Government of Nepal (GoN) has decided to allow foreign direct investment (FDI) in the primary agriculture production with certain conditions by publishing a notice on Nepal Gazette dated 04 January 2021 (20 Poush2077) exercising the power conferred by Section 50 of Foreign Investment and Technology Transfer Act (FITTA), 2075 (2019 AD). As per the notification, foreign direct investment in Nepal is allowed in the following sectors –

• poultry farming

• fisheries

• bee-keeping

• fruits

• vegetable

• oil seeds

• pulse seeds

• milk (Dairy) industry, and

• primary production in agriculture sector

The followings are the conditions to be fulfilled.

• There has to be export of at least 75% of its own production and

• The industry is a ‘Large Industry’ producing primary agricultural production

As per Section 17 of Industrial Enterprises Act, 2076 (2020 AD), ‘Large Industry’ means the industry having more than NPR 500 million ‘Fixed Capital’.

For the purpose of Industrial Enterprises Act, following asset shall be considered as base for determining ‘Fixed Capital’.

• Construction or improvement of physical infrastructure in Land, underground, air space, water or underwater

• Physical infrastructure like drainage, internal transport, drinking water system etc constructed above land

• Office, factory, building or warehouse of industry

• Residential building constructed for employees or labor

• Supply of electricity and equipment thereof along with supply system

• Machinery, equipment, accessories and stock of parts

• Vehicles

• Office equipment and accessories

• Furniture and Fixture

• Communication accessories and other equipment and system thereof

In addition to above assets, expenses prior to incorporation of industry or during construction period is included in ‘Fixed Capital’.

• Technical and supervision expenses which are of capitalized nature

• Prior period and pre-investment expense

• Interest to be capitalized

• Expense related to environmental assessment and research prior to operation of Industry

Reanda Biz Serve’s Comment

The provision of this notification is intended to open up foreign direct investment in all the sectors of agriculture which was in negative list in previous laws. This provision is expected to attract large investment in the agriculture sector, bring latest technologies into the country, boost domestic production and productivity and enable the country to export agricultural goods rather than having traditional ongoing process of the agriculture in Nepal.

The current inclusion will encourage Nepalese producers to be competitive in the market. Further, the inflow of foreign currency will increase from the export of agricultural products in which the law has made mandatory export of minimum 75% of its own production of agriculture sector.

So in nut-shell, the provision is expected to increase the domestic production of agricultural goods due to large investments that will bring latest technologies with it and the country will be able to export agricultural goods that it is previously importing.

Note: The Supreme Court of Nepal has ordered the Nepal Government to put on hold its decision of opening foreign    investment in the agriculture sector for the time being.

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