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The federal budget of Nepal proposes Rs 1,860bn as total annual expenditures for the fiscal year 2024-25. Of this total, Rs 1,141bn (61.3 percent) is allocated for recurrent expenditures, and Rs 352bn (18.9 percent) for capital expenditures. Of the remaining Rs 68bn (3.6 percent) is allocated for domestic and foreign loan and share investments, and Rs 300bn (16.1 percent) is for the principal payment of current domestic and foreign loans. 

Of the total recurrent expenditures, Rs 96bn is allocated for transfers to the seven provincial governments and Rs 312bn for the 753 local governments. The total expenditure requirement is proposed to be met by Rs 1,260bn (67.7 percent) raised in revenues, arrears, and cash reserves, and Rs 52bn (2.8 percent) received as foreign grants. The resultant financial deficit of Rs 548bn is proposed to be met by Rs 218bn in foreign loans and Rs 330bn in domestic borrowings.

Budget increase and revenue projections

The proposed total budget is 6.2 percent above last year’s proposed budget and 21.6 percent above last year’s revised budget. The proposed recurrent expenditures are 6.9 percent above the current year’s revised estimate, while capital expenditures are proposed at an exaggeratedly high 63.7 percent above the corresponding estimate. Leaving aside the fiscal years 2019/20 when the Covid-19 pandemic and 2022-23 when import restrictions adversely impacted revenue generations, the overall revenue has increased by an annual average of 18.4 percent since 2015-16. 

The budget estimates an economic growth of 6.0 percent and a price inflation of 5.5 percent. Even if these estimates turn out to be true the other way around, the overall revenue GDP ratio is likely to be only slightly above 22 percent, a level that is not much higher than the current one. Hence, we can assume that the federal revenue estimate of Rs 1,419bn is achievable.

Resource shortfall and capital expenditure

With the dwindling capacity of the government to attract foreign grants since 2015-16, it is less likely that the next year’s foreign grants will increase over the current year’s estimates of Rs 34bn. Given the trend in the capacity to attract foreign loans over the last 8 to 10 years, it is not likely to go over Rs 150bn in the next year, an amount much lower than the budgetary estimate of Rs 217bn. Likewise, a more realistic domestic borrowing will be around Rs 25bn less than that proposed in the budget.

With these estimates, the federal government’s sources of funds are likely to face a shortfall of about Rs 100bn. Most of the impact of this shortfall will have to be borne by reduced capital expenditures. In other words, the resources most likely available for capital expenditures will be around Rs 250bn, which is significantly lower at 71 percent of the proposed Rs 352bn. It should be noted, however, that it has been customary to propose overly inflated or optimistic capital expenditure estimates. 

Excluding 2019-20, the year with exceptionally adverse Covid-19 impacts, the ratio of actual to budgeted capital expenditures has varied from a low of 57.8 percent in 2021-22 to a high of 80.8 percent in 2017-18, with a median of 66.9 percent since 2015. The government has, as usual, proposed higher capital expenditures without conducting any serious homework on how to increase project implementation effectiveness or adequately developing game-changing projects within the framework of its three-year rolling inventory of projects included in the Medium-Term Expenditure Framework (MTEF). 

Provincial and local government capital expenditure

On the other hand, the ratio of actual to budgeted capital expenditures in the case of the seven provincial governments has been better and more consistent, varying from 68.2 percent to 70.6 percent in the last five years since 2018-19 when provincial and local governments were elected and came into full-fledged operation. Unfortunately, the provincial capital budget is around half of the federal capital budget. 

Hence, there is much room for improving the provincial project implementation capacity as these units are new and still need to be fully institutionalized with clear and adequate legal instruments. Reviewing the capital expenditures by the 753 local governments over the three years immediately preceding 2023 reveals that the local governments spent slightly above 40 percent less than that by the federal government and a little above 40 percent more than that by the provincial governments together.

Effectiveness of federal capital expenditures

Comparing capital expenditures before and after the implementation of federalism reveals that we have failed to utilize federalism to improve capital expenditure effectiveness. Capital expenditures for the federal government and provincial governments (for the initial few years when provincial governments were being formed as federalism was being implemented) for 2017-18 were Rs 270.7bn and Rs 1bn, respectively. 

