which the protection is already lower compared to industrial products, there could be other problems like food security, livelihood, social tension and others. In agriculture, I fully agree with the position of the developing countries. In terms of industrial products, most of the developing countries which are liberal today and most of the OECD or developed countries had protected their industrial sector during their respective process of economic transformation. So, it is our right to be able to protect our industrial sector. If you open up the industrial sector completely then it could result in industrial depression and loss of employment. So, it is necessary to protect the industrial sector but not to the extent of providing incentive to inefficient industries. You have to allow a certain degree of competitive atmosphere. If you think that they will be able to do better in the long run, then you have to provide protection for a limited period of time.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">On non tariff barriers, there are two things that we have to understand. The first is that certain non tariff barriers are related to environment, consumer preferences and health and safety of the consumers. Such conditions on the basis of scientific evidence are imposed in the form of non-tariff measures. For example, if Aflatoxin causes cancer and we export certain agricultural products containing Aflatoxin which is at a level higher than globally accepted, then our product gets rejected. It’s not the fault of the importing country. We have to be able to improve our infrastructure, laboratory system, human resources and legislative arrangements in order to be able to fulfil the requirements. But there are certain non-tariff barriers which are protectionist in nature. We oppose these protectionist barriers. In terms of services, the developing countries are demanding the liberalisation of labour movement from one country to another. It has been proved that three per cent increase in labour force from the developing countries would result in global welfare gain of 300 billion dollars. This is something that needs to be pondered upon.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Finally, on trade remedy measures, developing countries do not have a serious position except saying that the developed countries are using trade remedy measures as a protectionist device. That may not necessarily be the case. So, on the whole, their position in the Doha Round is quite justified given the socio, economic and political situation of these countries.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs find it difficult to implement some of their WTO commitments. How would ‘Aid for Trade’ help to implement such commitments?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Aid for Trade (AFT) does provide necessary help to the developing countries and LDCs to implement some of the WTO commitments including drafting of legislations, preparing of regulations and putting in place the institutional mechanism that are required to take advantage of the export opportunities offered by the WTO.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How can ‘Aid for Trade’ help overcome supply side constraints?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Supply side constraints need to be divided into two different categories. One is supply- side constraints that results from our fluid political situation. The strikes and various political demonstrations make us unable to ship our goods on time. AFT cannot do anything about this. Then, there are supply side constraints that are resulting from our lack of resources or our inability to utilise resources properly in certain areas like infrastructure, development of roads, transportation, electricity and skills. People do not have the necessary skills to produce goods in a competitive manner. We have customs infrastructure which does not even measure up to regional standards. That needs to be improved. Besides, we do not use the required technology to be more productive and competitive in the international market. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Some people interpret ‘Aid for Trade’ as the same money from the same window as human rights aid. What is your take on it?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">That is not true. AFT includes only six components. The first is the economic infrastructure which is the money provided for road, electricity, and communication. The second category is the money provided for building productive capacity in agriculture, industries and services sectors. The third is a trade development category which is basically the money provided for export promotion and development of trade. The fourth category is trade policy and regulations for helping countries to implement their WTO commitments, including enactment of legislations and capacity building of various institutions in the country. The fifth one is called trade related adjustment which is basically the money provided to countries to implement trade liberalisation measures and protect the country from negative affects of trade liberalisation. It involves retraining people who lose their job because of trade liberalisation and finding alternative employment opportunities for them. The sixth category is ‘others’. Others could be anything if the donors and recipients agree to call a particular aid as AFT. The other way of looking at this is: AFT is Overseas Development Assistance (ODA) minus the money provided for various areas, for example, health, education, environmental conservation, human rights, women empowerment and peace and conflict. Human Rights is of course a separate area altogether.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you think ‘Aid for Trade’ will succeed in Nepal as many other aid programmes have failed to generate the desired output?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">There is no evidence to say that aid has not helped Nepal’s economic growth. The opinion is divided here. As a researcher, I would be reluctant to say that aid hasn’t helped. At the same time, I wouldn’t vouch that foreign aid has helped tremendously. However, it has certainly helped in meeting the saving and investment gap. If the foreign aid was not provided in some areas, for example, the health sector, it is difficult to say whether we would be able to do something. In the case of AFT, I am not very excited. If there is real additional money coming as AFT, that would definitely be helpful, but not if it is repackaging of money diverted from other areas. Next, it has to be predictable. If certain donor countries are going to provide certain amount of money, they have to guarantee the fund for a multi-year period.