Karnali Region Lacks Industrial Development Despite Government Promises

Surkhet. Karnali is the only province known for not having a single large or medium-scale industry, factory so far. This region, which was neglected by Singha Durbar before federalism, has not been able to move forward on the path of progress even after so many years of federalism implementation.

Karnali has been cheated not only by the centralized mentality of the state but also in terms of private sector investment. The unemployed youth here are forced to sweat it out in India and Gulf countries for employment. If there was industrialization in Karnali, they would probably be earning a living by working hard in their own province. The establishment of industries could also increase economic activities within the province.

It is not that the governments, from the center to the province, have not included the slogan of industrial development in the Karnali region in their policies, programs, and budget statements every year. In practice, no concrete work is being done towards industrialization.

Due to the lack of development of large industries and factories, which can occupy a large share of employment and economy, the province's economy is completely dependent on federal grants. There is no necessary preparedness from the government side for industrialization, nor are investors active.

Since its establishment, the Karnali Province government has been saying, 'to orient the province towards industrialization, attract private sector, domestic and foreign investment, and develop industrial infrastructure.' However, stakeholders say that no promising efforts have been seen in this direction even after completing two terms of the Provincial Assembly.

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Apart from calling the private sector for investment, no effective plan has been implemented by the government for industrial development. As a result, Karnali's share in the country's Gross Domestic Product (GDP) in industrialization is less than 10 percent.

• More than 30,000 small industries registered

According to the Directorate of Industry and Consumer Interest Protection of the province, 30,832 small and cottage industries have been registered across the province. These industries are based on services, production, forest products, tourism, and energy.

District-wise, Surkhet has the highest with 10,839, Dailekh with 3,442, Kalikot with 1,591, Jumla with 2,964, Mugu with 2,422, Salyan with 1,706, Humla with 2,300, Rukum Paschim with 1,747, Jajarkot with 2,252, and Dolpa with 1,569 small and cottage industries have been registered.

This data is from the financial year 2075/076 to the end of Chaitra of the current financial year (2082/083). According to Satendra Kumar Yadav, Information Officer of the Directorate, large and medium-sized industries are not registered in the province.

The small, cottage, and micro-enterprises opened in Karnali are also in crisis. According to the data, more than half of the registered 30,000 small industries are in crisis.

"About 70 percent of such industries are in bags. The industry is registered, taxes are paid to the state, but the industry is inactive," said Udiram Dangi, Central Member of the Federation of Nepalese Chambers of Commerce and Industry. He said that the remaining 30 percent of the operating industries are also facing problems due to the impact of bank interest.

In recent times, industrial loans for small industries in Karnali have also decreased. According to the latest report of the Nepal Rastra Bank, industrial loans have decreased by 1.94 percent compared to the financial year 2080/081.

"There is a lack of industries based on raw materials available in the province, inadequate infrastructure, limited financial resources, and weaknesses in cost and quality management of manufactured goods," the report states.

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• Large industries limited to registration

Large industries registered in the Department of Industry to be established in Karnali are limited to registration. According to the data, four large industries have been registered in Karnali. Suryatara Cement Industry Pvt. Ltd. in West Surkhet, Rurugad Power Company Pvt. Ltd., Rara Holding Pvt. Ltd., and Syarpu Power Company in Rukum Paschim have been registered but are not in operation.

Efforts are underway to operate Suryatara Cement Industry. Preparations are being made to operate the mine in Lakharpata, Barahatal Rural Municipality-7, and the industry in Chaukune.

An investment of approximately 15 billion rupees is expected in this industry. "We will produce cement within the next two years," said Mukund Prasad Timilsena, Chairman of Suryatara Cement Industry. "Construction work is underway."

The Investment Board has approved an investment of 14 billion 275 million for the operation of the industry. The industry is said to produce 50 to 60 thousand bags of cement and three thousand tons of clinker daily.

It has been more than a decade since the 'Chaukune Cement Factory' was supposed to be operated in Chaukune, West Surkhet. No work has progressed so far for the establishment of this factory.

Nepal's famous businessman Ajay Sumargi obtained permission for limestone excavation for the industry more than a decade ago. In 2066 BS, Mukti Shree Industries Pvt. Ltd., chaired by Sumargi, obtained a license for limestone excavation from the Department of Mines and Geology for the operation of the factory. The company had also promised that 2500 people would get direct employment once the factory came into operation.

The infrastructure for this industry has not even been prepared. According to Dhaniram Dhamala, spokesperson of Chaukune Rural Municipality, Sumargi has only occupied the mining area.

"The place has been occupied by registering the mine, our big dream was, but it remains a dream," said Dhamala. "Sumargi fooled the people and held the project."

This project, estimated to cost around 8 billion rupees, was expected to be the country's largest cement factory in terms of cost, production, and area. The Department of Mines had tested the limestone in Chaukune from 2035 to 2039 BS and certified it as suitable for cement production.

