After the 2015 Indian blockade, Nepal concluded a series of trade and transit deals with China. Yet there has been no progress on either front. Why?

It is true that we have been unable to increase our trade with China. The first reason is lack of connectiv­ity. Our transport networks have not been properly developed. Of the six open border points between Nepal and China—Humla, Mugu, Mustang, Keyrung, Tatopani, Olangchungola and Kimathanka—only two—Tatopa­ni and Rasuwagadhi—are connected by motor roads. And even they are in a bad state. The problem is not on the Chinese side, which already has the needed infrastructure.

The second reason is Nepal’s low production and productivity. Although over 8,000 Nepali prod­ucts have duty-free access to China, we have not been able to export much. In the last fiscal, total imports from China totaled Rs 205 billion while exports were worth a mea­gre Rs 2 billion. Even the little we do export—products like medicinal herbs, vegetables, woolen carpets, Thangka paintings, handicrafts—end up in Tibet. We have no export at all to mainland China. The third reason is non-tariff barriers—those related to quarantine, food standards and administrative hurdles. Language is also a barrier as communication between Nepali and Chinese traders is not easy.

How do you view the 20-point agreement signed during Presi­dent Xi Jinping’s visit?

The agreement has strategic sig­nificance as it is focused on con­nectivity, mainly rail connectivity. Yet bringing the Chinese railway line to Nepal is time-consuming and costly. But if we could at least develop north-south roads, Nepali territories will be better connected with China, making trade easier. The multi-dimensional connectivity and trans-Himalayan connectivity men­tioned in the 20-point agreement is a milestone development and could potentially enhance bilateral trade—but only if accompanied by prod­uct-development and enhancing our productive capacity. For that, we need more Chinese investment. China’s labor-intensive industries are relocating to South-East Asian countries. China itself is focusing on high-tech goods and services. As wage levels rise in China, it has found labor-intensive industries non-competitive. Why not bring some of those industries here?

You talked about the big trade deficit. Can you name four or five products that Nepal can profit­ably export to China?

We have to focus on niche prod­ucts. For example, we can pro­duce medicinal herbs in our hill and mountain regions for Chinese markets. To that end, we have to create large farms for cultivating and processing medicinal herbs. Similarly, the government should invest more in research and devel­opment. Currently, the herbs found in the Himalayas are collected and traded in raw form. There is no val­ue addition or processing. And these products are exported informally. We have to formalize this. We have to develop specific economic zones for specific products like medicinal herbs, wool, mountain goats and sheep, and pashmina.

Another vital exportable product is handicrafts. Thanka and various types of statues can also be export­ed to China. We should also bet­ter explore the Chinese market to understand what they really want. It is a dynamic process; we cannot stick with the same products all the time. Again I focus on connectivity. All trade with China today is via ocean routes, which takes 40 to 45 days. If we can use land routes, it will come down to 10 or 12 days.

There is a big debate about the cross-border rail line and its costs. Instead of the railway, should better cross-border roads be our priority?

We have to consider both, but the priority should be roads as they are both cheaper and quicker to build. For railway lines, we need heavy investment, technical manpower, and a lot of time and effort. In the short term, railway is not viable economically. It can be justified only if it links India and China via Nepal. Chinese President Xi has said that he will help Nepal be a ‘land-linked’ country. But India is mum on this. If both India and China are willing to trade through Nepal, a railway line may be justified.

In high-volume trade, transport via railway is cheaper than transport via road. But, again, in the current low-volume trade, building a railway line may not be justified.

We signed the Transit and Trans­port Agreement with China in 2016, and this year the two coun­tries finalized its protocol. But is it at all feasible for Nepal to trade with third countries via China?

It is very important to have Chi­nese transit facilities as strategic options. But in practical terms, it would be difficult to replace India with China in transit. The nearest sea-port in China is 4,000 km from the Nepali border while the nearest Indian port is just 700-800 km away.

What other technical difficulties will Nepal face in using China to transit goods?

The first is the long distance, which entails higher cost. Second, there is no railway connectivity up to the Nepal border, and transport networks are fragmented. Third, as goods will have to be transferred between, say, railways and trucks, that too will add to the cost.