&nbsp;It is also the issue of sustainability which is not only about donors providing money on time. It should be taken into account whether the government is ready to take charge of the projects once the donor funding ceases. If a donor provides money for three years, you can’t ask the donor to provide money for the entire period of the project even if the results are good. If you can operate the project on a commercial basis, the private sector will take over. If you are not working on the commercial basis, then government should step in and provide sustainability to the project. The final issue is the effectiveness of the aid. The Paris declaration of aid effectiveness should be the guiding principles for enhancing the effectiveness of AFT. These criteria would actually determine the success of the project. If these criteria are met, the chances of AFT working for the country are fairly good. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts say we lack basic trade infrastructure. What kind of problems and challenges do you see that hinder Nepal’s sustainable trade development? What should be done?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Basic infrastructure is necessary for the country to be able to expand its export on a sustainable basis. A study shows that if a shipment is delayed by one day because of lousy infrastructure, it is equivalent to adding 0.8 per cent to the total tariff that you pay to the importing country. Another study says that if export is delayed by one day, the total export potential will be reduced by one per cent. Infrastructure should be the number one priority for Nepal to be able to trade on a sustainable basis. AFT is not going to be enough because we have our own governance problems to tackle. Governance issue is equally important. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Experts opine that international community should not only provide market access but also help LDCs in enhancing their trade capacity. If everything is to be done by other countries, what should LDCs like Nepal prioritise in their agenda?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Nepal should fully mainstream trade in national development strategy first. In the new Plan document that is going to be prepared, it has to be included. Apart from that, mainstreaming has to be done at the sectoral level too. For example, if tea export is to be increased, then its priority has to be mainstreamed not only at the level of the Ministry of Industry but also at the Ministry of Agriculture which is responsible for promotion and growth of tea. So, all these ministries and sectors have to take into account the fact that mainstreaming is vital. The second issue is that we have to address supply-side constraints through effective governance reform as well as utilisation of AFT. But there are two aspects we have to ensure ourselves besides the sustainability issue. First, we have to improve our absorptive capacity. The government is unable to even spend the budget amount that has been allocated. How would it spend the money allocated by an external agency? However, we have seen some gradual improvement in our absorbing capacity but it needs to be enhanced further. Another critical issue is that of coordination.&nbsp;There must be coordination on how much money is coming, how it is being utilised and which sector is being prioritised. There has to be a coordination mechanism between the ministries of commerce, industry, tourism, agriculture and other related ministries that have a role in promoting trade so that there is better coordination and effective utilisation of resources.</span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>LDCs are worried that the current intellectual property protection regime does not recognise their contributions. How can countries like ours raise their voice to eliminate the danger of losing patent rights to compete in the international market?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Some of our properties of genetic resources and traditional knowledge are taken away by some multinational companies and universities. But in order to address that kind of problem, we have to keep our house in order. We need to pass the legislation on access and beneficiary by the parliament which is pending for six years now. The draft was prepared in 2004-05 but has not been adopted as a law. We need to ensure this as it will take care of three aspects. First, it will guide us on regulating access to our genetic resources and traditional knowledge. Second, it would make sure that when the access is provided, it is done on the basis of a prior informed consent of the local communities who are involved in conserving those resources. Third, it would ensure that those communities are appropriately remunerated. They would be appropriately remunerated for the job they have done so far to conserve the resources. With that kind of legislation, many countries have protected their bio diversity, genetic resources. It’s our fault that we have failed to follow suit. Global regime is unfair, however, we have not been able to create a mechanism at the local level to counter the unfair tendency of some global rules. </span></div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Being an LDC, Nepal enjoys numerous benefits like zero tariff. How should Nepal utilise such concessions to gain optimum benefits?</strong></div>
<div style="text-align: justify;">
	<span style="letter-spacing: -0.15pt;">Yes, we do have zero tariff access in selected markets. The European Union is definitely among them but we don’t have zero tariff access in the US market. The process for the same has begun but it will take a long time before such access is provided. Even if you have zero tariff access, you still have to fulfil the rules of origin (ROO) requirement. Once you fulfil the ROO, you are back to the supply-side issues because you have to create backward linkages. If a shirt has to be exported, it’s better to have the fabric manufactured in Nepal itself rather than relying on countries like China and India for the supply of materials. If we continue to get the materials from these countries, we will not be able to fulfil the ROO criteria. We have the full potential for export In some areas where ROO is not a problem. One such example is coffee which can be exported to European, Japanese or any other market in desired quantity without having to fulfil the ROO criteria because it’s an indigenous product and there could be more than 90 per cent value addition and processing in our country itself. However, we cannot export if we are not able to produce in desired quantity. Apart from production, we also have the problem of competitiveness. Even if our cost of production is lower than other countries in the world, our products will cost more by the time it reaches the final market. Let me give you an example. Imagine a situation in Gulmi where you have to organise a few farmers in the