In other words, the initial capital expenditures before provincial governments came into being, the benchmark total federal and provincial expenditures was Rs 271.7bn. Taking inflation into account, this outlay of Rs 272bn would translate to Rs 284bn in 2018-19, Rs 294bn in 2019-20, Rs 313bn in 2020-21, Rs 339bn in 2021-22, Rs 358bn in 2022-23, Rs 367bn in 2023-24, and Rs 407bn in 2024-25. Comparing these with actual federal and provincial capital expenditures: Rs 303bn in 2018-19, Rs 278bn in 2019-20, Rs 341bn in 2020-21, Rs 325bn in 2021-22, and Rs 359bn in 2022-23. On average, they are roughly equal, with annual positive/negative percentage variations within a single-digit range. This is further evidence that, contrary to usual expectations, we have failed to utilize federalism to improve capital expenditure effectiveness. 

Moreover, 2023-24 has been even worse as the revised capital expenditures for this year have been less than 90 percent of what would have been normative based on the price level. Additionally, the proposed capital expenditures outlay for 2024-25 is 126 percent of what would have been normative (coincidentally, it was 126 percent in 2023-24 too). This clearly evidences our customary practice of inflating budgeted capital expenditures.

Now let us review the effectiveness of the federal government in spending capital expenditures. Before doing so, it is important to note that financing expenditures include domestic loan investments, both domestic and foreign share investments, and principal payments of domestic and foreign borrowings. These expenditures are used either to create assets or reduce liabilities. The asset creation part of such expenditures is the subject of discussion in the proposed budget. In contrast, the liability reduction part of financing expenditures is not, as it is incurred due to past expenditures, regardless of whether they were justifiable at the time. 

Similarly, financial transfers to provincial and local governments are expenditures of those levels of government, not the federal government. Therefore, we exclude such financial transfers and financing expenditures in our calculation of the ratio of federal capital expenditures to recurrent and capital expenditures. This ratio has gradually deteriorated from 37.9 percent in 2018-19 to 28.3 percent in 2022-23, confirming the gradual erosion of the effectiveness of capital expenditures. Even worse, it suggests that the seriousness and quality of budgeting have suffered due to the realpolitik approach that has increasingly permeated the highest echelons of decision-making in the country over the last five to seven years.

Project implementation capacity and national pride projects

To get a sense of our project implementation capacity, let us now briefly discuss the projects of national pride. These projects were expected to make the overall economy dynamic and constitute the backbone of the national economy. They were anticipated to create a multifaceted impact for socio-political transformation through economic and employment generation. 

Originally, 17 projects were identified, classified, and initiated in 2011-12, with another four added later, giving the government a portfolio of 21 such projects. The committee for national development problems, known as the National Development Action Committee, is chaired by the prime minister and is responsible for directly overseeing these projects of national pride. This was done to give them high visibility and ensure attention at the highest level for problem-solving and effective implementation. 

In the 13 years since the start, only two airport projects have been completed (though they have not been put into operation yet), and another three projects, namely the Melamchi drinking water project (almost complete) and Sunkoshi Marine diversion multi-purpose project and Chure preservation project (close to completion), have achieved above 93 percent physical progress. The rest of the projects are at different stages of completion, even after such a long time, despite the hype we created for them in our regular development dialogue.

Additionally, in the year 2022-23, a sum of Rs 166bn was allocated for these projects, but the actual outlay was Rs 92bn, resulting in only 55.5 percent financial progress. Regarding the annual progress of these projects, five out of 21 projects had 15.6 percent to less than one-third physical progress, three irrigation projects and four road/bridge construction projects had around 50 percent to 57 percent physical progress, six projects had around two-thirds physical progress, and only three projects were on track with around 80 percent to 90 percent progress. These projects received a relatively high proportion (22.1 percent in 2022-23) of our capital expenditures. 

Despite the allocation, the physical and financial progress of these projects has been considerably below the target and unsatisfactory. A quick assessment suggests a relatively weak institutional capacity or issues related to inter-agency coordination, financing, and overall project management were the major hindrances to the success of other projects.

Fiscal and monetary policy coordination

Another issue that needs the attention of the government’s fiscal policy, complemented by the Nepal Rastra Bank (NRB)’s monetary policy, is the problem of excess liquidity/idle money and the slowly but steadily increasing non-performing loans in the banking and financial sector. These issues have marred our development endeavors in general and the banking and financial system in particular. In the past 10 months of 2023-24, banks and financial institutions increased their deposits by
Rs 443bn (7.8 percent) while their credit increased by Rs 225bn (4.7 percent), adding further to their idle deposits. As a result, the credit-deposit ratio of banks is 79.9 percent. 