There is a need for a comprehen­sive study on the movement of cargo via both Indian and Chinese routes to third countries, which will tell us which route is more viable.

Even if transit via China is costly, can’t we profitably trade with the Chinese mainland by developing proper linkages?

The Chinese mainland with its major population centers are far from Nepal. Tibet itself is eight times the size of Nepal. It has a limited absorptive capacity in the sense that it has just three million people. Just crossing Tibet will cost a lot. What we can do is develop distribution centers or parks in cities near Nepal like Keyrung. If you request China to develop such distribution parks with big areas, exporters from Nepal can send their goods there and Chinese traders can pick them up.

India still places many restric­tions on the import of Nepali goods. If most of these restric­tions were lifted, would Nepal need to explore other options?

Almost 60 percent of our export goes to India. Almost two-third of our import is also from India. Still, there are certain barriers while exporting goods to India. Practi­cally India does not impose any custom duty on Nepali agriculture and industrial products and only three items—alcohol, tobacco and perfume—are on its sensitive list. But there are many non-tariff barriers. The trucks carrying Nepali tea are stopped at the border. A tea sample is then taken to a laboratory in Pat­na. It takes five to six days to get a final report, which makes the whole operation costly.

In that case, is there a possibil­ity of China replacing India as Nepal’s biggest trading partner?

I do not think so because import from China is increasing and we have to do a lot to increase exports. Until we enhance our competive­ness it is difficult to increase our exports. We have an open border with India and there are many sim­ilarities between the two countries. So it might not be possible to replace India with China in the near future.

The big-power rivalry in Nepal is getting curiouser and curi­ouser. India imposed a crip­pling blockade on the landlocked country for its reservations over Nepal’s new constitution. Gasping for life, the country and the then KP Oli government naturally turned to China, Nepal’s only other immedi­ate neighbor. He went there in 2016 and signed many vital agreements, most importantly the Trade and Transit Treaty and a deal to import a third of Nepal’s oil from the northern neighbor. The goal was to forestall another blockade-like situation at all cost. His policy of ‘diversifying’ away from India paid electoral dividends— and at long last led to Xi Jinping’s Nepal visit. The Indians are worried. What does the growing Chinese presence in Nepal mean? Does it pose a direct threat to Nepali democracy? Does it spell an end to its traditionally dominant role? India and China have seldom cooperated for the benefit of third countries in the region, and it would be naïve to expect them to do so now, never mind Wuhan or Malappuram.

There is also a perception in Delhi that the common ideology of the ruling parties in Nepal and China helps bring the two countries closer. “India does not seem to have any effective ideas to meet this mas­sive Chinese cultural, ideological and political challenge,” writes SD Muni, an old Nepal hand in India for The Quint.

Ashok Mehta, a retired general of the Indian Army and anoth­er Nepal expert, believes it is more a case of Nepal being “some­what fearful of China and doing things after receiving some signal from Beijing.” Yet most Indian ana­lysts also seem quietly confident that Nepal is trying in vain to overcome the hard constraints of geography.

After the formation of the two-third communist government last year, Nepal has been more assertive in its foreign policy conduct under the new slogan “amity with all, enmity with none”.Mainly, the government is trying to strike a balance among three major powers—India, China and the US—while also reaching out to key development partners. Balanc­ing the three powerhouses, which sometimes have conflicting inter­ests, has proven to be a Herculean task. In particular, Nepal faces the challenge of simultaneously han­dling the American Indo-Pacific Strategy (IPS) and the Chinese Belt and Road Initiative (BRI). Adding to Nepal’s challenge is the growing perception in India and the US that the communist government is steadily tilting toward China.

Despite claims to the con­trary, the Americans and the Chi­nese have introduced the IPS and the BRI respectively in order to augment one’s own clout and contain the other. India, meanwhile, has been main­taining a low profile in Nepal amid the Sino-American rivalry. Although the IPS projects India as a strategic partner, the latter’s position on the American strategy remains unclear.

