With the 22nd Annual General Meeting of the Confederation of Nepal Industry (CNI) to be held on June 24, the two-year term of President Rajesh Kumar Agarwal is coming to an end. In this general assembly, the federation announced the slogan of 'double-digit economic growth rate and one hundred trillion economy' in the next decade.

How much work should be done by whom? Yagya Banjade of Kantipur and Seema Tamang had a conversation with Agarwal about the state of the economy as well as industry business: During the two years you were in the leadership of Confederation of Nepal Industry (CNI), how many of your commitments were fulfilled when you became the president?  The objectives of

were to continue the work being done in the Confederation, take initiatives to create a business-friendly environment, improve the economy, and improve the lives of the common people. The new leadership will focus on this and work for their industry and the economy as a whole. When I took the leadership of the confederation, I thought of establishing the organization as a think tank, emphasizing on research and giving suggestions based on that. The aim was to further organize and strengthen the established 'Research Cell' during my tenure. I wanted the suggestions given by the Confederation to be realistic, based on research and accepted by the government.

Three months after I became the President, I organized a 'President's Banquet'. In which then Prime Minister Pushpa Kamal Dahal was also present. At that time, there was a situation of 'balance sheet recession', i.e. people were afraid to spend and started saving. As people did not spend, aggregate demand was falling. On the other hand consumption rate was falling. Customers who used to use Rs 500 worth of material at one time had reduced their purchasing power and started using Rs 300 worth of material. Overall market demand, imports and industrial capacity utilization were declining. I think we were established as a think tank of the government in 2 years when the confederation focused on improving these processes.  In the

budget, only 40/45 percent of the suggestions made by the Confederation are implemented. We are collecting and studying 'Real Time Data' and publishing 'Industry Status Report', data of economic indicators. From that we are getting feedback that the real picture of the economy is coming. Governmental and international agencies and organizations are waiting for the data to be released by the Confederation. The acceptance of research-based data and suggestions by government and non-government agencies and organizations is increasing. 

Coordination and cooperation between the private sector and the government is increasing in every matter. For example: In the third investment conference organized by the government, the private sector was involved as a co-organizer. During the investment conference, the private sector also participated in the amendment of the Act/laws. Currently, the Ministry of Industry is doing its homework to amend various laws including the Companies Act. That's why there is room for satisfaction when looking at the commitment and achievement I have made. 

What's something you've been unable to do even if you wanted to? 

is not like that. Because we have started a lot of work. It takes time to get results. Some work needs to be continuously improved. So we have started a lot of work. How many have been seen? How many results remain to be seen. 

What did you find different about the state of the economy when you were president and now?

A year before I took over, the economy was in recession. Market demand and government revenue were falling, industrial production capacity was low and interest rates were rising in double digits. The economy was in dire straits at the time. Before me were the challenges of how to improve the economy, how to increase the overall economic activity. Dealing with the recession, which has not been faced for several years, the Confederation celebrated the 20th General Assembly with the slogan 'From Recession to Prosperity, Increase in Investment'. 

At that time, we were clear that the economy was in recession due to policy-induced and our own policies. After becoming the president, we focused on how to get out of the economic recession. We studied and suggested to the government to revive the Nepalese economy. Compared to two years ago, we feel that the economy has started to improve to some extent. Due to the Russia-Ukraine war, the Sri Lankan economy created by it and the policy taken by the government when it had just come out of the Covid-19 crisis, there was a policy recession in the economy. 

From the last 1 year, Nepal Rastra Bank has taken a relatively loose adjustment policy. The government amended some laws ahead of the third investment conference to boost the self-reliance of the private sector. The government also amended some laws through ordinances. This has increased the self-reliance of the private sector to some extent. Despite structural problems, the government, political leadership and bureaucracy have shown that they can work if they want to, so we have felt that our self-strength has increased. The capacity utilization of industries has now reached 62 percent. The construction sector, manufacturing and wholesale and retail trade, which have been negative for the past three years, are now showing positive figures in the government data. There has been some improvement in the economy. However, many structural reforms are needed. 