Likewise, the share of non-performing banking loans is 3.7 percent. According to the NRB, there is currently an excess liquidity of a little less than Rs 70bn. This further underscores that, particularly now when the private sector has remained hesitant, there is a serious need for the government to lead with a more effective capital expenditures plan to stimulate economic growth.

Before closing the discussion on capital expenditures, let us point out that we do in fact need to drastically increase the share of capital expenditures in the budget. However, the practice of inflating its estimation in the budget does not achieve this goal. To address this, we need to improve the entire process of budget preparation, starting with how the periodic five-year plan is formulated, how the MTEF is developed based on it, and how a portfolio of new and ongoing projects is developed and proposed for inclusion in the budget.

Revenue structure and its challenges

Now we turn to a brief discussion on some important issues regarding the revenue structure. Except in 2019-20 and 2022-23, when the tax collected at customs points averaged around 41 percent (due to the impact of the Covid-19 pandemic in the former and import restrictions implemented to address the deteriorating foreign exchange reserve position in the latter), the total tax collected at customs points averaged around 46 percent over this period. 

Of the total tax collected at the customs point, customs on imports accounted for 41 percent, value-added tax on imports another 43 percent, and excise tax on imports 14 percent on average over this period. In other words, tax on imports, on average, accounted for 98 percent of all tax collected at the customs point and thus, on average, constituted 45 percent of all taxes collected over this period. Simply put, our tax system is overly dependent on imports. Also note that our total imports over this period averaged 33 percent of GDP. 

A significant portion of our appetite for consuming imports is fueled by remittance income sent home by Nepalis working abroad, as this income added a portion as large as 23 percent of GDP to gross national disposable income on average over this period. Remittance income has significantly contributed to our gross national income, reduced the incidence of poverty, and improved household consumption, imports, and revenue. As a result, we have become a nation that significantly depends on private remittances for both household and government incomes.

Forex reserves and import restrictions

In the year 2021-22, our foreign exchange (forex) reserves depleted by Rs 83bn to Rs 1,216bn, which was sufficient to finance merchandise and service imports for only 7.8 months. This depletion was due to a sharp increase in imports by Rs 381bn and largely stagnant remittance income, contributing to a deficit of Rs 252bn in the balance of payments that year. To prevent the forex reserve situation from deteriorating further, the government imposed restrictions on imports of non-essential goods. This should be viewed as a one-time measure to mitigate the adverse impact of substantial price inflation resulting from the international supply shock in petroleum products. 

Not only has the international oil supply improved, but our forex reserve position has also recovered to Rs 1,873bn as of mid-May 2024. This recovery resulted from a reduction in the total import bill and a fairly quick rebound in remittance incomes. The forex reserve in 2022-23 was sufficient to finance 10 months of merchandise and services imports. In four years (2009-10, 2010-11, 2018-19, and 2022-23), our forex reserves were sufficient to finance only a little over seven months of merchandise and services imports. Despite these periods, we have maintained healthy forex reserves over the last two decades. 

Therefore, producing merchandise, especially agricultural commodities, domestically to substitute imports, and pooling and channeling remittances for domestic investment must become important budgetary priorities.

Raising resources for increased expenditures

When we talk about increasing capital expenditures, we naturally need to consider how we raise resources for it. Some have argued that our current revenue-to-GDP ratio is already higher compared to other South Asian and low-income countries. International Monetary Fund (IMF) estimates that the current revenue-to-GDP ratio in Nepal is 19.6 percent, which is clearly less than its estimates of 20.1 percent for India and 23.8 percent for Bhutan, but certainly higher compared to Bangladesh (8.8 percent), Pakistan (12.5 percent), Sri Lanka (13.7 percent), and the low-income developing countries (15.3 percent). Some have cited statistics for India while excluding its provincial revenue collection, which is significantly broader and higher than that in Nepal. 

Furthermore, it goes without saying that such an argument undermines the reform measures Nepal has rightfully undertaken since the early 1990s to improve and expand its revenue base, reduce external dependency, and avoid constraining the scope and ability of the private sector to borrow in the domestic market.

