Leveraging Federalism: Economic Growth and Doing Business for Prosperity

It has been a little over two years that Nepal has adopted a new federal republic constitution. This major transition in Nepal’s political history did not come by easily. Over a decade of armed conflict and subsequent protracted political process that also lasted almost 10 years, finally gave the country a new constitution. There were doubts whether this constitution would be implemented at all, given the opposition that erupted following the announcement of the passage of the constitution by a majority vote. However, the successful elections of all three levels (Federal, State and Local) of government in lengthy five phases have now raised hopes that this country will finally achieve the long-awaited political stability. We are now at the beginning of implementation phase of the federalism in Nepal.

The report is designed to aid law-makers, intellectuals, students, universities and general population in making informed analysis of potential roadblocks in the implementation of federal system of governance. Nepal cannot afford to relapse into another phase of armed conflict or wide-spread social discontent. Therefore, it is imperative that we become proactive in identifying potential problems and working out solutions before the problems become severe. It is in this backdrop that this report specifically focuses on business development in Nepal in relation to a few economic sectors and regulatory mechanism.

Leveraging Federalism: Economic Growth and Doing Business for Prosperity is an attempt to provide for a dialogue exploring the economic angle of the federal debate. The report has been divided into two parts – Part 1 takes a look specifically at Federal Nepal and explores the economic history, political developments, constitutional evolution, economic capacities and the characteristics of the federal structure of Nepal. This background study provides the foundational base which helps decipher the nature and scope of different federal principles seen in Nepal. Furthermore, it also explores the future developmental plans that Nepal is heading towards and the resultant effects they would have on the Nepalese federation. Part 2 discusses the existing literature available exploring the subject of economic governance under the new structure. Targeted focus has been given to the doing business component with a further exploratory study in regulatory aspect of banking and financial institutions, labour markets and business corporations, and sectoral review of agriculture and tourism.

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