In last year's annual general meeting, CNI suggested that 5 laws should be repealed, 3 new laws should be introduced, 18 laws and 10 regulations and one/one procedures and orders should be amended. To what extent were those suggestions implemented? 

leadership political and bureaucratic whatever the laws/rules should come right. Political instability will continue in the future. Policy is only a foundation. That's why the Confederation spent 6 months researching and discussing with experts and published a book called 'Law Reform, Prosperous Economy Adhaar' with three main foundations. It gave the government a big basis to amend the law during the investment conference. Amending some laws involves inter-ministerial, agency matters. Therefore, not all proposed laws are amended at once. But there is a basis for the government to amend the laws. When we make suggestions, it's a regular process once the base is set, rather than being implemented immediately. As the base has been decided, the debate has started to amend the law. Although we are doing studies related to economy, we have taken a step forward and brought out a book by studying other laws.

The 22nd General Assembly of CNI was said to have an economy of 100 trillion and a double-digit economic growth. Who and where in the country should work to realize this slogan? 

Double-digit economic growth is not a new slogan. In the conference held in 2008, we said that if Nepal does not achieve double-digit economic growth, we will not be able to move forward in terms of neighboring countries and internationally. We are still giving the same suggestions we gave in 2008. Finally, we are lagging behind the neighboring countries. We think that if we do not take the goal of double-digit economic growth and do not move forward, we will continue to be confused. Even if nothing is done, the economy continues to grow by a few trillion every year. But, that is not enough, we want to do something special. Even though there is political instability, all political leadership should be focused on economic issues, so we have brought the debate that today's 44 trillion US dollar economy should be made to 100 trillion in 10 years to give everyone uniformity. As a comprehensive study is required to achieve double digit economic growth and an economy of 100 trillion, the confederation has started a study in collaboration with some international agencies. We will study in detail and prepare a report in the coming days. 

Another organization in the private sector announced in 2021 that it should work to create an economy of 100 trillion in the next 10 years. What is the difference between that and the current CNI announcement? 

Even though he announced to create a hundred trillion economy before, he is limited to the announcement. We asked the government to amend the old laws, the government said to bring them, we would do it, but we had no basis. The confederation issued a book on the laws that should be studied and amended, repealed and new ones introduced. It has now been implemented. The Confederation has started 'Make in Nepal Swadeshi Abhiyan' since 4 years. After making the program, we studied again and went through the process of what should be done and implemented the 7 pillars. As a result of that, the government has introduced a procedure related to the use of indigenous products this year. We will work together with the government to implement the goal of double-digit economic growth and creating a 100-trillion economy. It is not limited to slogans. 

How effective was the 'Make in Nepal Swadeshi' campaign? Do you see an increase in domestic production and an increase in income?

We have started the 'Make in Nepal Swadeshi' campaign to be long-term. We did not expect immediate results from this. 145 small and medium indigenous industries are associated with this campaign. We are providing various trainings including capacity building, digital marketing etc. We are explaining the documents required for export. We are helping them in branding and marketing. We have also created a 'Business to Business' portal for entrepreneurs to market their products. The government is also saying to create a portal. We have also requested the government to take ownership of our own portal.

You have already been saying that industries have not been able to expand investment because of the guidance on working capital loans. Has it become easier after the National Bank addressed the demand? 