Southern discomfort

Growing Chinese influence in South Asia has long been a concern for India. Chinese President Xi Jinping’s recent visit to Nepal, a first by a Chinese pres­ident in over two decades, must have added to the worry. Xi sent a clear message that China would help Nepal realize its dream of transforming itself from a ‘land-locked’ to a ‘land-linked’ country. Since the Indian blockade of 2015-16, Nepal has adopted a pol­icy of diversifying its trade and tran­sit options. Xi’s visit and the agree­ments on connectivity projects he signed in Kathmandu have given a boost to the policy.

India has not issued an official state­ment on Xi’s trip to Nepal; Indian officials in Kathmandu maintain that they are still evaluating the broader implications of the visit. But com­ments from former diplomats, for­eign policy commentators and media practitioners suggest that New Delhi is wary of the growing Chinese footprint in Nepal. Indian government officials, however, have been downplaying the import of Xi’s trip and making routine statements that there is nothing out of the ordinary about such visits and India has no reason to be bothered.

Such statements notwithstand­ing, India has had reservations over Nepal’s decision to join the BRI. India also expressed displeasure with Nepali officials when Nepal and China began their first ever military drill in 2017. India is not happy with their growing military ties and says that the Indian and Nepali armies enjoy an unparalleled special relationship.

Following the Indian blockade, Nepal signed a transit and transport treaty with China, ending its sup­ply system’s total dependence on India. The protocol to the treaty has been finalized, and both countries are working to enhance rail and road con­nectivity in order to implement the agreement. New Delhi has felt uneasy over the proposed infrastructures such as rail­ways, roads and tunnels.

Imran Khan and KP Oli

Nihar R. Nayak, a research fellow with IDSA, a New Del­hi-based think tank, says, “It is a bilateral visit con­cerning Nepal and China, so there is noth­ing much for India to comment on. Elevating com­prehensive part­nership to strategic partnership is the only phrase that India could have concern with.” But he adds that India expects Nepal to address its core issues while making agreements with other coun­tries, be it China or the US.

What are those core issues though? “India’s genuine security interest in Nepal, including the perils of terror­ism; big infrastructures built by third countries in Nepal and their implica­tions; and possible threats and chal­lenges to multi-party democracy in Nepal,” replies Nayak. Two other vital Indian concerns, according to him, are the protection and smooth func­tioning of Indian projects in Nepal and adverse climatic impact in Nepal’s Himalayas.

“Xi Jinping is free to visit any coun­try. But if he invites Imran Khan just before he comes to India for an infor­mal summit and visits Nepal just after, people will read meaning into it,” said Ashok Malik, a Distinguished Fellow at the Observer Research Foundation, in a recent interview with NDTV.

“As Xi and Oli discuss the CNEC [China-Nepal Economic Corridor], the elephant in the room is PM Modi. It is no secret that Delhi is wary of China’s infrastructure projects in Nepal. On its part, Beijing has often suggested that India must be part of the CNEC; for many projects will not be commercially viable without India’s partici­pation,” wrote C. Raja Mohan, Director at the Institute of South Asian Studies, National Univer­sity of Singapore, for The Indian Express on October 13.

There is also a perception in Delhi that the common ideology of the rul­ing Nepal Communist Party (NCP) and the Communist Party of China (CPC) helps bring the two countries closer. Stating that China has posed cultural, ideological and political challenge to Nepal, SD Muni, an expert in Nepal-India relations, writes in a recent article for The Quint: “There is a degree of complacency at the strategic level in India that in the long run, the Chinese cultural push will not last—Chinese language is difficult to inculcate, and Chinese values and lifestyles are alien to the Nepalese. And even if this view stands validated, enough damage might be done by then to India’s vital interests in Nepal.”

Muni adds, “India does not seem to have any effective ideas to meet this massive Chinese cultural, ideological and political challenge. It is still lick­ing its wounds caused by the most grotesque political intervention in Constitutional affairs in 2015.”

