The biggest obstacle to bringing FDI into the country is finding enough land to start an agro enterprise

Nepal's underdeveloped agriculture sector faces a dilemma. While it lacks the much-needed investment to mechanise and modernise it to boost productivity, there is strong opposition to any foreign direct investment (FDI) in the sector. In January this year, the government amended the Foreign Investment and Technology Transfer Act (FITTA) 1992, throwing open the agriculture sector to FDI. The Act had until then prohibited FDI in primary agro-products and animal husbandry, although the government had tried to amend the act for the 2019 Investment Summit, only to be scuttled by the Parliament.

As a result, there has been a backlash from agro entrepreneurs who say there is vested interest in opening this sector to foreign investment. In particular, entrepreneurs associated with the dairy industry are angry with the government's decision, who fear they will not be able to compete with multi-national companies in terms of technology, investment and market access. And this after having invested heavily in the sector that meets 80 per cent of Nepal's demand for milk and is on its way towards self-sufficiency.

But despite the protests, the government is not budging on its decision. Against this backdrop, Minister for Agriculture and Livestock Development Padma Aryal, speaking at an interaction programme the other day, said that while FDI should be allowed in the agro sector, it must ensure that the small farmers are well protected.

The ministry believes that FDI will invite competition in the country and help agro business to foster. However, this is easier said than done.

Luring FDI in the agriculture sector is not going to be easy as there are lots of challenges to confront.

It will require a lot of homework and amending the related acts before a workable framework is prepared.

The biggest obstacle to bringing in FDI is finding enough land to start an agro enterprise. The Land (Eighth Amendment) Act-2020 has put a ceiling at 10 bighas (6.75 hectares) per person or family in the Tarai, 25 ropanis (1.25 hectares) in the Kathmandu Valley and 70 ropanis (3.6 hectares) in the hills. Given Nepal's extreme land fragmentation, almost 70 per cent of land holdings in Nepal is less than 1 hectare in size. Given the huge investment and mechanisation that will go into setting up an agro venture, a farm that is less than 200 hectares will not give good returns. Thus, amending the land-related act must be a priority if the country is serious about inviting FDI. Heavy investment, whether local or foreign, is a must if agriculture in Nepal is to see drastic changes in the years to come. Our productivity is the lowest in the region, and our food imports, from rice, wheat and corn to meat, fruits and vegetables, keep growing year after year to feed the hungry mouths. Blessed with varied climatic conditions, agriculture holds much promise for growth and export. But we must at the same time see to it that land acquired for farming is not misused for other purposes, such as the real estate business. The government has the delicate task of performing a balancing act, where both the small farmers and agro entrepreneurs are kept happy while inviting FDI to help develop our agriculture.

Vehicle policy

Anticipating an economic slowdown due to the nationwide lockdown on March 24 last year, the government had imposed a ban on the import of luxury vehicles worth more than US$ 50,000. It was aimed at preventing the depletion of the country's foreign exchange reserve. Now the government has allowed the import of expensive vehicles worth more than US$ 50,000. The government had then also reduced the quota for gold imports.

The main question here is, why has the government lifted the ban on these items, including the import of luxury vehicles? It seems the government reversed its own decision simply to appease a section of the business community. Instead of allowing the import of luxury vehicles worth millions of rupees, the government should have encouraged traders to import electric vehicles that will not only use electricity produced within the country but also help reduce air pollution caused by the vehicles run on fossil fuel. The country can also save foreign currency by switching to electric vehicles for personal use. The government should come up with a plan about how to better use energy to be produced from the Upper Tamakoshi hydel project which is completing soon.

A version of this article appears in the print on March 24, 2021, of The Himalayan Times.