Current working capital lending guidelines and asset classification guidelines have become obstacles for manufacturing industries. Since more than 90 percent of the gross domestic product (GDP) is loaned to the private sector, but the contribution to the GDP has not been seen, it has been commented that the current capital loan guidelines have been introduced to reduce it. According to the same commentary, guidelines on working capital loans were introduced to control loans to the private sector. It was implemented in India in 1991 after being amended 3 times, it was canceled a few years ago as it was not necessary and now it is applicable only in the non-banking finance sector. The policy implemented in India in 1991 was implemented in Nepal in 2022. How much was needed? It is a matter of discussion. In this regard, the confederation is demanding classification of loans to the private sector. Like, how much are personal loans and institutional loans? According to the data of Nepal Rastra Bank, credit expansion as a ratio of GDP has reached 90 percent. In which personal loan is 36 percent and institutional loan is 64 percent. If the direct loan of the National Bank is to be reduced, is the remaining loan only misused? If only this guidance controls the credit going to the private sector, which sector needs guidance on working capital loans? It is necessary to study it. 

is now associated with turnover. Only manufacturing, manufacturing and wholesale and retail trades require guidance on working capital loans. Hydropower, hotels and tourism, information technology industry, agriculture and other sectors do not need this guidance. It should be studied whether trying to control the credit going to the private sector by bringing this guidance is a 'fault'. Government data has shown that the contribution of manufacturing, construction and wholesale and retail trade sectors to GDP has been negative for three years. Due to current capital guidance, further investment in these three sectors has not been expanded. Because of this, the 'credit cycle' was increasing when the overall economy was in recession. In that case, these three sectors went into recession when the said guidance was implemented. With manufacturing, manufacturing and wholesale and retail trade sectors going into recession, the economy is not getting the improvement we are looking for. The latest reforms made by the National Bank will not have much effect. 

A team of experts with the participation of the private sector has for the first time suggested to the government for economic reforms. Some of its suggestions are also included in the budget. Now the pace of economic recovery will increase? 

This is the first commission involving the private sector. Along with the government, the private sector is also responsible for implementing the report. The major problem with forming commissions, submitting reports but not implementing them is political instability. There is a situation where the government changes but the new government does not take ownership of the program of the previous government and does not implement it. For example, the economic triangle program introduced by the then finance minister Varshman Pun in the budget of the current financial year was not included in the budget brought by Bishnu Paudel for the next financial year. But I am confident that the suggestions given by the Economic Commission will be implemented. Because the document agreed upon by the private sector is also responsible for implementing/enforcing the recommendations of whatever government comes in the future. We are confident of this. On May 15, before the budget came, we made a program that the Confederation should implement it. As it has been announced in the budget of the next financial year, we are working closely to implement it. We are working together with the committee formed under the coordination of the Secretary of the Office of the Prime Minister and the Council of Ministers to implement the recommendations of the Commission. It will take some time as there are issues that need to be amended in the laws and regulations, but we are trying to implement the issues that are coming in the budget.

Bank interest rates are at their lowest in nearly four years. More than 7.5 billion loanable amount is accumulated in the bank. However, loan demand has not increased. Why did this situation happen and can the budget loosen the knot in investment expansion?

Accumulation of loanable funds in banks does not mean that there is no investment, it means that the private sector has not taken it. If the demand in the market increases, the loan flow will increase. The private sector seeks policy stability, predictable policy. There is a tendency to revise the budget and monetary policy. When one monetary policy increases the risk load, it reduces the other sector. How to invest when there is this kind of political instability? Due to the policy taken by the government for some time, the private sector has not taken loans. Why bother? Why make new investments? It seems that the private sector has gone to the mentality. 

There was a time when there was a situation in which the investment could not be made due to high interest rates. It is now at its lowest level in nearly four years. What stopped the private sector from investing now? 

The Confederation has never suggested that interest rates should be lowered. During the time of Kovid, rather than reducing the interest rate, we suggested that the interest rate will decrease if concessions are given in which policy. Markets should determine whether interest rates will rise or fall. The Confederation did not say that interest rates should be reduced and customs rates should be reduced. It takes time for the private sector to increase its self-confidence to take loans. The private sector is creating jobs by taking risks and investing. The confidence to spend even among the common consumers has not increased. One of its problems is cooperation. A lot of people's money is stuck in cooperatives, it does not come back and the public is afraid to spend new things. It is necessary to do more work to increase self-confidence in them. Some improvements have begun. There is no way to decrease or deteriorate. Recently, the government has also introduced a kind of favorable policy, so the self-confidence of the private sector has started to increase. As the capacity utilization of the industry has increased since last one year, investment expansion will also start after some time.

