- Liberalization in Nepal is said to be begin from early 1980s when the government started to be liberal for the private sector.
- For example, the Foreign Investment Act 2038 BS made it possible for foreign investment in Nepal.
- The Foreign Employment Policy & Act 1983 AD was a step to liberalize the employment sector.
- Similarly, the stabilization and the structural adjustment program of 1987 (SAP 1987) is said to be a major departure towards liberalization.
- But before 1980, it was the Panchayat Regime which was mostly state-controlled in neture and so, the liberalization was just in the initial phase.
- After the restoration of the multiparty system in 1990 (2046 BS), the government made a comprehensive market-oriented reform in order to make the economy more liberal to the private sector.
- The government made several institutional policies and legal reforms to internalize the spirit of liberalization.
Major Reforms Related to Liberalization in Nepal
1. Fiscal Sector Reforms:
- Under this sector’s reform, the government revenue and expenditure-related reforms were made in order to promote the private sector.
- In the revenue side of the reform, the government reduced the tax rate and broadened the tax base. The reduction in the tax rate was expected to reduce the private sector’s cost of doing business and encourage the private sector’s economic activities.
- Similarly, on the expenditure side, the government started to rationalize its expenditure. With the concept of “Lean and Thin” government, the regular expenditure was tried to be reduced by reducing the size of government officers, the number of institutions irrelevant to the changing context, and merging some government institutions.
- The government started to classify the expenditure as priority 1 (P1) and P3 in order to improve productivity and efficiency.
2. Financial Sector Reforms:
- Interest rate deregulation (let the market determine the interest rate).
- Reforms in the government-owned banks such as NBL, RBB, and ADBL.
- Re-engineering of NRB to improve its regularity capacity.
- Establishment of NEPSE and promotion of caiptal market.
- Liberal policy for the private sector’s investment in the financial sector.
3. Production and Service Sector Reforms:
- Abolition/elimination of liscence system in industry.
- Ease out the private sector’s investment in the production and service sectors.
- Privatization of state-owned enterprises (SOEs).
- Facilitation of the private sector through infrastructure development.
4. External Sector Reforms:
- Removal of the import quota.
- Reduction in customs duties.
- Promotion of the export sector.
- Bilateral, regional, and multilateral trade agreements.
- Facilitation of foreign investment inflow in Nepal.
- Current account convertibility (Export, import, current transfer income, remittance, pension income, gifts and donations, foreign grants)
- More liberal policies for foreign employment and tourism.
To institutionalize the liberalization, the government enacted various policies, laws, and many of them are:
- Industrial Policy 2019 (now 2067)
- Commercial Policy 2049 (now 2081)
- Foreign Investment and Technology Transfer Act 2049 (now 2075)
- Privatization Act 2050.
Since 1990, Nepal has consistently promoted the private sector through various reforms to date. The constitution of Nepal has given due priority to the private sector as a main pillar of Nepal’s economic policy.
Similarly, the current periodic plan, the government budget, monetary policy, and all the sectoral policies are liberal to the private sector.
The private sector is considered to be the engine of the Nepalese economy for a prosperous and happy Nepal.
Such various efforts of liberalization have both positive and negative implications for the Nepalese economy.
Benefits of liberalization in Nepal
The major advantages or benefits of liberalization in Nepal are:
- Expansion and development of the private sector.
- Diversification of the economic activities and opportunities.
- Better mobilization of the available resources.
- Expansion of consumer choices and welfare.
- Market expansion both domestically and abroad.
- Foreign employment opportunities and increased remittance income.
- Competition, innovation, and support for economic growth.
- Increased government revenue due to increased economic activities.
- Increased access to the market, facilities, and services.
- Increased foreign investment, technology transfer, and development.
- Expansion and development of international relations through trade, invsetment and employment.
- Access to quality products at a reasonable price.
- Improved public awareness and empowerment.
Major Issues and Challenges of Liberalization in Nepal (Demerits)
- Increasing inequality in terms of resources, opportunities, and access.
- Continuous trade deficit and import dependence.
- Limited employment creation and jobless growth.
- Pre-mature deindustrialization and la imited industrial base.
- Weak state capacity and regularity failure.
- Growing rent-seeking and poor innovation (काम नगरी फाइदा खोज्ने प्रवृत्ति नै Rent- Seeking हो।)
- Institutionalization of the economic activities.
- Threat to the local products, techonology and industries.
- Growing unhealthy market practices such as cartels, syndicates, price control, artificial shortages, etc.
- Increasing rural urban devides, digital divides.
- Expansion of illegal economic activities within the country and across the border.
- Policy influence and corruption by the large corporate house/business.
- Weaken the role of government and widespread frustration.
Maximizing Benefits from Liberalization
- Enhance the regularity capacity of the government through continuous reforms.
- Productive utilization of remittance.
- Support to the marginalized and disadvantaged community from liberalization through distribution and redistribution policies and programs.
- Protection of local products and technology by providing technical and financial support.