Debt sustainability and social welfare expenditures

Additionally, there is an argument that increasing capital expenditures faces a serious limit due to the continual rise in the debt-to-GDP ratio. Starting from 23 percent in 2016-17, this ratio has now reached 43 percent. While it is true our indebtedness has grown, IMF data shows our ratio remains significantly lower compared to other low-income developing countries: Bangladesh (41.4 percent), Pakistan (71.8 percent), India (82.5 percent), Sri Lanka (107.3 percent), and Bhutan (111.4 percent). 

Therefore, the concern is not about the sustainability of our debt level but rather ensuring that projects funded with borrowed funds yield higher financial and social returns, are timed appropriately, and have justifiable grounds for utilizing public finances.

Another issue that is often discussed is the capacity to sustain the ever-increasing level of social welfare expenses. These expenditures were Rs 38bn in 2013-14 and grew to Rs 219bn in 2022-23, registering annual growth rates of 22.5 percent in nominal terms and 14.8 percent in real terms. Moreover, social security assistance, which constitutes more than half of the total, has been growing much faster than the rest of the programs, with annual increases of 30.1 percent in nominal terms and 22.9 percent in real terms. Social welfare expenses constituted 8.7 percent of total expenditures in 2013-14 and increased to 15.4 percent in 2022-23. These expenses were already as large as the total capital expenditures and represented 4.3 percent of GDP in 2022-23. 

Of the total social welfare expenses in 2022-23, social security assistance constituted 53.3 percent, social insurance (largely pensions and gratuities) constituted 44.1 percent, and the remaining 2.6 percent went to social assistance programs, including scholarships and mid-day meals for school children. Since a substantial part of the social security assistance goes to senior citizens and the proportion of seniors above 68 years in the national population is 5.2 percent and growing annually at 4.1 percent (four times faster than the overall population), this component will grow at a much faster pace than the rest of the total budget. 

Additionally, these programs are quite popular, and the constitution mandates some social programs, so a serious discussion on how the overall social welfare programs can be redesigned and capped warrants consideration across political party lines.

Conclusion

A capital expenditure-led economic policy is necessary to spur economic growth. However, the likely shortfall of around Rs 100bn in resources will predominantly impact capital expenditures, reducing them to an estimated Rs 250bn, about 71 percent of the proposed amount. Additionally, the persistent practice of inflating capital expenditure estimates without a corresponding increase in project implementation capacity, exacerbated by the realpolitik influencing budget allocations, continues to undermine capital expenditure effectiveness.

Federalism has not yet yielded the expected improvements in capital expenditure effectiveness. However, provincial and local governments have shown better consistency in capital expenditure utilization compared to the federal level. Nonetheless, significant room for improvement exists, especially in institutionalizing project implementation frameworks.

Projects of national pride, intended to drive economic transformation, have seen mixed progress. It is essential to align the budget with the MTEF, ensuring that large-scale projects are planned and executed with a strategic vision. Institutional weaknesses, inter-agency coordination issues, and project management challenges persist as major hindrances.

The revenue structure’s heavy dependence on import taxes, fueled by remittance income, highlights the need for diversifying revenue sources and fostering domestic production. The fluctuations in foreign exchange reserves underscore the importance of strategic import substitution and the effective utilization of remittances for domestic investment.

Raising resources for increased capital expenditures requires a balanced approach, considering Nepal’s debt sustainability and the need for high-return investments. Despite a rising debt-to-GDP ratio, Nepal’s debt level remains manageable compared to regional counterparts. Ensuring the efficient utilization of borrowed funds for productive projects is essential.

The growing social welfare expenditures, particularly social security assistance, necessitate a serious dialogue on redesigning and capping these programs. With a gradually aging population and constitutional mandates, the sustainability of social welfare expenses must be addressed to ensure fiscal stability and equitable resource allocation.

Prioritizing capital expenditure, improving budgetary processes, and coordinating fiscal and monetary policies are crucial to ensure that the budget is not just a financial statement but also a tool for sustainable growth and socio-economic transformation. In summary, Nepal’s federal budget for the fiscal year 2024-25 reflects both aspirations and challenges.

Nepal began receiving foreign direct investment (FDI) inflows after adopting liberalization policies in 1990. These policies opened up FDI-friendly situations along with the establishment of investment-friendly institutions. In the current situation, Nepal is seen as emerging as an attractive destination for foreign investors with its abundant labor and considerable natural resources.

