Indian companies were amongst the first to arrive in Nepal during the 70s and 80s, with many of the businesses having now established themselves as profitable ventures through decades of cultivating brand loyalty. These companies operate in diverse sectors and for most of these early investors, expansion coupled with the market opportunities in Nepal served as motivating factors. While India grows as an economy and newer avenues of investments have been witnessed in sectors of agriculture, energy as well as Information Technology, there have been concerns lining the lagging interests in manufacturing and financial sector, that have proven lucrative for companies that have set up their operations in these sectors. The perception survey was designed as baseline research that will serve to ascertain how major players in the manufacturing, banking and finance, insurance, energy and infrastructure sectors have observed the business climate in Nepal,
as well as identifying the major risk perceptions that have guided investment decisions in the country.
The companies included in the research are major stakeholders in their respective industries. The study is qualitative in design and as such is descriptive in its approach. Done in three stages of literature review, online surveys, and focused individual stakeholder and expert consultations, this publication provides a general understanding of why the companies initially sought to establish their business in Nepal, if the factor(s) are still relevant, the pertinent market risks, and their major social contributions in the country. Post a thorough examination of the data, the report has compiled a list of major recommendations that were particularly drawn from the consultations.
It was found that while expansion was a primary reason for 50% companies to enter Nepal included in the survey, 17% also included geostrategic considerations, and this along with other factors like that of corporate taxation added to their decision-making. Most do still believe that these motives hold true today and could serve to attract more investments, if the state addresses certain pertinent challenges. 21% of the participants have indicated that difficulties have primarily been associated with both legal and administrative constraints and policy inconsistencies of governments, followed by 18 % that targeted procedural hassles and 14% looked towards the lack of infrastructural access and development. Frequent changes in government policies, and an unstable political environment have further impacted the risk perceptions of these companies. There have been insights gathered on the matter of difficulties in outbound remittance for both foreign corporate officers and employees, whereby they are obligated as per policy to expend 30 % of their total income in Nepal. Respondents in the banking sector also expressed concerns against the employment of foreign staff, that impacts their expansion plans, which then affects domestic employment as well.
Despite attempts towards shaping and instituting reforms, there have been concerns attached with the lack of stakeholder consultations when introducing important policies that impact the business environment, with 41% of the companies believing that they are rarely brought on the discussion table by the state during significant policy deliberations. A major argument underlined was also that of laws needing further review and amendments on the basis of the evolving market environment.
Sectors that have gained interests anew either because they have been opened for foreign investments very recently like agriculture, or IT that has been identified as a potential space for Indian investors to look into, require incentivization from government as well as a stable policy structure to govern activities and overall engagements.
Additionally, even though the state has reported a demographic dividend recently, there have been concerns attached to a “critical gap” in the labor market, owing to a decreasing residing population, with youth migrating abroad for opportunities. Thus, the more foreign investment pours into Nepal, the more employment opportunities are generated in Nepal for youth, the more revenue will also be added to the government coffer.
Institutional assessments of Nepal’s economy have been cautiously optimistic in the overall economic outlook of the state’s growth projections. As per the consultations, the companies do still believe that even though challenges persist, the corporate tax structure, a low trial cost for launching new products, along with a faster break-even than in India, do serve as pull factors for potential investors. Nevertheless, in order to tap into the investment probabilities, the government needs to take into account the interests and risk perceptions of the investors when drafting policies, acts and regulations. This could further lead to more intensive programs and plans when engaging important stakeholders on negotiating tables.
(Executive Summary from Business Climate Survey for Indian Companies in Nepal-2024)
indian survey