form of cooperatives while trying to export coffee to Japan. You collect 12 tonnes of total consignment and put it on the truck and try to send it. But there is a strike so you are stuck there for two days. Finally, you manage somehow and reach Birgunj customs. In order to clear the export consignment, it takes two days. Once cleared, the consignment moves to Kolkata port. It should normally take a maximum of two days to reach Kolkata port but sometimes it takes six days because there is a strike in Bihar or West Bengal which falls on the way. Once at Kolkata port, the consignment is not enough to reserve the entire ship. Now, it takes four days for the ship to fill up. Eventually, it moves from Kolkata. Kolkata is not a deep sea port but a shallow port so it can’t go directly to Japan. Therefore, the consignment on board the ship travels to Visakhapatnam, Colombo or Singapore. The consignment is transferred to the mother vessel at one of these ports and then it goes to Tokyo. In the process, you lose so much of time that you will not be competitive in the global market. So, it is not only the question of productivity and production, but also the question of being competitive in export trading. </span></div>
<div style="text-align: justify;">
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			'title' => 'FISCAL FACE OF NEPAL'S FEDERALISM',
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			'content' => '<p style="text-align: justify;">
	<i><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/achyut  wagle.jpg" style="width: 114px; height: 147px;" vspace="2" />By Achyut Wagle</i></p>
<div style="text-align: justify;">
	Nepal, at least, constitutionally is a federal state now. But the fiscal component in the federalism, which should have been the main basis for federalising the country, is way below in the state restructuring agenda. The preamble of the Interim Constitution of Nepal 2007 has baptized the country as the Federal Democratic Republic Nepal. The Article 138 of the same Constitution has provided basis for restructuring the state.</div>
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	Both, the constitutional and circumstantial yokes now guide Nepal, for better or worse, to perhaps irreversible journey to federalism. But, matter of factly, that is all in theory. Practically, there is a wide political space to be covered between the present unitary state to a judiciously delineated, stable yet functionally acceptable-to-all federal structure of future Nepal. Yet again, the federal Nepal is impossible to imagine without bringing the fiscal frame of federalism into forefront of the state restructuring discourse, which now seems to have obliqued by hyperboles on either side of the political debate.</div>
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<div style="text-align: justify;">
	Despite an euphoria of a sort to resolutely adopt a federal system, the objectives envisaged by the Interim Constitution in this particular regard appear rather slanted. The very concept incorporated in the Article 138 does not accept federalism by-and-large as an economic phenomenon. It proposed to ‘end the disparities’ of various forms, but hardly prescribes modality for prosperity and optimal use and scientific redistribution of resources. The worst proposition in the constitution is: it has authorised the government, not the Constituent Assembly (CA) to constitute the State Restructuring Commission, which is supposed to give impartial technical inputs.</div>
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<div style="text-align: justify;">
	It is apparent that the federal structure of the nation cannot be finalised without technical report from the Commission, and thus, organising constitution writing process would not <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img.jpg" style="width: 367px; height: 182px;" vspace="2" />complete without the Commission and its inputs. Apart from this, the constitutional provision regarding the Commission gives more ominous than the virtuous signal. The authority given to the government to form this Commission provides an edge to the party in power to make it comfortable to itself and therefore, chances of its report being politically biased remain higher. Why was not the responsibility of constituting such a commission vested to the all powerful CA is a question unanswered so far.</div>
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<div style="text-align: justify;">
	Nevertheless, Nepal has no alternative to writing a new constitution, sooner or later. That new constitutional framework must embrace the federal set of polity and structures. Of all the structures, fiscal federalism will be both – defining and delineating basis of the sub-national administrative units, and also the means to ensuring justifiable (re)distribution of resources, prosperity and welfare. For all these reasons, the fiscal federalism is and should be at the centre, in all discourses related to the federal restructuring of Nepal.</div>
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	<strong>Essence of Federalism</strong></div>
<div style="text-align: justify;">
	Federalism is unique and in a way paradoxical concept. First, it seeks to consolidate the national unity while creating newer and larger number of sub-national units; ostensibly by divisions. Second, its objective is to recognise the social, linguistic and/or cultural identity without diluting the overall national identity. And, the third, it strives to bring the government nearer to the people that has a better sense of autonomy in deciding their own fate, but without severing its ties and dependence to the farther government – the one at the centre.</div>
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<div style="text-align: justify;">
	For many, federalism is merely an administrative re-mapping of the political geography of the nation. Creation of sub-national structures, that may be called state, province, prefecture or anything of the kind, seems to the prime objective of Nepal’s ongoing debate on federalism. But, how these new structures evolve and exercise the state power – mainly to meet the economic needs of the citizenry – would determine whether any nation is essentially federal or not. Nepal cannot be exception to this fundamental theoretical premise.</div>
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<div style="text-align: justify;">
	The functions, duties and rights of the federal unit are defined by the extent of power a unit can exercise. Its authority depends on the adoption of universally accepted models to extract power from among the – delegation, decentralisation or devolution, or combination of all of these. And, at the heart of all of these lies – the democracy.</div>
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	 </div>
<div style="text-align: justify;">