However, Nepal is facing different types of financial scarcity, and the government is ineffective in fulfilling the state requirements due to limited resources. FDI has a positive impact on development by creating job opportunities in the country and attracting foreign investment in different sectors, like tourism, agriculture, industry and hydroelectricity. Many developing countries have utilized FDI as a crucial instrument for their economic development. It helps bridge gaps between domestic savings and investment requirements, government revenue and expenditure, and trade deficits. Additionally, it facilitates the transfer of knowledge, skills and technology from foreign investors to the host country. In our context too, FDI is crucial for Nepal to fill resource gaps and achieve development goals. It also boosts employment, transfers technology, enhances knowledge and skills, and improves internal trade efficiency. Without investment, it's challenging to foster economic progress within the country. To elevate itself to middle-income status and attain the Sustainable Development Goals by 2030, Nepal requires to bridge an annual financing shortfall of Rs 585bn. This gap can potentially be filled through foreign direct investment (FDI).

However, Nepal has attracted a low volume of FDI compared with other developing countries like China and India. Most of the FDI is concentrated in some more advanced countries and middle-income developing countries, whereas low-income countries have been able to attract proportionately less investment. In this situation, attracting investment has been very challenging in the context of Nepal.

FDI scene in Nepal

Nepal has received foreign investment from 57 different countries as of mid-July 2023. Although there are investment opportunities in Nepal, public investment remains inadequate, and the country has struggled to attract private investors. Resource management is a significant obstacle to Nepal's pursuit of those development objectives, and FDI can be a potential source for filling this financial gap. Though the GDP analysis of Nepal shows that the contribution of FDI is minimal, it nearly represents 0.03 percent, which ranks among the lowest globally (Trade Economics, 2022). However, enhancements to effective economic diplomacy efforts could potentially stimulate an increase in FDI.

Nepal hosted two Investment Summits, in 2017 and 2019, aiming to attract FDI. In the 2017 summit, global firms pledged $13.7bn in investments through letters of intent. During the second summit, 15 project investment agreements worth $12bn were signed. However, in this instance too, the FDI inflows fell short compared to what was committed during the summit and the desired goal of attracting foreign investment was not fully achieved.

As Nepal Rastra Bank’s FDI data show, not all of committed investments came by. The total actual net of FDI by inflows stood at around 36.2 percent of total approval between fiscal years 1995-96 and 2022-23. Despite efforts to bring in foreign capital, gaps persisted between pledged and realized FDI. This situation highlights the importance of developing strategic policies to close the gap between promised foreign investment and actual investment received. The Nepal Investment Summit (NIS) 2024 was able to get approval for investments worth more than Rs 9.13bn for four projects in Nepal. Despite the two NISs ,the desired goal of attracting foreign investment was not fully achieved. The reasons cited by scholars and academia are a) frequent government changes and political unrest b) complex administrative processes and corruption. Inconsistent enforcement of laws and a cumbersome regulatory framework deter investors further.

The  third NIS 2024 drew over 1,100 foreign participants, primarily from neighboring countries India and China, where the government proposed 148 projects valued at nearly Rs 900bn  for foreign and domestic investors. Many of these projects focus on the energy sector, manufacturing, the tourism sector, and IT, and officials are optimistic about FDI inflow and hope it will bridge the resource gap needed for economic development. Additionally, attracting FDI is essential for Nepal to achieve its goal of graduating from the grouping of least developed countries (LDCs) to a developing country by 2030, which aligns with the United Nations’Sustainable Development Goals (SDGs). Targeting the summit, Nepal’s Council of Ministers approved a bill seeking revisions in FDI-related policies on April 22, which sanctioned the President’s seal of approval on April 28. The ordinance entails revisions in various Acts, including the Land Act 2007, the Land Acquisition Act 2020, the Public Private Partnership and Investment Act 2019, the Foreign Investment and  Technology Transfer Act 2019 and the Industrial Enterprises Act 2020. These amendments are aimed at improving the legal framework to facilitate FDI in Nepal.

Taking everything into account, Prime Minister Pushpa Kamal Dahal emphasized at the recent investment summit in 2024 that Nepal's skilled workforce and low labor costs are appealing factors for international investors. He also noted that provisions ensuring equal treatment for all foreign investments and guaranteed repatriation in foreign currency further enhance Nepal’s attractiveness as an investment destination.