Plus or minus

China has proposed new formulas to mitigate Indian concerns over big infrastructure projects. For instance, it first came up with a proposal of trilateral cooperation, which did not materialize. Last year, China put forward a new proposal of ‘China-India Plus’ cooperation, which entails consulting each other before launching big projects in small South Asian countries. Though India has not reacted to it, Chinese State Councilor and For­eign Minister Wang Yi, soon after Xi’s visit to India and Nepal, said that Modi and Xi discussed ‘China-India Plus’ cooperation.

“The two leaders also agreed to expand ‘Chi­na-India Plus’ cooperation, push forward facilitation of regional inter-connectivity, and work with other related parties to strike the Regional Comprehensive Economic Partnership (RCEP) agreement as early as possible,” Xinhua news agency quoted Wang as saying at a media briefing.

Pramod Jaiswal, Senior Fel­low with the Institute of Peace and Conflict Studies, another New Del­hi-based think tank, tells APEX that there is little India can do to counter Chinese influence in Nepal. “Chi­na’s rise has opened up new space in all South Asian countries. But in Nepal, India has also given additional scope to China through its flawed policies and failed diplomacy.” The best India can do, he adds, is com­plete with China “with better proj­ects, bigger grants and smoother implementation of development programs.”

Interview with Ashok Mehta, a retired general of the Indian Army

Nepal’s vital infra projects in China’s hands

 How did you view Chinese President Xi Jinping’s recent visit to Nepal?

The visit had been pending since 2014. We had been hearing different reports that Xi was not happy with the preparations for his trip or that he was not visiting Nepal. Finally, he visited Nepal and conveyed a big message. In my understanding, no foreign leader has had the impact that Xi did during his two-day state visit. When Indian Prime Minister Modi went to Nepal for the first time in 2014, it was billed as landmark. Modi also won the hearts and minds of the Nepali people.

Preparations for Xi’s visit were tak­ing place for a long time. Chinese Foreign Minister Wang Yi went to Kathmandu a month ago. A delega­tion of the Chinese Communist Party had also visited Nepal. And a seminar on Xi’s political thought was recently held in Kathmadu.

Before his visit, Xi himself wrote an article that was published in private and government newspapers. He went to Nepal with a new blueprint for bilateral relations. He said China would help Nepal become ‘land-linked’ instead of ‘land-locked’. He talked about the Nepal-China Eco­nomic Corridor under the Trans Himalayan Multi-Dimensional Con­nectivity.

The visit was the outcome of well-thought-out preparations. Its timing was also significant. Currently, Nepal has a communist government with a big majority in the parliament. In this context, the visit by the paramount leader of the Communist Party of China (CPC) is a turning point in Nepal’s history.

What did you think of the agree­ments signed during Xi’s visit?

The agreements do not have much substance as there are no delivera­bles. The financial assistance, how­ever, is important. There have been agreements to conduct feasibility studies of some connectivity projects, which are significant. But until and unless India gets involved in such vital connectivity projects, China will not invest its money and tech-nology. There is no economic benefit in extending the railway line up to Lumbini, because the flow of tourists only would not sustain it. The main target of the railway line is obviously India’s market. Nepal has always wanted to be a bridge between its northern and southern neighbors. When Baburam Bhattarai was the prime minister, he pushed the concept of trilateral coopera-tion. However, India’s focus is on continuing and enhancing bilateral cooperation because it thinks of itself as the dominant power in South Asia. As far as the economic corridor is concerned, it would gain signifi-cance if India joins it. India-China relationship is tense at the moment and it is poised to remain so for long. Therefore, the feasibility study of China-Nepal-India economic corridor is challenging. Billions of rupees are required for the construction of roads and railway lines.

How do you evaluate the current state of Nepal-India and Nepal China relations?