According to the Confederation, only about 13 percent of the 63 items included in the current fiscal year's budget have been fully implemented. There is zero progress on 27 points. How confident are you that the provisions of the upcoming budget will be fully implemented?

We started Budget Watch because many points related to the private sector come up in the budget but are not implemented. It has also been taken positively by the government and the bureaucracy. It has become a policy to undermine the government. The budget comes, the confederation reviews what has been implemented. Some 'realization' has come from that. This is a regular process. 

The private sector did not try to find new areas of investment. Therefore, most investments are concentrated in limited areas. What is your opinion on this?

Wherever profits are seen, the private sector concentrates and invests. The government had to formulate an industrial development strategy to decentralize investment. It is necessary for the government to come up with a strategy so that there is a competitive advantage, policy concession in these areas. If the government brings it, the private sector will also move forward in that way. We are seeing a tendency to go to the private sector wherever there is profit. In the last 10/15 years, so many medical colleges have been opened due to the entry of the private sector into the health sector. Some may have appeared. The fact that the private sector has gone or invested in the same area should not be taken negatively. As a result, there has been a lot of development in the health, education, banking and financial sectors. For example: cable car. If there is a possibility and it is successful, then there is no problem in taking it. It also boosts the economy and tourism. Looking at the manufacturing industry, when the private sector moves towards it, at some point we become self-sufficient and talk about import substitution. Today, we are self-sufficiently exporting cement when the government facilitated the policy and other measures in cement.

The capacity utilization of industries is more than 60 percent, despite the loose policy, low interest rates, the stock market has not increased. The situation in the real estate sector is also similar. What should be done to improve these areas?

Only one sector cannot be said to be viable unless the overall economy is viable. A general real estate transaction is one. On the other hand, if you have extra money, you can buy real estate. There is also the subject of investment. The government's policy of changing the 'loan to value ratio' and ban came to limit real estate transactions. 

Now the country is on the 'grey list' of asset laundering. Has/has it become difficult for the private sector to work because of this?

We have not yet felt that the private sector has been affected by the gray list. One should consider why it was graylisted. It was said that the government did not implement the act/law, hence it was gray listed. The FATF team came to Nepal and discussed with the government and concluded that this/that did not happen. At that time, the private sector should also be discussed. How many subjects are practically applicable or not. We have felt that there was practically no discussion while going to the gray list. Had there been a discussion, there would have been some role of the private sector as well.

What should be the monetary policy in the next two weeks to keep the economy running and solve the problems of the private sector? 

The monetary policy will focus on controlling inflation through cash flow, financial sector stability, foreign exchange reserves, etc. Monetary policy had to be made 'complementary' to finance policy. Provisions including credit growth should be included in the monetary policy so as to facilitate the target or growth rate taken by the budget. Then there is harmony. The government has set an inflation target. The National Bank wants to create cash flow in the same way. Since there is an imported market, inflation depends on it and we have no control over it. But we can control it through policy. Monetary policy has become 'accumulative' in a way. We have not seen any immediate need for monetary policy to provide concessions. Some structural reforms are necessary for long-term sustainability. This is what we are doing.

There does not seem to have been effective coordination between fiscal policy and monetary policy in the past. What should be the policy of the National Bank to prevent this situation from happening again?

In the past too, we have felt that there is no synergy between the finance policy and the monetary policy. For the last 3 years, the kind of economy that was there, was seeing dissatisfaction. It has happened in all areas that it should go together. Maybe it will be combined. 

Are you leaving the leadership of the Confederation from this 24th? What is the plan for expansion of new investment?