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contribution to the economy has gradually declined in recent years and dropped to 6.2%, one of the lowest percentages in the region. The level of industrial development of Nepal today is much lower than 10 or 20 years ago. How is your government planning to revive industry in the country? Bishnu Rimal: First of all, our manufacturing sector has not evolved on the basis of competitive advantage; rather it has expanded during early 1990s due to the tariff, foreign exchange, and taxation related differences between India and Nepal. Our country liberalized the external sector earlier and faster than that India and the advantage of such a regime was taken by some industries like the carpet, garment, vegetable ghee, and synthetic yarn. As India liberalized the external sector, Nepal lost its competitiveness advantage vis- à vis India in both the Indian and international markets. Second, the decade long armed conflict from the second half of 1990s caused a deterioration in the investment climate and many investors, including those in manufacturing, left the country because of concerns about the security and business environment. Third, the open trade regime under the World Trade Organization and the South Asian Free Trade Area agreement reduced the level of protection to domestic industries and, in the absence of research and development or technological advancement, Nepalese industries faced set-backs because of imported goods. As a result, the growth of manufacturing sector remained lower than the overall economic growth during the last two decades. This is how and why the share of manufacturing in gross domestic product has come down. Nepal has now re-established peace and recently promulgated a new constitution. A new business environment and new trade regimes have emerged in the region. Recent problems on the border with India have revealed how dependent Nepal has become during the years of economic downturn with respect to very basic and essential supplies. ➤

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Making It: Industry for Development #21