	There are very large nation-states world over with varying number of sub-regional administrative units. But, in absence of democratic dispensation, right from the grassroots, these units can only exercise very limited state authority delegated or marginally decentralised by the centre. Only power devolved by democratic exercise can only create a federal state, true to its sense.</div>
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	 </div>
<div style="text-align: justify;">
	<strong>Fiscal Federalism at the Centre</strong></div>
<div style="text-align: justify;">
	The concept of fiscal federalism, and for all practical purposes, the entire frame of federalism, is generally summed-up in three major</div>
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	<br />
	components – namely the tax-point transfers, equalisation grants and convincingly justifiable distribution of resources mainly the natural resources among the sub-national units. There are other peripheral, operational or fringe issues too. But in effect, the main three would largely incorporate them all. There are also several models of both ‘fiscal’ and ‘general’ federalism. But, they too do not necessarily go beyond these three fundamentals of federalism.</div>
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<div style="text-align: justify;">
	Also, there are views against the perspective of limiting the ‘entire federalism’ to the ‘fiscal alone’ proposition. It is <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover img1.jpg" style="width: 406px; height: 461px;" vspace="2" />more apparent in Nepal’s discourse on federalism. Even the top-hats of major political parties who would be deciding the ultimate frame of Federal Nepal also tend to believe that without specific mention of issues like political inclusion, rights-based access to state and recognition of racial and ethical identities, the very purpose of federalism, at least for them, could be defeated. The level of understanding of our CA members on such technical and essentially academic issues is better not to raise here.</div>
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<div style="text-align: justify;">
	In fact, unlike the popular beliefs, the issues of inclusion and identity are rather purely economic issues. For example, the inclusion is not sought in any abstract issues, it is rather meant to ensure inclusion in employment, benefits and other economic opportunities. Even the preservation of identity either is an economic activity in itself, or it has a cost to develop and preserve the different facets that give an identity to people and communities – like language, scriptures, rituals, customs, traditions and culture.</div>
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<div style="text-align: justify;">
	These realities make it imperative that Nepal’s discourse on federalism needs an immediate and meaningful re-orientation, so as keeping the fiscal federalism at the centre of all exercises aimed at state restructuring. And, highly extensive technical and factual details and their analyses would require deciding on the size and the borders of new sub-national states. Nepal does not seem to have even initiated the process of those financial and other statistical number crunching, so far. Therefore, the claims that constitution could be written within a month ‘if’ the parties agrees are unrealistic platitudes. Expert believe that it would take at least six months of rigorous effort for a highly competent professional team to finalise the issues related to fiscal federalism – i.e. tax, distribution of natural resources and, of course, demography and geography.</div>
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	 </div>
<div style="text-align: justify;">
	In the hindsight, this is also an indication that it is impossible to complete the constitution writing by the stipulated deadline of 27 March 2011. Also, political campaigning to create new states on the basis of caste, community or even some extreme demands like ‘One Terai, One Province’ do not present potentiality for financially viable provinces.</div>
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	 </div>
<div style="text-align: justify;">
	<strong>Technical Considerations</strong></div>
<div style="text-align: justify;">
	Financially justifiable and economically functional sub-national delineation is going to be perhaps the most challenging aspect to give Nepal a federal shape. All three major aspects – tax point transfers, equalisation grant and distribution of natural resources among the provinces – involve larger number of murkier issues than the easier ones.</div>
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	 </div>
<div style="text-align: justify;">
	Apart from these, several other components of fiscal relations between the central and sub-national governments, financial management and its processes within the state must also be decided to effectively devolve power to the people at the grassroots. Such issues may relate, but not limited to planning, economic diplomacy, money market and specialised institutions for both fiscal and financial architecture. Given Nepal’s poor governance and slanted nature of understanding about fiscal federalism even at the top-rung of political leadership, the country seems to be making ommitive than spontaneous jump to fiscal federal structure. These are some of the reasons why these issues deserve more <img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/cover%20img2.jpg" style="width: 342px; height: 158px;" vspace="2" />meaningful discussion, before the country could decide on the actual frame of federalism, essentially the fiscal federalism.</div>
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	 </div>
<div style="text-align: justify;">
	<strong>Tax Point Transfers</strong></div>
<div style="text-align: justify;">
	One of the key components of federalism is the decision on the jurisdiction of major tax collection points, i.e. which sub-national government will administer or operate a particular tax point, the types of taxes a province would collect and how the collected revenue would be distributed between the centre and the state, and, sometimes among the states.</div>
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	 </div>
<div style="text-align: justify;">
	In case of Nepal, the decision on the jurisdiction of tax points could face double pronged problem. First, only six customs points collect over 90 per cent of the customs revenue <i>(Table 1)</i>. And, the amount of collection at only the points that lie in two zones – Bagmati and Narayani of the Central Region, account for well above sixty per cent. The customs revenue generally accounts for 25.3 per cent of the total revenue.</div>
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	Similarly, the revenue contribution of four districts is above 80 per cent and this reaches to 94 per cent if added another four districts.</div>
