Public Private Dialogue on “Role of local governance in facilitating growth of Small and Medium Enterprise: Biratnagar’s Context”

Bikalpa has been conducting a follow-up stakeholders meeting before publishing its research paper. The discussion, titled Public Private Dialogue, is a platform that aims to bring together policy makers, intellectuals, civil society members and relevant stakeholders to a common ground and exercises a more holistic and participatory approach to collecting information for the research paper. Currently, we have been working on the third volume of Policy Reform series, and the first paper under the volume identifies the governance hurdles at ward level in improving the business environment for Small and medium enterprise in Biratnagar metropolitan city.

23 stakeholders from the diverse institutions were present at the discussion which was held in Hotel Namaskar dated March 20, 2020, The findings from the study were presented to the stakeholders through a short presentation and a research brief (handbook). The following are the excerpts from the discussion from each of the participants.

Prof. Bhes Prasad Dhamal (Former Registrar, Purwanchal University)

• The procedural changes that this paper advocates for may not be enough for growth of small businesses and industries. Cottage industries need a different approach altogether for their growth and shouldn’t be categorized in the same sector as the small and large industries.
• The focus needs to be towards promoting entrepreneurship in its true sense. For this, there needs to be policy level intervention on three fronts: Access to credit, Production and Marketing.
• Provisions of seed money for innovations. The policy makers need to separate entrepreneurship from Industries, which are two different entities. Promoting industries has only led to temporary gains in economy and haven’t proven sustainable for the economy in the long run.

Prof. Pramod Kumar Jha (Advisior : Ministry of Economic Affairs and Planning, Province 1)

• SME’s (Small and Medium Enterprises) and Cottage Industries require separate studies for better insight.
• The procedural hurdles have drastically improved and are not the primary reasons behind the lack of growth of business and industries. Also, the issues with regards to EXIM codes and VCTS are surficial and will not impact the growth of these sectors.
• One of the important reasons behind instability in the industrial sectors are because of lack of strategic aim of the government. There has been no long term vision in building an industrial complex.
• For smaller business to run and grow, there needs to be commitment from the state towards ensuring grants for innovative ideas. Also there is lack of market for the domestic small scale industries. There needs to be inter-linkage between production activities and the market conditions.

Abhinayak Malla (Proprietor, Malla Enterprises)

• Economic growth is not possible only through business and Industrial growth. The parameter of judging an enterprise based on the profit it makes is erroneous. Business and Industries require profit making at an initial phase but need to generate value on the long run.
• On the procedural side, industrialized economies like China invites businesses and help them establish and generate value, following which they levy taxes. But in Nepal, the business are made to comply with taxes even before they begin operations, which discourages development of industries and businesses.
• Credit accessibility is questionable in Nepal as some communities have unchecked accessibilities to loans from banks while most others are deprived from getting loans. Despite having a better proposal, the banks look for collateral and don’t invest in the idea, but rather on the collateral.

Narendra Prasad Humagain (President, Nepal Federation of Cottage and Small Industries, Morang)

• Cottage Enterprise and Small Industries have a very broad classification in Nepal. The cottage industries have been instrumental in industrial development of the country and currently accounts for a large portion of manufacturing in the country.
• Cottage industries produces products that are consumed by the local people as well as the products that the nation identifies itself with. Therefore, the authorities need to conceptualize the idea of national industries and come up with a plan to strengthen them. Many cottage industries have grown to become large industries in Nepal.
• Cartels are the major hindrance in growth of manufacturing sectors. Government officials have been taking advantage of policy loop holes in the system by raiding new business and colluding with various agencies in extorting small businesses.
• The policies are such that a cottage entrepreneurs have to pay 80 % of their profits in tax, and can’t keep more than 20% as profit, which will limit their growth. The policy also goes against incentivizing people for their innovation because an entrepreneur is not allowed to charge a fee for his/her innovative ideas, and can only show the other administrative and manufacturing expenses.
• Most small and medium industries are never able to grow due to tax levied in initial phases. On top of that ExIm codes and compliance for VCTS (Vehicle and Consignment Tracking System) are still expensive for such micro and small enterprises and have impeded their growth.

Tirthendra Neupane (Ward President, Ward no. 11, Biratnagar)

• The ward office is still working towards managing small enterprises for better service delivery.
• The ward office is also positive towards discounting small businesses from mandatory implementation of VCTS and instead encourage them to adopt the technology in a phased manner.
• The tax has been increased in order to maintain the new federal administrative framework and the local governments have been pressurized to increase revenue. This has led to hasty increase in taxes, which however the local representatives haven’t increased since the last fiscal year.
• There is a need to improve the categorization of taxes which have so far been ineffective and unfair for many businesses.
• The proximity of the Open border with India has also helped in decline of the small businesses in the city.