The two cannot be compared because Nepal and India share an open border, whereas the Nepal China border is a closed one. Nepal and India also enjoy close military cooperation. China, with a closed border with Nepal, cannot demand the same type of relations that India has with Nepal. There may be flaws in the 1950 Nepal-India Treaty of Peace and Friendship, but the fact remains that the two countries share an open border. There is frequent movement of people, one lakh Nepalis are currently employed in the Indian security forces and two lakhs of them receive pensions. In terms of geography too, the major Chinese population hubs are much farther from Nepal than are Indian population hubs. With some caution I would say that Nepal fears China. Nepal frequently says Taiwan is part of China, it keeps reaffirming the one-China policy, it strictly curbs anti-China activities, it closes the office of the Dalai Lama, and bars the celebration of his birth-day. All these indicate that Nepal is somewhat fearful of China and does things after receiving some signal from Beijing. Now that Nepal has a communist majority government, there is more pressure than in the past. But China is giving more devel-opment assistance to Nepal as well.

How can India minimize China’s influence on Nepal?

India should focus on completing its development projects in Nepal on time. All its works, be it the Rax-aul- Kathmandu railway line or any other development project, should be of high quality. However, major development projects are already in China’s hands. Nepal is handing over projects to build airports, roads and hydropower plants to China. China-Nepal eco-nomic corridor is under construc-tion. The letter of exchange men-tions investment in infrastructure and hydropower projects. In the past, there was no such focus. Now China is constructing transmission lines in Nepal.

Are you suggesting that Nepal is already in China’s fold?

We cannot say that. My analysis is based on the current political situation in Nepal. What type of political equation emerges in the future cannot be predicted.

(Our India correspondent Asha Thapaliya talked to Mehta in Delhi)

(UPDATED INTERVIEW)
To prepare for the likely Nepal visit of Chinese President Xi Jinping, many Chinese security teams have visited Kathmandu to take stock of the security measures here. Our security bodies are making their own plans. APEX’s Kamal Dev Bhattarai talked to Retired Deputy Inspector General of Police Hemant Malla, who was himself closely involved in preparing security plans for many visiting foreign dignitaries, on whether the current preparations are enough. And are there specific threats to Xi while he is in Nepal?

How do you evaluate the security preparations for Chinese President Xi Jinping’s planned Nepal visit?

There are two aspects to security preparations. The first involves providing training and guidance to security personnel who will be deployed during the visit, which include how to provide ground security and handle possible unpleasant situations. The second involves identifying and assessing likely security threats. Currently, preparations are focused on these two areas.  

Are these preparations adequate in your view?

When we talk about security preparations, only the preparations of Nepal Police are being highlighted. Some political issues related to China, like the one related to Tibetan refugees, are beyond the jurisdiction of the police. The National Investigation Department (NID) is mandated to handle those issues. In my observation, the NID is not effective enough to handle those issues. The intelligence agency cannot fulfill its responsibility based on its current strength. Their respective strength may vary, but the Nepal Army (NA), the Nepal Police, the Armed Police Force and the NDI should act in a coordinated way to gather and analyze information. This would make the security arrangement more effective. The army is also involved in overall process as it takes the responsibility of providing security in core areas of visit. I feel that all security agencies are not functioning on an equal footing.

What are the possible areas of threat to Chinese President XI during his Nepal visit?

One major concern for China has always been the activities of Tibetan community in Nepal, labelled anti-China activities. The Tibetans could demonstrate during Xi’s visit. Earlier, there were extreme causes of self-immolation by Tibetan refugees in Kathmandu. There are chances of protestors going to the same extreme, thereby raising Chinese concern.

Another less discussed issue is related to the Uighur Muslims. They are connected to the Al-Qaeda and Taliban through the Turkistan Islamic Party (TIP). This TIP in turn is connected to Jaish-e-Mohammed and Indian Mujahideen, both of which are operating on Indian soil. The concern is that several people connected with Jaish-e-Mohammed and Indian Mujahideen have been detained in Nepal as well. They have used Nepal as a shelter to communicate with their people and to infiltrate terrorists inside India. We have detained several of them and handed them over to India. So this could be another security threat.

Are there specialized groups in our security agencies for such high-level visits?

The army has a specialized team dedicated to providing personal security to VIPs. This team provides security to the president and the prime minister. Other agencies also deploy their members. The problem with other security agencies is lack of specialized or devoted group for such highest level visits. Given our growing engagement in internal forums, the number of such high-level visits will further increase in the days to come, which highlights the need for a separate permanent and specialized team. For example, India has the Special Protection Group (SPG) which provides proximate security to its President, Prime Minister and other VIPs. Time has come to prepare a dedicated and specialized manpower within Nepal Police and Armed Police Force.