Finance Minister Barsha Man Pun stated that the summit aims to showcase Nepal as a rising destination for private sector investment, emphasizing recent reforms to improve the investment climate and regulatory frameworks, supporting both foreign and domestic investments.

In the same vein, Sher Bahadur Deuba, president of the Nepali Congress and former prime minister, emphasized that Nepal faces significant development challenges despite its potential. He highlighted the country's need for capital and technology to fully benefit from its development opportunities, underscoring the importance of the high-level event. He added that Nepal benefits from flexible labor laws, a youthful and energetic population, reliable power supply, and local raw materials, all of which contribute to lower production costs compared to higher-wage countries in the region.

Delegations from China, India, Kuwait, the UAE, the UK, and the USA, along with the World Bank Group, discussed cooperation and showed interest in investing in Nepal. They recognized Nepal as an attractive investment destination and pledged support for Nepal’s sustainable development efforts. Though Finance Minister Barsaman Pun described the summit as a great success, the agreements inked during the event did not reflect this sentiment. Many participants criticized Nepal's laws and a strict visa issuance process for foreign company workers, which they felt discouraged investment in the country. For developing countries, FDI is emerging as a vital factor for economic development. Private FDI is seen as a way to bridge the gaps in domestic savings, foreign exchange reserves, government revenue and the availability of skilled human capital within these nations.

Conclusion

On one hand, Nepal is in the process of economic development and needs more investment to achieve its goals. On the other hand, there is a significant gap between proposed FDI and actual FDI flows into Nepal, which needs to be addressed through economic diplomacy.

The low performance and indifference attitudes of bureaucrats and policy complications in approving FDI are other reasons behind the gap between promised and actual FDI in Nepal. According to the World Bank’s Doing Business reports, in many cases, committed FDI gets canceled or withdrawn not because investors have lost interest, but because of frustrations caused by excessive red tape and bureaucratic procedures. Likewise, many investors participating in the summit emphasized that the factors related to Nepal’s socio-political environment, investment policies, regulatory frameworks, and market access are also other obstacles hindering investment in Nepal. Some research findings also highlight that tax rates, labor costs, market size, and the availability of skilled human capital are the main factors that shape investors' decisions on choosing FDI destinations.

To address these multifaceted challenges effectively, a coordinated approach involving governmental bodies, private sector entities, and international partners is imperative. Comprehensive policy reforms are crucial for enacting legislation that fosters investment, safeguards investors' rights and establishes a framework for offering appropriate incentives to potential investors. Such reforms are essential for creating an environment conducive to sustainable economic growth and development. Therefore, Nepal needs to effect reforms in these areas to attract more foreign investment. Significant reforms in policies and laws are also necessary to stimulate investment. Moreover, emphasizing opportunities and potential in the global market is crucial to attract more new investors to Nepal. Only by addressing these problems with targeted solutions can Nepal create a more attractive environment for FDI.

Nepal faces a critical issue: A significant number of its youth are leaving the country due to the lack of employment opportunities that match their qualifications and interests. Work is essential for human survival, yet the Nepali job market fails to recognize and retain its talented youth. It struggles to offer appropriate remuneration, security and facilities, making it difficult for the country to retain its skilled and capable young workforce. Government rhetoric focuses on presenting data on youth migration and providing false hopes to those abroad, without implementing relevant policies to retain its own talents within the country. 

Global frameworks on labor

Article 23 of the Universal Declaration of Human Rights (UDHR) 1948 states that everyone has the right to work under just and favorable conditions and to protection against unemployment. Article 6 of the International Covenant on Economic, Social and Cultural Rights (ICESCR) 1976 further emphasizes the right to work, including the opportunity for individuals to gain a livelihood through freely chosen work. Article 7 ensures the right to just and favorable work conditions, including fair wages, safe working environment and reasonable working hours whereas Article 8 confirms the right to form trade unions. Various International Labour Organization (ILO) Conventions also cover issues like minimum wages, industrial relations, employment policy, social dialogue and social security.

Nepal ratified the ICESCR in 1991 but has ratified only some of the ILO standards.

National frameworks

The Constitution of Nepal defines a laborer as someone, who performs work for an employer in exchange for remuneration. Article 34 stipulates that every laborer has the right to appropriate work, fair pay, social security and the ability to form and join trade unions. The Labour Act of 2017 establishes minimum labor standards, including an eight-hour workday and 48 hours/week. It aims to ensure fair wages, safe working conditions and social security benefits, thereby fostering a more equitable work environment. The Labour Regulation of 2021 provides detailed guidelines for implementing these protections.