Nishant Luitel (Branch Manager, Nerude Microfinance)

• The Nepali industries don’t have competitive advantage in most of the industrial sectors and aren’t able to compete in other markets, as well as with foreign products in their own country.
• There is a need to increase production scale of the industries, for which access to finance and credit, or foreign investment is extremely crucial. But subsequent governments and banks don’t have any policy vision for that.
• Lack of skilled manpower in policy making.

Diwash Subedi (CEO, Makalu Television)

• There needs to be a comprehensive study and monitoring on financial feasibility of various business by the government so that funding could go to the viable businesses.
• Government’s licensing procedure is very expensive for small business. The cost of digitizing a television channel is very expensive and smaller television channels will never be able to afford the license to digitize their network. Such policies are detrimental for competitive market.
• The salary and benefits for employees need to be in tandem with the living standard of the respective provinces so that the business and the employees can both sustain in the market.

Sujan Thapa (Secretary, Birat Merchant Association)

• There are a lot of challenges in setting up a business, the most difficult of which being Sarjamin (No objection agreement from the neighbors). Many individuals and groups become opportunist and extort the business owners into fulfilling their demands.
• One-window policy is critical for industrial and business growth in the city.
• Due to lack of budget from central and provincial governments, and due to market problems (which are threatened by cheaper goods coming through the open borders with India) have decreased the confidence of the investors and businessmen.
• The market-linkage needs to be done so that the small business and industries can find direct access to the local markets through various channels (like through Business and Agricultural Expositions, access to local malls and departmental stores and so on).
• Despite the policies being relevant and comprehensive, they are not practical and the implementation is very poor.
• The small scale enterprises are suffering due to the implementation of the VCTS and the government needs to provide them discounts on these services.

Pashupati Pokhrel (Official, Ministry of Land Management, Cooperative and Agriculture)

• There needs to be a clustered approach to setting up business areas inside the city. The government has categorized lands based on purpose of use and there needs to be proper homework before categorizing the lands into industrial or commercial category.
• There needs to be proper knowledge sharing between all the three levels of governments for proper policy framing.
• The government needs to establish incubation centers in Nepal for promotion of industries. These incubation centers will help in incubating new ideas brought up by new entrepreneurs.

Gyan Bahadur Basnet (Official, District Health Office)

• Citizens and business persons are looking for a helping and the local authorities as well as the provincial government need to bring out business friendly policies. We need to take care of sanitation of the industrial areas or else it could lead to environmental and health crisis in future but we should also ensure that our policies don’t scare away prospect investors.

 (Member, Nepal Federation of Cottage and Small Industries, Morang)

• Female entrepreneurs are still looked down upon in the market and are discouraged. The government has played an important role to empower women entrepreneurs by waiving off some fees. However, that is insignificant in comparison to the tax they imposed on small businesses.
• The tax collection system is very slow and time consuming that entrepreneurs have to employ one person just for documentations and tax payment.

Subodh Pyakurel (Vice Chairman, Province Planning Commission, Province no. 1)

• The policy makers need to acknowledge the fact that the country has committed itself to becoming a market based economy and cannot continue to practice protectionist policies.
• Policymaking has to be done keeping in mind the nature and spirit of the constitution, law and keeping in mind our competitive edge.
• For promoting entrepreneurs, the banking sector needs to give up the money-lender’s mentality of providing loans based on the collaterals offered, and instead invest in the ideas of innovators. Only then will the nation be able to identify its competitive edge.
• The nation is still embroiled in various forms of red tapes, the most notable one being the need to provide a copy of citizenship certificate for availing any kind of administrative services. Every year Nepalis spend 8 Billion rupees in producing these copies. With the introduction of CID, or universal country identification database, citizens will only need to provide their identification number. Database management and proper accessibility to data can help in eliminating many red-tape practices in bureaucracy.
• Most of the profits made by the small and large industries in the country goes into acquiring new technology for upgrading the capacities of the enterprise. Since there is a huge technological gap, it is hard for the Nepali industries to remain competitive. This can only be over come through innovation. And there needs to be investments in identifying innovators and building an entrepreneurial society. The nation needs to focus on its core strengths.
• The central government still has a very lackluster record of implementing policies and there are general confusions in planning and implementation which can be attributed to lack of data culture. Unlike many other nations, Nepal doesn’t frame policies based on the available data. There is no credible mechanism of collecting data and most of the reports are based on data that are generated without proper survey. The manipulation of data has led the facts to be hidden. Nepal still upgrades its demographic data once every 13 years and incapacitates us from doing effective policy planning. The policy makers have to assume data related to health, infrastructure and other social and development indicators.
• The electricity will not be an issue in near future as the province is undergoing a rapid upgrade in its transmission capabilities. However, there are few people who create unnecessary hurdles while installing and upgrading transformers with hopes of getting more in the name of compensation.
• The challenges faced can be categorized as the cultural challenges (traditional mindset which is hard to change), challenges coming from high expectation and due to traditional system. It will take time to overcome these challenges but once we overcome this challenges, we will be able to move forward with reforms at a rapid pace.