Has there been no effort to prepare such specialized forces in Nepal?

In Nepal Police, a separate unit was established for such security issues. But what we need is a specialized and permanent unit. Frequent transfers do not help. We have to think long-term.
 

How do you assess the recent visits of Chinese security officials?

It is a normal practice for security teams from respective countries to visit host countries prior to high-level visits. For example, many security officials from China have come to Nepal ahead of Xi’s planned visit. Some believe that foreign security agencies can work in Nepal without consulting us, which is not true. Home Ministry ensures such coordination. In case of high-level visits, the joint security team discusses the movements of VIP, routes of travel, and other security aspects. A team consisting of the Nepal Army, the Nepal Police, the National Investigation Department and the people of the respective embassy work in a coordinated way.
 

Can the visiting delegation also bring their own weapons for self-protection?

There were unnecessary rumors during the Indian Prime Minister Narendra Modi’s visit to Nepal. Ex-officials of security agencies also made unnecessary noises. When our president or prime minister goes abroad, they can take security forces and weapons with them. It is not true that only foreign dignitaries bring weapons. But you need to take prior approval. There is a tradition of declaring the types and amount of weapons at custom points. When the visit is over, all weapons should be taken back informing the same custom points.  

Regarding this visit, the rule of engagement is not clear. For example, if something happens during the VIP visit, who will be the first responder? Their team or our security agency? The two governments should be clear over the security. Due to unclear rules of engagement, there have been problems abroad, but luckily, not here. But clarity is always desirable. If something happens to the VIP, who is responsible? What will we do? We have to resolve these issues.
 

Highest-level foreign dignitaries like Narendra Modi also bring their own transport vehicles. Why?

I had been deployed at the airport during the visit of Hilary Clinton. They too had come with all the vehicles necessary for motorcade. For the security of the VIP, they modify the vehicles. The VIP vehicles are modified based on individual threat perception. The exact type of a vehicle a visiting VIP personal needs may not be available in Nepal. But, again, this is a normal practice.
 

When it comes to VIP security, the intelligence agencies always have an important role. How do you assess the capability of our intelligence agency?

There is no government support for our intelligence agency. Right intelligence is crucial in this day and age. And information is the currency of that intelligence. Yet there has been little government investment in this sector. There is a mindset that information comes without investment, and that information is easy to collect. That is no longer the case.
 

Do you think the Chinese President has more reasons to be wary about visiting Nepal than a leader of some other country?

I do not think so. Since the Panchayat days, we have had countless high-level visits from China, including of their president and prime minister. And we have never had any problem. In my opinion, the Chinese are concerned about the Tibetan issue. Besides the old problem of possible protests by the Tibetan community, now there is also the issue of finding the right successor to the Dalai Lama. This could also contribute to protests here.

Are there any chances of pro­tests in Kathmandu in support of the anti-government protests in Hong Kong?

I see such a chance. In my anal­ysis, there are possibilities of pro­tests from two quarters. First, some supporters of the Hong Kong pro­tests could launch a small symbolic protest here. Second, some tourists from Hong Kong who are visiting Nepal could also protest. Security forces should keep a close eye on this aspect of security.

Our constitution does not allow us to adopt the Chinese model. The Chinese obviously have an open economy but their political sys­tem is closed. Nepal cannot emu­late that. So, if the Oli government wants to copy the Chinese model, it can copy only their economic policies. And not all Chinese eco­nomic policies can be copied. For example, China allows factory or firm owners to almost exploit their workers, and labor unions there are very weak.

It has been four years since the promulgation of the new consti­tution. How do you see the evo­lution of Nepal’s economic policy in this time?

An unpublished World Bank study says that after the earthquake and the Indian blockade, Nepal’s pover­ty increased significantly, almost by eight percent, but then it was soon reversed. The economy bounced back well. We have more than six percent year-on-year growth for three consecutive years; we have unprecedented peace, and we held the elections peacefully with the participation of almost all parties. The parties outside the mainstream are not strong.