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	 </div>
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	This situation does not only present high tax concentration in the Kathmandu Valley and the central region but also poses a serious challenge to divide the provinces so as each of them can have reasonably attractive tax collection points within their territory. It also indicates to the reality that despite adoption of federal structure, the financial dependence of the provinces could yet remain with Kathmandu. And, even worse, this economic factor cannot be drastically altered soon by a mere political decision.</div>
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	 </div>
<div style="text-align: justify;">
	In addition to deciding on the tax point jurisdiction, decision on the kind of taxes that provinces can impose and the taxes that would directly go to central accounts is also going to be a difficult one. Generally, property and service taxes are levied by the local bodies, sales and value added taxes go to the provincial government and customs and income taxes go to the central government accounts. This assumption appears suitable in the case of Nepal too, as our vertical administration is accordingly stratified in three tiers.</div>
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	 </div>
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	<strong>Equalisation Grants</strong></div>
<div style="text-align: justify;">
	Despite tall asks of autonomous and semi-autonomous provinces on different bases, the fiscal and financial fundamentals do not support the possibility of creating such states. The basis of autonomy is the abundance of physical and financial resources available within any given political unit. As evident in the tax collection patterns, the revenue resource does not support such an ‘autonomous state’ except the one created at the centre, incorporating Kathmandu.</div>
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	 </div>
<div style="text-align: justify;">
	Until the state-to-be-created in the federal set-up are capable of mobilising their own resources, the equalisation grant, the money given by the centre, will be the most dependable source to finance the development and public delivery of goods in the provinces. Even on this count, our debate on federalism seems unduly titled to political considerations alone. In the most ideal cases of revenue and grant sources of funds, dependence to centre remains pretty high. For example, the provinces of Switzerland are entitled to keep 50 per cent of the revenue collected and Canadian ones can hold up 47 per cent of it. These are the highest rates of centre-province revenue sharing the world over. In this light, the ‘autonomous’ state advocated in Nepal appears pure farce.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	But, in our case, the ‘sustainability’ or ‘survival’ side of the new states has never been debated thoroughly as the issue deserved. There are also demands of creating separate provinces like ‘Karnali’. One could easily imagine the level of would-be financial dependence of such states to the centre. Such scenario implicitly infer that centre must once again remain strong as it will have to continuously dole out money to so called autonomous provinces, and, it in turn, has to be strong in effect to gather enough amount of resources to be able to meet the needs of all these new ‘baby’ states.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Natural Resources</strong></div>
<div style="text-align: justify;">
	The distribution of natural resources among the new provinces is another difficult and unavoidable task on effecting federalism. There are several examples of serious disputes between the provinces regarding the rights to use such resources. The Kaveri and Narmada river disputes in India are classic examples to it.</div>
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	 </div>
<div style="text-align: justify;">
	In Nepal, water, forest, mines and minerals and land (mainly cultivable) are considered major natural resources.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	For us, one advantage of this resource vis-a-vis federal imperatives is that, it is fairly evenly distributed given that we agree to justifiably allocate them to generally acceptable size and number of states; say five to nine.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Recently, some campaigns misinterpreting the international instruments like ILO Article 169 have compounded the problem. But, lately the people involved in the indigenous rights movements themselves are becoming somehow disillusioned to deliberate misleading campaigns of yesteryears. However, natural resources will still remain a major basis of re-delineation and the process will surely be difficult.</div>
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	 </div>
<div style="text-align: justify;">
	<strong>Other Issues</strong></div>
<div style="text-align: justify;">
	There are several other issues which have to come to the forefront in the discourse on federalism. They include, whether a province should have authority to carry its own economic diplomacy to accept or endow financial assistance from and to international community; whether it can have its own finance bill; or would it have own supervisory and regulatory authorities independent of central oversight or would they just function as extended line agencies, etc. Equally complex is the issue of large infrastructure projects, their management, ownership and return – if any.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Unfortunately, Nepal as the country as a whole, and CA in particular as the only responsible constitutional organ to debate all these provisions to include in the new constitution, have remained far short of initiating meaningful deliberations. Whatsoever, Nepal in executing the federal structure must ensure unfringeable private property rights universally in all the states, freedom to movement of products and services as well as people, unhindered trade and business transactions between the states and uniform (underently different) tax structure, among others. n</div>
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	 </div>
<div style="text-align: justify;">
	Article 138 of the Interim Constitution</div>
<div style="text-align: justify;">
	138. <b>Progressive restructuring of the State: </b></div>
<div style="text-align: justify;">
	(1) <span>&nbsp;&nbsp; There shall be made progressive restructuring of the State with inclusive, democratic federal system of governance, by doing away with the centralized and unitary structure of the State so as to end discriminations based on class, caste, language, gender, culture, religion and region.</span></div>