Securing labor rights
Despite the guaranteed frameworks, youth who remain in Nepal often face significant challenges in finding and retaining employment. Jobs that match their qualifications and interests are scarce, and unfair selection processes and office politics further hinder their prospects. Even when employed, workers often face exploitation, such as being forced to work extra hours without appropriate compensation or being unable to take leave without interference from employers.

Many employers exclude lunch hours from the official workday, effectively extending work hours to nine per day. Emotional pressure to work extra hours, framed as ‘learning hours’, is common, and those who resist face office politics. Although the Labour Act mandates overtime pay at 1.5 times the regular rate, and annual increments in remuneration, employers often manipulate these entitlements to the bare minimum.

Qualified youths are often reluctant to take on work that does not interest them. The job market is so misaligned that many employees work in fields unrelated to their academic qualifications. While changes in career interests can occur, it's crucial to consider the efficiency of professionals working outside their fields of expertise.

While laws guarantee the right to choose employment, in practice, there are limited options. Graduates, despite significant investment in their education, are often forced to take any available job to meet basic needs and ultimately leave the country for better opportunities. 

Way forward

The government must recognize that youth have no choice but to leave the country in search of sustainable livelihoods. Rather than expressing empty regrets about youth migration, the government should focus on creating policies that retain qualified, skilled, semi-skilled, and unskilled workers.

Proper legislation is significant to regulate advanced technologies like artificial intelligence and informal sectors like gig-economy, freelancing, e-commerce including ride-sharing, and food delivery. 

When such laws are particularly enacted, workers will have more opportunities to choose employment in these emerging fields.

Collaboration among the government, private sector, financial institutions, civil society and international NGOs is crucial to effectively implement labor laws. The Labour Act should be seen as a minimum standard, not a limit. Universally guaranteed human rights and constitutional rights should not be compromised at the employer's convenience.

Effective mobilization of trade unions is necessary to provide a platform for employees to voice concerns and improve work environments without bias. Office politics, which often targets women, especially those with family responsibilities or disabilities, must be dismantled. Ensuring an inclusive and fair workplace is essential to foster women’s leadership and retain talents within the country.

The author is an advocate 

Ramprit Yadav was a ranger working in Chitwan in the late 1960s before Chitwan National Park (CNP) was established. He later became a warden of CNP. “In 2026 BS (1969),” he told me, “our team conducted a survey to establish the national park without consulting the Tharus of Chitwan.” He thinks this was a mistake. CNP officials should have consulted the Tharus because their traditional practices helped create a habitat for Chitwan’s famous rhinos and tigers.

Yadav credits the Tharus for teaching him about conservation.“In 1973, when I started working as a member of the national park, I was only 22 years old. I had only read about trees and plant conservation in college courses. For the first 10-15 years, I learned how to conserve wildlife from the indigenous Tharus of Chitwan, which was very useful in conserving wildlife.'”

When CNP was created in 1973, the army prevented Tharu men and women who lived nearby from using the areas inside the park that they had relied upon and cared for, for generations. In 2003, the park was expanded in the east by removing Padampur VDC, where 10,000 people, mostly the Tharus, lived.  When we look at the history of Chitwan, we see that Tharu traditional methods helped make Chitwan a good area for wildlife in two ways: Wetland management and grassland management. After removing the Tharus, the park wetlands and grasslands suffered. That meant the Tharus suffered and so did rhinos and tigers. Conservationists like to talk about “win-win” scenarios. This was “lose-lose.”

The indigenous Tharu community of Old Padampur had been cultivating the flatlands for generations by creating a canal from the Churia Hills to the south. The traditional way of irrigation from the canal brought tree leaves as manure to the farmlands, which helped greatly in enhancing agricultural production. After using the water they needed, the Tharus used to divert the leftover water inside the national park, which helped give new life to the park’s wetlands. The conservation of wetlands created a habitat for rhinos and birds.

Before 1973, the small ponds inside the forest were routinely dug out by the indigenous Tharus during Chaitra, Baishakh, and Jestha to make the ponds better for fishing. This practice helped in water conservation in the wetlands. But after the establishment of CNP in 1973, all these activities were stopped by the park officials and the small ponds dried up.

