TERM PAPER

ON
AUTOMOBILES INDUSTRY IN NEPAL

Submitted By:
Sandesh Kumar Shah
Bibek Karki
Purushottam Chandra Rawal
MBA IV, Section “A”
Ace Institute of Management

Submitted To:
Pradeep Raj Pandey
Instructor
International Business
Ace Institute of Management

Date of Submission: July 18, 2022

 Introduction to the Nepalese Automobile Industry

The beautiful Himalayan Country Nepal saw its first car about a hundred years back. It was a time
when roads were yet to be built and a time where” Cars didn’t carry people, people carried cars”.
The first-ever car was driven in Nepal in 1922 when Britain’s Prince Edward rode across the border
to hunt tigers in Kasara of Chitwan. After that Nepal’s that time ruler Rana got passionate about
cars and then its paved its way to Kathmandu but there were no roads that had to be physically
carried over the mountains from Bhimphedi to Thankot by porters. Hundreds of young men from
the villages of Makwanpur were hired to lift the cars. Only in 1957, when the Tribhuvan Highway
was finally opened, did the era of cars on human shoulders finally come to an end.

Nepal does not have any indigenous Automotive manufacturing company. The automobile
industry is the sole industry that has posted a consistently aggressive growth rate in the past decade.
In Nepal, the automobile industry works like a Funnel Distribution Channel. In recent times we
have seen a lot of automobile brands including Suzuki, Hyundai, TATA, Toyota, TVS, Skoda,
MG, Nissan, Bajaj, and so on. Basically how this funnel channel work is a distributor from Nepal
takes distribution right from the company (Either India or China). For instance, Maruti Suzuki
India provides distribution rights to CS MotoCorp. CG MotoCorp, the automobile division of CG
Holdings, is one of the leading and sole distributors of Maruti Suzuki India Limited (India). CG
MotoCorp is now the sole distributor of Suzuki Motors Corporation (Japan) and Maruti Suzuki
India Limited (India). Similarly, Laxmi Intercontinental Pvt. Ltd. is appointed as the distributor of
Hyundai Motor India, Sipradi Trading Pvt. Ltd. for TATA motor India, Jagadamba Motors of TVS
motor India, Pioneer Moto Corp for Nissan Moto Corporation (Japan), M.A.W Enterprise Pvt. Ltd.
for Yamaha (India), Shree STC Pvt. Ltd. for India Nippon Electricals Pvt. Lt, Paramount Motors
Pvt. Ltd for MG vehicles. All these automobile distributors then provide authorized dealership
rights depending upon a different geographical location. So, the automobile industry in Nepal
doesn’t work through foreign direct investment. It is more of like a funnel distribution channel
game.

The automobile market has been taken by storm since Tata Motors and Maruti Suzuki Car’s
entered the market and is a dominant player in Nepal’s automobile industry with over 70 percent

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of the Commercials Vehicle market share and Passenger vehicles respectively. Both TATA Motors
Nepal (SIPRADI Trading) and Suzuki Motors (CG moto Corp) entered during the 1980s and have
been leading the market since then. Mahindra, Hyundai, Toyota, Ford, Honda, and Volkswagen
are some other official distributors of a passenger vehicles as well as commercial vehicle segments
to enter Nepal.

Current Scenario of Nepalese Automobile Industry

The automobile industry is the top contributor to government revenue contributing around 30 %
of government revenue. In terms of employment, the automobile industry currently employs an
approximate 17 lakh workforce throughout Nepal. The whole auto sector in Nepal is incorporated
under the company act Motor Vehicle and transportation Act, 2049 B.S. Currently setting up an
automobile assembly plant has been one of the talked about issues in recent years. Nepali private
sector is mulling over investing in an assembly plant here. Assembly plants will redefine
industrialization in Nepal and it is understood as the ‘mother of all industries’ as one assembling
plant gives birth to many other industries. One needs to invest at least Rs 5 billion to start an
assembly plant of four-wheelers. Some have already tried to assemble two-wheelers here. At
present, Golchha Group and Jagadamba Group have been assembling Bajaj and TVS motorcycle
respectively in Nepal. Similarly, Shyakar Group and Morang Auto Works are also planning to
open plants to assemble two wheelers Honda and Yamaha. The two-wheeler market is getting
more favor from the consumer than four-wheeler and heavy vehicles. It is because the Nepalese
market is quite small for a four-wheeler. Lack of development in sufficient infrastructures like
road networks, parking areas, government ignorance on the transport sector, and heavy taxes levied
on the automobile (280%) in four-wheelers are some of the top reasons behind disfavoring four-
wheelers in Nepal. The Nepal government has not been so positive in this case. But Nepal’s
automobile market has hit a new speed bump after the government increased the excise duty and
road construction charge on two-wheelers through the revised budget for the fiscal year 2021-22.
Around Rs. 88.58 billion has been spent on vehicle purchases from Shrawan 2077-Jestha 2078. In
the Fiscal Year 2076-77, Rs. 61.30 billion worth of vehicles were imported in Nepal. The
government has received revenue of Rs 81.43 billion from the import of vehicles, according to the

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department. Revenue of Rs. 55.33 billion was collected in the last fiscal year. According to
automobile dealers, sales of two-wheelers surge by 60 to 65 percent during this period. At present,
in order to increase the use of electric vehicles, the government with the participation of the private
sector are planning to build charging stations across the country. Nepal Electricity Authority has
already awarded the contract of setting up 50 charging stations in major cities.

