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Reducing the Cost of Doing Business to Boost Private Investment and Economic Growth

Many economists of the 20th century spent their life working on theories of economic growth. They have explained their growth models in varying ways and from different angles. The technicalities in these theories might vary but if we carefully examine, we can find a common aspect in all of them. They agree to each other on the fact that higher level of economic growth cannot be attained without high level of investment. The growth in the level of investment increases the level of income and employment, directing the country towards the path of economic prosperity.

These theories, on the basis of empirical evidences have also emphasized on promotion of private sector investment to bring about positive change in income of the country. Following these economists, we can assume that for Nepal to achieve high level of economic growth, facilitation of private investments and private businesses is of utmost importance. To bring about new investments, it should be easier for new businesses and industries to enter the market. Easy entry process reduces the overall cost of starting the business, thus, encouraging new businesses and investments in the economy.

 

But, if we look at World Bank’s Doing Business indicator, Nepal’s position is not very satisfactory. According to World’s Bank report, Nepal ranks 105 out of 109 countries in ease of doing business. An aspiring entrepreneur has to spend 16.5 days and has to go through 7 procedures to register a business. Moreover, it costs 24.9 percent of the per capital income to start a business. These statistics depict that it is not an easy process for new businesses to enter the market, which has impede the new investment in the economy, causing negative impact on growth of income and employment.

In addition to this, paying taxes is also not an easy task. Filing and paying taxes requires a whopping 339 hours and costs 29.6 percent of the profit. Huge cost and time incurred in paying taxes have directly discouraged entrepreneurs to initiate new business ventures.

The inference that we can derive from the growth theories and our position on ease of doing business is that if we are to accelerate the pace of economic growth, starting businesses and paying taxes should be made easier and less costly. In order to achieve high level of economic growth, we will have to attract new investment and businesses which can only be done if overall cost of doing business is significantly reduced.

Ashesh Shrestha

About Ashesh Shrestha

Ashesh Shrestha is an independent researcher. He has an Economics background and is interested in Monetary economics and Public finance.

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