• Provincial government brings plans, but no implementation

The provincial government brings pleasing programs every year regarding the industrial sector. However, due to the government's indifference towards implementation, industrial development has not been possible.

No work has been done in practice beyond the provincial government bringing programs and allocating budgets in a scattered manner. In the financial year 077/078, 75 million rupees were allocated for the establishment of an industrial village. Such programs are regular in every subsequent policy, program, and budget.

Although it was said at that time that a special economic zone would be established in the province in coordination with the central government, no achievement has been seen so far. The provincial government states that there are problems in working within the framework of the central government's procedures.

So far, neither the work on infrastructure nor the selection of land has been done for the expansion of industrial villages. Although the federal government has a plan to declare an industrial area in the province, it has not been implemented in Karnali so far.

Similarly, the policy of 'One District, One Industrial Village' was put forward with investment from two levels. That program is also stalled. A micro-industrial village has been established in Birendranagar Municipality-8 in coordination with the provincial and central governments. This micro-industrial village, established with the objective of producing and distributing local endemic products, is not functioning properly.

Out of 62 rooms in this structure built at a cost of 151.6 million rupees, 7 are still vacant. "There is no market access now, efforts are being made to connect it to the market," said Suman Yogi, Chairman of the Industrial Village.

Besides this, the provincial government put forward a long-term plan to build its own provincial industrial village. Accordingly, the provincial government started feasibility studies in July 2080 BS for the construction of the 'Chinchu-MehalKuna' industrial corridor.

The then Chief Minister Rajkumar Sharma, along with the entire Council of Ministers and stakeholders at that time, observed the proposed Chinchu-MehalKuna industrial corridor.

Feasibility studies were conducted on 99 ropanis of land in Mainatada, Bheriganga Municipality-8, Surkhet, under this corridor. It was said that the environmental study work for industrial development was in the final stages.

According to the then Minister of Internal Affairs and Law, Krishna Bahadur GC, the concept of developing the area within Bheriganga Municipality and Gurvakot Municipality as an industrial corridor was put forward at that time. "Our objective was to make it a green industrial corridor," he told RatoPati while visiting the proposed area. "Later, the plan was lost after the government changed."

Field monitoring was conducted in the area from Ramjanki Community Forest of Bheriganga Municipality-12 to MehalKuna to see what could be done for industry establishment. Preliminary research concluded that 34 types of industries could be established in that area.

Green industry is said to be developed based on forest and agriculture.

According to a member of the then study team, to support industrial development in a specific geographical area, a package of infrastructure must be brought first. The need for this corridor is the parallel development of industry, entrepreneurship, production, employment, self-employment, and infrastructure.

At that time, it was said that after making the Chinchu-MehalKuna Green Industrial Corridor regulations, the process of study and research would proceed. "Only after the regulations will we enter into matters such as structure, construction, mapping, and the roles of each person," said the then Chief Minister Rajkumar Sharma at that time.

However, that plan is now stalled. According to Devendra Bahadur Shahi, an officer at the Industrial Promotion Branch of the Ministry of Industry, Tourism, Forest and Environment, work could not proceed for various reasons even though it was decided to make regulations at that time. "Will this be addressed in the upcoming policy and program and budget? No other work has progressed so far," he told RatoPati.

The provincial government's policy and program mentioned prioritizing the establishment of herb and agro-based industries and the construction of infrastructure such as cold storage for value chain expansion, market access, and utilization of agricultural produce. "Interest subsidies will be provided for the establishment and operation of industries such as resin processing, plywood and particleboard, agro-based industries, wood seasoning, and herb processing," the policy and program stated.

Similarly, the budget mentioned that to encourage and motivate local entrepreneurs, necessary support will be provided for the establishment of processing industries in partnership with private entrepreneurs for operating industries based on local raw materials. For this, there is a budget of 60 million rupees. However, this budget is not sufficient for large and medium-sized industries. The programs included in the budget have not been implemented.

Due to the government's inability to develop industries within the province, more than 80 percent of the total annual budget is covered by central grants. "Basically, the Ministry of Industry in the province has become nominal. It has no work. Large industries are not under the province," said an official from the ministry. "There is a practice of including some programs outside their jurisdiction just for show, but not implementing them."

• 'Investment Summit' limited to announcement

The Nepal Rastra Bank's report for the financial year 2081/082 highlights the immense potential for industrial development in the province due to the presence of natural gas and petroleum reserves in Dailekh, abundant potential for hydropower generation, organic agricultural products, and valuable herbs.

A large amount of petroleum reserves has been discovered in Jaljale, Bhairavi Rural Municipality-1. However, its production has not been possible.

"We have been continuously raising our voice in the parliament for its production," said Laxmi Prasad Pokharel, Member of Parliament elected from Dailekh-2. "If production starts there, it will support the economic prosperity not only of Karnali but of the entire country." However, he stated that the government has shown no interest in this.