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	 </div>
<div style="text-align: justify;">
	(1a)&nbsp;Recognizing the desire of the indigenous peoples and of the people of backward and other area including Madhesi people towards autonomous provinces Nepal shall be a federal democratic republican state. Provinces shall be autonomous and vested with full authority. The boundaries, number, names and structures, as well as full details of the lists, of autonomous provinces and the center and allocation of means, resources and powers shall be determined by the Constituent Assembly, while maintaining the sovereignty, unity and integrity of Nepal.</div>
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	 </div>
<div style="text-align: justify;">
	(2) &nbsp;There shall be constituted a high level commission to make suggestions on the restructuring of the State as referred to in Clauses (1) and (1a)&nbsp;The composition, function, duty, power and condition of service of such commission shall be as determined by the Government of Nepal.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	(3) <span>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The final settlement on the matters relating to the restructuring of the State and the form of federal system of governance shall be as determined by the Constituent Assembly.</span></div>',
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			'title' => 'Bases For Fiscal Federalism',
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			'content' => '<div style="text-align: justify;">
	The following article represents Dr Devendra Raj Panday’s research-based paper presented at a symposium titled “Fiscal Federalism in Nepal” in August 2009 in Kathmandu. The extract is printed here with his consent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	The studies on fiscal and financial federalism concentrate on how financial and monetary institutions’ functions might be arranged and a mechanism for coherent policy making and monitoring established for the state to produce expected outputs. It involves the assigning of spending, taxing and borrowing powers between the centre and the other tiers of government and the focus of responsibility and accountability in fiscal management. In many ways, it is an act of political decision and bargaining – in the course of finalising the constitution and making yearly decisions especially on taxation, revenue sharing and allocation of grants by the centre for various purposes. In all this, efficiency and equity, often in conflict with each other, become issues of major concern. In order to do the needful, the national economy has to run efficiently, produce growth and provide stability that is necessary for broader development. At the same time, the aggregate growth must not create or sustain imbalances, vertically and horizontally. It means that further continuation of centre within the periphery syndromes in governance is not acceptable from both economic and political standpoints. The discrepancies in economic and social status of various regional or provincial economies must be narrowed down with the ‘marginal benefits’ of growth going disproportionately to the disadvantaged and economically and socially excluded people across the country. There are several ways in which fiscal efficiency balanced well with equity considerations can be pursued.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	First, allowing ‘independent fiscal regime’ for the provinces should not dilute the common market character of the federation. Simultaneously, it should also be kept in mind that the free flow of goods and services and investment across the provinces can result in favour of better-equipped regions that may already be relatively better off than others. In theory, there should be economic convergence of different regions under free trade with the mobility of factors as well as goods and services. But we know from Nepal’s experience as a player in the international economy as to how difficult it is for a least developed country (or a region within a country) to compete with better endowed, resourceful and experienced economies. Less developed provinces in the federation deserve the same treatment politically, economically and morally as historically, Nepal as a least developed nation has demanded internationally, including in SAARC mechanisms.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Second, there has to be an understanding and a political consensus on the degree of competition and the spirit of cooperation to be pursued among the constituent units of the federation. The neo-liberal economic approaches sometimes display contradictory positions in this respect. On the one hand, there is the market preservation argument which expects the federation to work in harmony and have the states produce and trade goods without any barriers that would endanger the national market’s efficient working. On the other, there is a view that there should be constitutional guarantees against regulating inter-state flow of goods and services, to perhaps avoid the kind of situation in India where there is no harmony in some taxes levied in the states and on their policies concerning inter-state movement of goods and services. Meanwhile, the liberal ideology also illustrates the idea of ‘competitive governments’ and argues that the states must compete with one another in providing incentives to attract mobile capital and other factors into their territory to punish the laggards. The preference for competitive federalism where the states may compete among themselves to maximise their own welfare at the cost of other provinces may reflect the ‘beggar thy neighbour’ strategy of yesteryears. This is a critical point since, like in the overall design of economic liberalisation, only the relatively prosperous states would benefit from competitive economic and fiscal policies. In post-1990 India where the states are encouraged to compete with each other for attracting investments into their territory, some states have done well, but at the cost of growing inter-state disparities and regional imbalances. Nepal can ill afford a similar practice. It would also run counter to the social objective of federalism which is to reduce disparities and imbalances, not to increase them. Once again, purposeful pragmatism calls for an approach that would optimise people’s welfare at the provincial and local levels and encourage entrepreneurship and investment all around without the states jeopardising each other’s interests and the overall interest of the national economy.