FNCCI President Anjan Shrestha urges production-led economic shift, Tax stability in budget 2083/84

KATHMANDU: The upcoming fiscal year 2083/84 budget is not merely a routine annual fiscal document but a historically significant economic roadmap that should reset Nepal’s development trajectory, according to suggestions submitted by the President of the Federation of Nepalese Chambers of Commerce and Industry, Anjan Shrestha, to the government ahead of the national budget announcement.

In a comprehensive set of recommendations, Shrestha emphasized that the budget comes at a defining moment for Nepal’s economy, shaped by three major historical contexts: the first full budget of the new government formed in March 2026, a period of declining confidence in the private sector and shrinking productivity, and Nepal’s impending graduation from Least Developed Country (LDC) status to a developing nation in November 2026.

‘Nepal Must Rethink Its Economic Model’

FNCCI President Shrestha argued that Nepal’s long-standing economic dependence on remittances, imports, and consumption can no longer guarantee sustainable prosperity.

He stressed the urgent need to transition toward a production-oriented economy centered on manufacturing, exports, entrepreneurship, and employment generation, warning that Nepal’s competitiveness after LDC graduation will depend heavily on domestic production capacity.

“An economy sustained by remittance alone is no longer enough. Nepal must now move toward an economy sustained by production,” Shrestha suggested in his recommendations.

He urged the government to adopt policies prioritizing domestic production and local consumption as a national economic campaign, calling for strategic promotion of the “Swadeshi” approach to strengthen Nepal’s industrial base and reduce external dependency.

Industrial Slowdown and Weak Private Sector Confidence

Highlighting deep concerns over Nepal’s industrial climate, Shrestha noted that industries are operating at only around 40 percent of capacity, while the manufacturing sector is facing one of its toughest periods in history.

According to the recommendations, private sector contribution to gross fixed capital formation has sharply declined from 28 percent to 16 percent over the past four years, signaling weakening investment confidence.

He warned that weak market demand, halted investment expansion, and rising non-performing loans have worsened the business environment, arguing that the government should stop treating the private sector as a problem and instead recognize it as an economic partner.

Middle East Crisis Could Pressure Nepal’s Economy

Shrestha also raised concerns over growing geopolitical tensions in the Middle East, saying the crisis could significantly affect Nepal’s economy through impacts on foreign employment, remittance inflows, foreign exchange earnings, and overall economic activity.

According to FNCCI’s estimates, the crisis could affect Nepal’s gross domestic product by nearly 1.8 percent.

He further cautioned that Nepal’s demographic dividend is expected to gradually weaken after 2045 BS, making productivity-driven growth increasingly essential.

Call for Tax Stability and Predictable Revenue Policies

One of FNCCI’s strongest recommendations focuses on policy predictability and tax reform.

Shrestha pointed out that while Nepal’s average economic growth has remained around 4 percent over the past two decades, tax growth has climbed to 11 percent, with revenue-to-GDP ratios exceeding 19 percent — among the highest tax burdens in South Asia.

He argued that high taxation has not only increased government revenue but also encouraged informal trade, illegal commerce, and business flight.

The FNCCI president recommended ending the practice of changing tax policies every fiscal year and replacing fragmented annual provisions with a single, interpretation-based revenue code to ensure transparency, predictability, and investor confidence.

He also proposed the establishment of an empowered Revenue Board and demanded legal assurance that tax laws would not be implemented retrospectively.

Against Criminalization of Economic Activities

Shrestha criticized the current approach of treating economic irregularities as criminal offenses, arguing that such practices discourage entrepreneurship and weaken business confidence.

While financial penalties may be justified in economic disputes, he stressed that entrepreneurs should not be criminalized for business-related errors.

Post-LDC Competitive Package Needed

With Nepal preparing to graduate from LDC status later this year, FNCCI has proposed a dedicated “Post-LDC Competitive Package” to maintain export competitiveness.

Shrestha warned that Nepal will gradually lose preferential market access after graduation, while high transportation, production, and financing costs could weaken Nepali products in global markets.

He called for long-term integrated industrial policies targeting export-oriented sectors including garments, carpets, pashmina, felt products, and textiles.

The recommendations also urge the government to introduce clear legal provisions allowing Nepali companies to invest a portion of export earnings abroad, helping domestic businesses expand regionally and internationally.

Governance Reform, Digital Services and PPP Push

Stating that “surviving in business has become harder than operating one,” Shrestha said Nepal’s private sector is burdened by overlapping regulations, weak service delivery, delayed decision-making, and unstable policies.

To address these bottlenecks, FNCCI proposed stronger digital governance, a one-door service system, and improved ease of doing business.

The chamber also urged the government to assign accountability to agencies responsible for controlling smuggling across open borders and reform trade distortions under regional arrangements where finished goods are imported more cheaply than raw materials.

Additionally, Shrestha proposed special public-private partnership (PPP) schemes to revive sick industries and boost private investment in strategic sectors such as energy, transmission lines, pumped storage, industrial zones, tunnels, and large-scale infrastructure under BOT and PPP models.

FNCCI has also sought higher budgetary priority for agriculture, tourism, medicinal herbs, tea, coffee, information technology, and service exports to transform Nepal from a consumption-based economy into a production and export-driven nation.

Shrestha said FNCCI’s proposed “Six Pillars, Sixty Initiatives” framework should not be viewed merely as a list of demands, but as a shared national blueprint between the government and private sector to boost investment, employment, productivity, and long-term economic growth.