The Rastra Bank's study report indicates significant potential for organic agricultural products and hydropower here.

"If industries of that nature can be established with domestic and foreign investment, there is a possibility of creating a large number of employment opportunities," the report states. The possibility of establishing processing centers for high-value herbs such as Yarsagumba and Panchaunle and exporting them to domestic and foreign markets at appropriate prices has also been highlighted in the report.

Despite the immense potential for industries related to energy, mining, agriculture, forest, and livestock, including herbs, in Karnali, no efforts have been made to attract investment. Although the Karnali Province government has made repeated efforts to attract investors by organizing an 'Investment Summit', it has not been successful.

Dates for the investment summit were set repeatedly, but the summit could not be held. Preparations for the investment summit have been ongoing since 2076 BS. The first Chief Minister of the province, Mahendra Bahadur Shahi, planned to hold an investment summit in Mangsir 077. Later, it was scheduled to be organized in Baishakh 078. The summit was then postponed, citing the COVID-19 pandemic.

After that, during the tenure of the then Chief Minister Rajkumar Sharma, a date was set for Baishakh 2081. By then, concept papers for potential projects to be presented during the summit had also been prepared. However, the government changed before that, and the investment summit could not be organized.

According to Yogendra Bahadur Shahi, the then Vice-Chairman of the Provincial Policy and Planning Commission, the concept paper included the establishment of a large herb-related industry in Karnali and other major strategic plans.

Currently, the provincial government has included the investment summit in its policy and programs and budget. The budget statement for the current financial year, in point 49, mentions that the provincial government will invest and facilitate in the construction of infrastructure such as access roads, drainage, water supply, and electricity transmission lines to increase private sector investment in the establishment of large productive industries and the operation of tourism industries.

"An investment summit will be organized with the development of investable projects in the province and other necessary preparations," the budget states. However, the chapter on the investment summit has now been closed, according to Hari Bahadur Gharti, Information and Data Branch of the Provincial Planning Commission.

"The program was included, but it was decided not to hold it this year," he said.

• Policy Hurdles and Lack of Infrastructure

Suman Yogi, President of the Nepal Cottage and Small Industries Federation, Surkhet, states that the minimum infrastructure required for large and medium-sized industries has not even been built in Karnali.

He clarified that the state must first focus on infrastructure development. "The roads here are not good. Another major problem is energy," he told RatoPati. "Due to the lack of electricity, even the existing small industries are in crisis."

Although the 132 KVA transmission line for Upper Karnali has been completed via Kohalpur-Surkhet, quality service has not been available. Electrification has not even reached other districts and settlements from Surkhet.

The existing electrical infrastructure is not capable of supporting industries and factories.

Yogi mentioned that there are challenges such as a lack of skilled manpower, raw materials, and a difficult geographical structure required for industrial development.

According to him, another major problem is policy-related. "The process of registering large industries is very long and cumbersome," he said. "The compulsion to run around government processes also discourages new investors."

Yogi stated that policy ease and a 'one-window' system are necessary. He believes that if the state's easy policies and necessary infrastructure development are achieved, Karnali has immense potential for industrialization.

"There is potential to operate industries from kyanite to limestone, herbs to paper, endemic agricultural products to large river-based industries and factories," he said.

Dhan Bahadur Rawat, Chairman of the Federation of Nepalese Chambers of Commerce and Industry, Karnali Province, also believes that the first condition to attract industrialists to Karnali is to create simple policies and regulations. He stated that the process of establishing and registering industries should be made as easy as registering a firm.

On the other hand, the lack of land and rising prices have added challenges to the industrial environment, Rawat said. He said, "If the state declares an industrial area in Karnali, national and international investors can be attracted."

Karnali has strong potential in industries based on daily consumer goods, hydropower, and herbs. Rawat said that investment in these sectors is necessary to prevent the youth here from going for foreign employment.

"The government should declare hotels as industrial areas for tourism promotion," he said. "If foreign investment can be attracted to the hotel business in Rara, Surkhet, and other 10 districts, the number of tourists will increase, and a basis for local employment will be created. Currently, we are dependent on cities like India, Biratnagar, Butwal, and Birgunj for daily consumer goods."

According to Rawat, to attract investors to Karnali, governments at all three levels must provide tax exemptions and concessional loans for at least 10 to 20 years. He also clarified that access to basic infrastructure such as roads, electricity, and drinking water must be ensured.

Rawat believes that although the provincial government has brought a policy of tax exemption for up to 5 years for industry establishment, it is not sufficient. "For an investment-friendly environment, the cumbersome process of environmental impact assessment also needs to be made practical and easier," he said.

Rawat stated that large industries aside, even the small and cottage industries currently in operation are in crisis, making it difficult for them to upgrade. "Operators are fleeing due to opening industries by imitation without technology and expertise," he said.