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Third, in the practical task of expenditure and revenue assignment, efficiency consideration is implicit in the widely held opinion that before considering taxation, assignment of expenditures among different tiers of government should be taken care of. The idea in this ‘money to follow work’ principle is that taxation and borrowing powers of the states and assumedly, the centre’s should not be independent of specific obligations they undertake for discharging public functions and the volume of expenditures required for that purpose. The idea is to ensure that all states are empowered to provide comparable public services regardless of their revenue capacities. Beyond this, the expenditure assignment is expected to be guided by economic considerations whereby the central as well as provincial and local governments provide services whose benefits accrue to the residents within its jurisdiction and where the costs of the provisions incurred can be internalised within that jurisdiction. To put it simply, the responsibility for the provision – where the benefits from a given service are distributed nation-wide such as the country’s defence, the Supreme Court or the national highway system – lies with the centre. If the benefit incidence of a given service is limited to primary and secondary education or water supply and sanitation, the provision is best readied by provincial and local governments. The opportunity to save on transaction costs and the possibility of harnessing the economy of scale in fiscal operations are associated elements of the process.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fourth, in a developing country where both the expectations and the requirements of the people are high, assigning expenditures for the centre and the constituent states does not only mean slicing the existing budget into central and provincial items of expenditure and dividing tax revenue accordingly. It also means taking into account the responsibilities to deliver services that the people could not have earlier. It also means undertaking various development works for generating social goods that can be provided or ensured to finance them. The challenge will arise from policy matters and in the pursuit of related priorities. For agriculture, education and health among others, the centre may wish to promote certain norms and targets considered desirable from the national viewpoint. The states in charge of these assignments can have different ideas especially if the same political party or the coalition of parties is not in charge at the centre and specific states. The centre will have other concerns including those that are part of its international commitments. Such commitments can be about trade and environment as they can be about national and international human rights standards concerning the status of women, children, indigenous people etc. And there are commitments about Millennium Development Goals (MDGs) with further complications arising from the possibility that many of the related functions will come under the purview of provincial governments. Consequently, expenditure assignment also becomes responsibility and accountability assignment against which the availability of matching revenue needs to be guaranteed. The centre has an obligation to address these issues as it negotiates the tax sharing arrangements and, particularly, the conditional and unconditional grants’ transfers from the centre to the provinces.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Fifth, there are four areas of concern that should guide the process on taxation. One, every jurisdiction needs adequate tax revenue to finance the assigned and necessary expenditures. To make up for the shortfall in one jurisdiction, the better endowed among others should have the incentive to engage in revenue sharing. Two, efficiency consideration will be as important in the assignment of taxing power as in spending, more so due to its direct impact on the working of the common market. The incentives and disincentives in the tax structure on a given jurisdiction, especially for the mobile factors and the consumers of public services are critical. Taxation assignment requires appropriate study of tax bases, possible overlapping of incidence, the spill-over effects and the population that stands to benefit from the spending facilitated by such taxes. Three, the distribution of taxing authority among the different tiers of government has a significant bearing on equity. The residence based taxes on income and property may be appropriate for the provincial and local governments, but any tax with significant redistributive power, such as progressive income tax becomes suitable only for the national government to enforce national priorities on equity and broader development. Four, administrative efficiency including transaction cost considerations will also guide the assignment of taxing power. On this basis, some taxes become suitable even for sub-provincial or local governments for eventual sharing vertically where local conditions and administrative set up can help administer it better.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Sixth, apart from the question of specific taxes to be assigned to the centre and the provinces, a decision about the collecting agency is also important. Some taxes available for meeting public expenditures may be collected and used by only one jurisdiction. One such example could be the property tax levied and collected by local governments. Such tax base can also be shared between the local and provincial governments. Some taxes may be collected in one jurisdiction and used by all. For example, income tax can be collected by the centre and shared with others. In all these cases, the tax base, its incidence and the administrative cost of collection will be important considerations. From a political perspective, the perceived or pursued autonomy of the provinces vis-a-vis the centre will play its part. There is a potential conflict in the way one asserts ‘states power’ and the compromises needed in the interest of efficiency as well as equity in the interest of national bonding.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Seventh, as in Nepal’s case of federalism by ‘devolution’ and not ‘aggregation’, the central government retains its basic strength and power which applies to fiscal arrangements too. The centre must have absolute power to collect taxes from the domains of individual provinces and use the funds collected to meet expenditures it deems important across the country. In almost all the important federal countries, the share of the central government in total public revenue (collected by the centre, the provinces and the local governments) is above 50 per cent. In Nepal, the economic reality – the likely wide variations in the economic status and revenue bases of different regions and the social imperative of redistribution – will undoubtedly vest the centre with considerable authority and responsibility in this respect.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	Finally, besides redistribution, it is critical that the central government be adequately empowered to undertake stabilisation functions, on the one hand, and monitor the economic and distribution effects of inter-jurisdiction competition, on the other. It is prudent and practical to let the centre have exclusive authority over stabilisation function and use its power of the purse in a way where the provincial governments have an incentive to follow the national priorities even as they are bound to come into conflict with priorities established by them in their provincial interests.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<i>(Dr Panday retired from government service as Secretary of Finance and became the Finance Minister in the first government formed after the restoration of democracy in 1991.)</i></div>',
