The recent meeting of Indian and Nepali investors to explore opportunities for investments in hydropower sector is a right step in enhancing economic cooperation. India is on a high growth path and there are indications that it is a sustainable development phenomenon provided vital inputs like power supply are assured.

For Nepal, which is rich in hydroelectric resources, India’s rising demand for energy is an opportunity for attracting foreign direct investments (FDI). Furthermore, if we proceed with reasonable assumption that peace will be restored, the internal demand for energy will increase rapidly to the extent that power supply will have to double every five to six years. Thus, both for internal consumption and exports the demand for hydroelectric energy remains unlimited.

In the past, energy cooperation between Nepal and India was the sole monopoly of the state sector. Naturally meaningful cooperation based on business considerations was lacking. The norms and values of Indian bureaucracy under the influence of the “licence raj” were not able to initiate and manage power development projects with Nepal. On the Nepali side, Kosi and Gandak accords acted as a serious psychological block against venturing into hydropower agreement with India. For decades this legacy of mistrust continued.

After the foreign exchange crisis of 1990 when the country had to feel the humiliation of shipping gold to pay for its imports, India discarded the underlying premises of Nehruvian model of economic development. Under Nehru an interventionist state that relied on centralised planning and bureaucracy was the principal tool for economic development. Private enterprise and entrepreneurship was viewed with suspicion and bureaucratic red-tapism had become the principal characteristic of the new democratic regime. However, since the early 1990s Indian economic development paradigm has undergone a major change in favour of liberalisation and globalisation as the new pathway for economic and social transformation. Since then both these elements have gained ground and it is unlikely to be reversed no matter which party is in power. The private sector is now the “engine of economic growth” in India. It is becoming increasingly clear that if the government can improve on its role of a facilitator in developing the necessary infrastructure and policy framework to aid private entrepreneurship, India can easily follow the sustained economic miracle achieved by many East Asian nations.

The new dynamism of private sector in India under a liberal economic framework seems to have encouraged the process of liberalising the mindset of Indian bureaucratic establishment. The recent example is the meeting on prospects of investments in new energy development held in Kathmandu, apparently, with the initiative of the Indian diplomatic establishment and independent power producers of Nepal. It represents a change in Indian thinking on the basic framework of energy development in Nepal for the benefit of both nations. It is a step in the right direction.

On the Nepali side there are still many hurdles. Nepal’s private sector is not short of ambitious entrepreneurs but they are yet to find a hospitable environment that supports their urge to expand. Over the past few years changes in government have been too frequent and a consensus on economic policy framework has still to emerge. On top of it, the Maoist rebellion has not yet found a peaceful landing. Nevertheless, the dominant doctrine that is likely to characterise Indo-Nepal economic relations will be orientated towards the private sector.

To take advantage of Indian private sector’s increasing dynamism, the ministers have to do more than make correct formal statements at an inaugural function. To attract foreign investments, it must prepare hydropower development packages to be discussed with prospective investors. The minister concerned has to develop the mindset of a marketing executive trying to entice a new customer, which in this case is the opportunity for attractive returns from investments in hydropower development. The package must make commitments on technical and financial issues and the investor must be assured that the government will not back out of its promises irrespective of change in political leadership.

It may seem somewhat offensive to ministers to think that they must also learn to act as effective salesmen for hydroelectric projects. But the logic of our age, especially for small countries like Nepal, requires this skill on the part of top bureaucrats and ministers. To implement this strategy, the private sector must be viewed as an important partner. This is not going to be easy for people who have grown up in a hierarchical society where those in power are considered demi-gods whose instructions have to be followed. But in a world with intense competition for attracting foreign investments it is the businessman’s marketing mindset that is becoming crucial.

Lohani is co-chairman, RJP