The eastern parts of Old Padampur encompassed Jitpur and Amelia, and the western part was Jayamangala, Bankatta, and Bhawanipur. At that time, as a result of the conservation of wetlands in the eastern parts of CNP, the rhino census report showed a good number of rhinos in that area. However, comparing the recent rhino census in 2021 to the time when Old Padampur was inhabited, the count has significantly decreased. In 2003, the park was expanded but the number of rhinos dropped.

Source: Rhino Count 2021

Paugi Chaudhary, a 70-year-old resident of Old Padampur, reminisces, “When I was in Padampur, I used to bring 10-15 kg of fish and 20-25 kg of Ghonghi (snails) from the paddy field in a day, but after the relocation from inside the park, all those things disappeared.”

Bal Singh Chaudhary (84) recalls, “When Old Padampur was inside the national park, there were 15-20 rhinos in one pond inside the park. With the removal of Padampur and other Tharu villages from the national park area in the late 1990s, all those large ponds have dried up.”

According to Ram Giri Chaudhary, a nature guide at CNP, “Nowadays, you can see 1-2 rhinos in the ponds inside the park only with difficulty.”

Before the establishment of the national park, each Tharu village used to have 300–400 domestic cattle (cows and oxen), and those cattle used to graze in the park’s grasslands. At that time, grasslands made up 20 percent of the park.

“Before the establishment of the national park,” says ex-warden Ramprit Yadav, “the indigenous Tharu people managed the national park in two ways: Firstly, they grazed their domestic animals inside the park and secondly, they harvested the grass for the construction of their traditional houses, once a year.”

Tharu people also used to set fire to the grassland. Only after lighting fire, it was easy to cut grass, and only after setting fire did new grass grow. This helped in forest management as well as in wildlife conservation. It created a habitat for rhinos and deer. Ramprit Yadav says, “Earlier, all Tharu houses were made of reeds, and they used to build temporary houses on the river banks for three months of the year, and cut and burn reeds in the forest during the three winter months—Mangsir, Poush and Magh. This helped a lot in managing the grasslands in the forest.”

According to Aashis Gurung, information officer for the National Trust for Nature Conservation (NTNC), “After burning the reeds, the calcium, magnesium, and nitrogen from the reeds mix with the soil, helping the new grass to grow. This is why the condition of the grasslands in the National Park is better where the grass is burned than where it is cut by machines.”

The ban on grazing cattle and cutting grass and reeds for house construction (imposed in 1973 and 2003), along with the ban on controlled burning, hurt the grasslands. A 2016 Chitwan National Park report shows only 6.42 percent of the grasslands remained. Grasslands are crucial for rhinos and other park wildlife. According to the director of NTNC, Chiren Pokharel, “Before removal of the Tharu community from the park, the population of rhino and other animals in that area was statistically good, but after the displacement (of Tharu communities), the number of rhinos and other animals in the same area has gone down.”

It is true that for many years after 1973, Tharu and other local people were allowed into the park to burn and cut grass for 15 days a year. That window for cutting was reduced as time went by. During the Maoist civil war, cutting was stopped altogether. Afterwards, the grasslands really suffered.

It was not only the rhino who suffered from the loss of grasslands; birds also suffered. According to Ramesh Chaudhary, former chair of the Bird Education Society, Sauraha, “Birds that are found only in short (siru) grasslands, such as Bengal Florican, Lesser Florican, Selender-bellied Babbler and Jerdon's Babbler have disappeared from Chitwan.”

The main food for these birds, insects, are found in short (siru) grasslands. Those foods were found in the dung and feces of domestic animals grazing in the jungle. Many people believe that removing the Tharus from CNP will be helpful for biodiversity and wildlife conservation, but so far, it has turned out to be just the opposite. This is because CNP officials didn’t understand the knowledge of Chitwan’s indigenous Tharu people in managing wetlands and grasslands. Without Tharu management, Chitwan’s wetlands and grasslands have disappeared, reducing habitat for rhinos and deer and other wildlife.

Last year, when the census showed that the number of Chitwan’s tigers had nearly tripled, the Government of Nepal and the donor agencies were widely applauded at the national and international level. But the indigenous Tharu people, who were displaced from their ancestral land to make the park and who suffer disproportionately from wildlife killings and crop raiding, were not acknowledged anywhere despite their traditional conservation practices that helped make Chitwan a suitable habitat for wildlife like tigers, rhinos and deer.