What we lack right now are: a) For­eign Direct Investment, b) exports, and c) jobs. The government has been unable to inspire people and get businesses to invest.

The constitution states that the country is socialism-oriented. And you also pointed to healthy growth rates of late. But has the level of inequality in the society gone down as well?

We have not measured inequality lately. Even Nepal’s first budget in 1951 had the twin goals of growth and reduction in inequality. Our policy has since consistently been to reduce inequality irrespective of which system we follow. However, the problem, historically, has been: how do we measure inequality? Three years ago, if you had asked me this question, I would have probably said inequality is grow­ing as the stock market at the time was growing, and the rate of return on capital was higher than GDP growth. Right now, the stock mar­ket is plummeting, and the interest rate is high, so the rate of return on capital is mixed.

If you are a rich person today, you put your money in a bank and get 10 percent on it. But the income of ordinary people is growing by only six percent, the GDP growth rate. Given about four percent infla­tion rate, inequality may not be increasing. But we need precise economic data to clearly see what is going on.

Earlier you talked about Foreign Direct Investment. Why do we need FDI at all?

FDI is not only about monetary investment; it also brings with it transfer of technology and manage­ment. There is high rate of return for initial investment as we do not have much of it. We do not have money to build roads and industries, which at this stage of development obviously have a very high rate of economic return. That is why we need invest­ment from abroad.

We do not have enough money to realize our potential in hydropower and tourism, both of which require high investment. We may also want to improve our industries, most of which use old technologies and machinery. When FDI comes, bet­ter—hopefully state-of-art—technol­ogy comes along. In that case, our products will also be competitive.

What are the major reasons behind the paucity of FDI in Nepal?

Our FDI-related regulations are not investor-friendly. Unless a com­pany has special arrangements with the government, it can hire a maxi­mum of three people or five percent of its total workforce from abroad, which is very small.

Although the government denies it, some firms complain that it takes a long time to repatriate their prof­its. Many also complain that taxa­tion is cumbersome. The new For­eign Investment and Technology Transfer Act (FITTA) is still without regulation. And investors hate the new investment threshold of Rs 50 million. If I had the power, I would reduce the threshold to $1.

This year, the government came up with new FDI regulations, and there have already between two investment summits. But they don’t seem to have borne fruit, have they?

It is too early to say that the sum­mits have been a failure. There has been some wonderful proposals in the investment board and they are doing some follow-up. I am hopeful Nijgad Airport will be built as there were six or seven proposals, and a Swiss company has been shortlisted as well. But I am worried about the lack of delivery of this government, which also undercuts its credibility.

You also expect foreign workers regulations to be relaxed. Many IT companies suffer from these regulations. The threshold of Rs 50 million came out of nowhere and this will affect investment in SMEs. FDIs and New technologies and new ways of doing things that come along with them can actu­ally help domestic SMEs. Sup­pose a Starbucks opens in Chit­wan or Pokhara; other locals then learn how to run a good café.

You also talked about the impact of local syndicates. How do they hamper FDI?

Take the cement industry. The existing cement factories are unhap­py with the arrival of foreign invest­ment in this industry. I think two big cement investment proposals have already been turned back. I talk to hotel owners. Many five-star hotel owners think there should be no FDI in hotels. But when you bring FDI in five-star hotels and cement factories, they will also come up with new technologies and also look for other businesses and custom­ers to tie up with. We also need to market our country as a liberal, welcoming place.

If you could do only three things to attract more FDI, what would they be?

First, come up with good and lib­eral foreign investment regulations for FITTA and other acts that would welcome all foreign investors. Sec­ond, I would sell these regulations in target countries. Sometimes, we make really good regulations but fail to sell them. Our embassies in places like China, India, Bangladesh, and Thailand are not interacting with local entrepreneurs. Finally, there are some areas we should do better in, irrespective of our FDI focus. For example, anti-competitive behav­ior and syndicates that affect both local and foreign businesses should be curbed