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			'title' => '‘We Need A Strong Central Government With Fiscal Redistribution Power’',
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			'content' => '<div style="text-align: justify;">
	<b><img align="left" alt="" border="2" hspace="2" src="http://newbusinessage.com/ckfinder/userfiles/Images/Dr Ram Sharan Mahat.jpg" style="width: 192px; height: 217px;" vspace="2" />Dr Ram Sharan Mahat</b></div>
<div style="text-align: justify;">
	Former Finance Minister</div>
<div style="text-align: justify;">
	The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>How would mobilisation of resources take place under the federal structure?</strong></div>
<div style="text-align: justify;">
	Mobilisation of resources is imperative to run the government irrespective of whether there is a federal structure or not. Under the federal structure, there will be governments both at the central and provincial levels. Therefore, resources will be mobilised at both ends. Apart from the revenue sources under their respective jurisdictions listed in the constitution, there will be a concurrent list of revenue sources imposed at both levels. In federal countries, the centre as well as the provinces impose taxes and duties such as income tax and excise duty which raises the burden on the taxpayers. Duties are normally collected by the centre at a single point for administrative convenience but shared at both levels. In addition to the central tax, the provinces piggyback to a certain extent, however, remaining within limits defined by the respective framework legislation. For example, if the central income tax is 25 per cent, the province may add another 5 per cent.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>The source of revenue in Nepal at present are centralised in a few districts. Under such situation, how can fiscal balance be maintained when Nepal becomes federal?</strong></div>
<div style="text-align: justify;">
	This is definitely a big challenge. The provincial government will have to work hard to mobilise their own resources to reduce excessive dependence on the centre. In my opinion, the provincial governments should have the capacity to meet a bulk of the administrative cost of their respective provinces. But given the character of the proposed delineation of provincial boundaries, most provinces will have practically no revenue source at least in the short and medium run. People think that once they have a separate province, they will have all the autonomy and freedom. But if the province has no resource of its own and depends on the central allocation even for day-to-day administration, the autonomy has no meaning. Therefore, one has to be very careful while carving out the provinces. The decision should also be based on long term viability and economic sustainability of the regions, in addition to other considerations. Unfortunately, at present the most vocal demand relates to provinces based on ethnicities.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Do you see the danger of regional disparity due to unequal distribution of resources and sources of revenue?</strong></div>
<div style="text-align: justify;">
	The common fallacy among the ardent federalists in Nepal is that regional disparity will be narrowed and poverty banished once there is a federal structure. This is wrong. Resources and development potential are unequally distributed and so are the revenue sources. Competition among provinces with differing resource endowments could accentuate regional disparities instead of narrowing down unless there is intervention from the centre. For this, the centre must be strong with redistributive power. In the USA, there are serious regional disparities. West Virginia’s per capita income is less than half of Connecticut’s. In India, Haryana’s per capita income compared to UP and Bihar is three to five times higher. Please note that India is not the perfect example of a federal structure. India, at best, can be regarded as a quasi federation with a strong centre. So, this situation in India is despite central intervention.</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>What should federal Nepal’s fiscal policy focus on to ensure appropriate and equal distribution of resources among the provinces?</strong></div>
<div style="text-align: justify;">
	There is no alternative to a strong central government with fiscal redistribution power to ensure equity and economic justice. All provinces should have uniform access to basic services like education, health, electricity, roads and other socio-economic services. For this to happen, poorer provinces will need central support through a mechanism called Equalization Fund. A fiscal mechanism to ensure transfer of resources from rich to poor provinces is necessary. It is precisely for this and other reasons that revenue from major sources like customs, income tax, and partially VAT and excise must go to the centre. If you look at Nepal’s case at present, these sources practically yield no revenue. If they are brought under provincial jurisdiction, most federal units will have no income at all.&nbsp;</div>
<div style="text-align: justify;">
	 </div>
<div style="text-align: justify;">
	<strong>Why hasn’t there been a meaningful debate on state restructuring and the form of federal system?</strong></div>
<p style="text-align: justify;">
	It is not that there are no debates taking place. But generally speaking, the focus has largely been on ethnic lines rather than on long term sustainability and from development perspective. Most people have a vague idea about federalism and what it will deliver. State restructuring is not just about the country’s division into federal units. It is more than that – such as ensuring people’s empowerment at the basic level. Democracy is after all the empowerment of individuals, beyond communities and societies. It could be ensured with strong decentralisation but there has hardly been any debate on that.</p>',
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