The government, which is busy formulating policies and programs for 2083/84, which is seen as the base year for building a $100 billion economy, faces the challenge of boosting the morale of the private sector and creating an environment for investment expansion. With the private sector, which used to invest up to 25 percent of the economy, limited to 19 percent last year, revenue collection has fallen sharply, forcing the government to take public loans for daily operations.

The private sector, which was hit by the COVID-19 pandemic and the subsequent demand-control policy adopted by the government, had suffered losses of more than 30 billion rupees during the Gen-G movement. Although the private sector appears optimistic about the powerful government with a nearly two-thirds majority formed after the February 21 election, it is awaiting the government's policies and programs and budget.

The economy, which has shown signs of rapid improvement after the COVID pandemic, has been affected by the government's demand-control policy. Despite the Central Statistics Office's projection that investment will improve in the current fiscal year, the private sector needs to be further encouraged to achieve seven percent economic growth in line with the ruling Rashtriya Swayamsevak Sangh's election manifesto. 

Despite the Central Statistics Office's  projection that investment will improve in the current fiscal year, the private sector needs to be further encouraged to achieve seven percent economic growth in line with the ruling Rashtriya Swayamsevak Sangh's election manifesto. According to Dhundiraj Lamichhane, Deputy Chief Statistical Officer and Spokesperson of the National Statistics Office, while total fixed capital formation increased by 19 percent this year at current prices, government investment has decreased by 33 percent, while institutional investment has increased moderately. He said that private sector investment in net fixed capital formation has increased due to the decrease in government investment. 

'While estimating total fixed capital formation, estimates of construction, import of machinery goods, domestic production of machinery goods, livestock (prepared for reproduction), trees (grown for fruit or multi-year reproduction), research and development, computer software and data, and weapons are basically used. These activities are carried out by the government, public or private sector,' Lamichhane said, 'While total capital formation has increased, government investment has decreased, while the remaining investment has increased from the private sector.' 

Although government total fixed capital formation increased in the fiscal years 2080/81 and 2081/82, it decreased by about 33 percent in 2082/83, he said. Lamichhane argues that as a result, the fact that private total fixed capital formation has increased is proven. He said that the same fact has been established in the context of total fixed capital formation at constant prices. 'If total fixed capital formation is not achieved in a year, there is a possibility that it will be achieved in the next year instead, so this situation arises in statistical analysis,' Lamichhane added. 

Economist Nar Bahadur Thapa said that private sector investment has decreased due to the decline in morale of the private sector, entry of the productive sector into the service and trade sector, and decline in real estate investment. Although there has been a general improvement this year compared to the last fiscal year, he pointed out that concrete reforms in policies and programs are needed to make it sustainable. The Statistics Office has projected that the private sector will invest around Rs 1.25 trillion this year. This year and last year, the annual investment of the private sector was less than Rs 9 trillion. 

The main reason for the decline in the share of the private sector in national capital formation is the failure to create an investment-friendly environment, argues Ram Prasad Gyawali, head of the Central Department of Economics at Tribhuvan University. ‘In recent years, the confidence of the private sector has been declining due to various reasons,’ he said. ‘At the same time, we often hear about investment outflows in informal conversations. However, there is no official data to confirm this.’ 

Gyawali said that practical hassles such as company registration and tax payment, rather than policy-related ones, have not increased investor confidence. He also pointed out that corruption has become widespread in recent years. ‘Although there is no statistical basis to confirm it, corruption is a social reality. In recent years, investment has not decreased due to lack of money, but due to lack of confidence and practical problems,’ he said. 

Government data shows that revenue collection has been low compared to the target in the last five fiscal years. During that period, only an annual average of 81.7 percent of the target has been collected. Government data shows that revenue collection is lower than the target in the last five fiscal years. During that period, only 81.7 percent of the target has been collected annually. The highest revenue collection was 92.5 percent of the annual target in the fiscal year 2077/78 and the lowest was 69.3 percent of the target in the fiscal year 2079/80. In the current fiscal year, the government had set a target of collecting Rs 1.48 trillion in revenue, but by last Chaitra (up to 9 months), about 60 percent of the annual target and 83.61 percent of the target by Chaitra have been collected. To achieve the annual target, the remaining three months of this year should have an average monthly revenue collection rate of 13.33 percent of the annual target. 

Due to the lack of revenue collection as per the target, the country's dependence on public debt has gradually increased, and the country's outstanding public debt has reached Rs 2933.79 billion as of last Chaitra, which is 48.04 percent of the gross domestic product of the last fiscal year. Government reports have shown that since the federal revenue is finding it difficult to meet current expenses due to low revenue collection, there is pressure to borrow even for current expenses. 

Gyawali, head of the Central Department of Economics at TU, says that to improve this situation, the first thing to do is to bring the private sector into confidence. ‘Invest, pay taxes, the state should be able to assure the private sector that the nation will protect your investment and the individual and family,’ he said. ‘For that, we need to improve the investment environment, facilitate practical difficulties, and implement a one-stop policy.’

In the past decade, the country’s economy has been sluggish, the impact of the COVID-19 pandemic that has spread around the world is also visible in our economy, the impact of the Russia-Ukraine conflict, high interest rates in the past, lack of liquidity, and investment disappointment have led to a decrease in private sector investment in capital formation, said Chandra Prasad Dhakal, outgoing president of the Federation of Nepalese Chambers of Commerce and Industry. ‘The frequent changes of government also added to the policy uncertainty. In such an unstable situation, the morale of the private sector has decreased, which has affected investment, he says.