Current Foreign Direct Investment (FDI) Situation in Nepal

When we talk about foreign direct investment in Nepalese automobile industry, there is no FDI in
Nepalese automobile industry yet. The Nepalese automobile industry works like a Funnel
Distribution Channel. Basically how this funnel channel work is a distributor from Nepal takes
distribution right from the company (Either India or China). Due to lack of government interest on
automobile manufacturing and assembling, FDI is not attracted to Nepal yet. We are heavily
dependent on petroleum products and there is seen a steep growth in the price of petroleum
products. As a result, this has directly impacted our national economy which grabbed the attention
of the government. And in recent days, the government has also shown the interest toward
manufacturing and assembling of EV by attracting FDI to Nepal.

Nepali automobile market is small and it requires huge investment to set up such a plant. Even if
the plant is set up to export EVs, the company needs to compete with giant Indian and Chinese
markets. The demand may increase if the electric vehicles get assembled inside the country but
such increase in demand won’t be enough even to recover the cost of production due to small
market. So, it is very tough to think that any international EV maker would think of entering a
small market like Nepal. But there is possibility of attracting international electric car makers to
Nepal if the government creates a conducive environment for investment. Former Finance Minister
Bishnu Prasad Paudel said while presenting the annual budget on May 29 that world’s top ten
brand companies we can attract to set up their plants for manufacture and assembly of electric
vehicles by providing tax subsidies and land on lease.

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The budget for the fiscal year 2021-22 has abolished excise duty on import of electric vehicles and
reduced customs duty from 40 to 10 percent to increase the internal consumption of electricity and
to promote the use of environment-friendly means of transportation. The government has
announced tax waiver, customs waiver, subsidy, and administrative facilitation for such companies
which attract them to enter Nepal. Government officials say that preparations for the
implementation of all provisions announced by the government to facilitate the entry of electric
vehicle manufacturers are underway. Government also announced that a working committee will
be formed to formulate and implement policy to shift light-weight vehicles operated on fuel to
electric vehicles by 2031. This would also decrease fuel consumption and our dependency on
petroleum products which is import from India and it would also protect our environment by
decreasing air pollution. This all shows that now the government has shown the interest and ready
to welcome FDI to Nepal for manufacturing and assembling of EVs.

Issues/Challenges to Nepalese Automobile Industry

There are many direct and indirect factors that are hindering the growth of automobile sectors in
Nepal. Those factors should be identified properly and measures to exceed those factors should be
made priority in the action of government.
Approximately 30% of government revenue is collected from import of automobiles in the
country. It has been the major sources of revenue for the government. But the government has not
focused on the proper infrastructure development in the country. Major roads in Nepal are built on
20th century with limited space. But the expansion of ring road and major roads in Kathmandu is
not possible without approval from Indian government. This political dependency on development
sector is somehow interfering the automobile sector development. Further ‘Asarey Bikash’ culture
of Nepal is also hindering on the process.

Almost 280% tax is levied on the import of automobiles in Nepal. Nepal is one of the highest tax
collector in South Asian territory by automobiles industry. And the result is high automobiles cost
for the customers in the country. Since the cost is high, demand for that product is automatically
low. Being a developing country, living standard of Nepalese people are increasing and to mitigate
that standard, people always go for the luxury products in which automobiles comes first in the

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choice. So with the high tax levied on the automobile sector, affordability of automobiles in Nepal
is low which has been the major issues regarding this sector.

Policy regarding the import and operations of automobiles specially the EVs are not clear and fixed
in Nepal. Government’s restriction on issue of LC for higher cc automobiles is somehow justifiable
to make the country’s economy better for now but it has made negative impact on the automobiles
sector. Further regarding the financing of the automobiles, instead of giving some facilities to the
customers, companies are charging high amount of interest in financing which is another
demotivating factor to purchase the automobiles. Also policy regarding the production of
automobiles in home country is missing which could be the turning point for the growth of
automobiles sector in Nepal.

Measures to Mitigate the Issues

To exceed the current issues regarding the automobiles sector, government can play significant
roles as a regulatory body. Crores of rupees is allocated annually for the roads construction in
country but the work done by the authorities is disgusting. Most of the newly pitch roads can’t
even celebrate their annual birthdays as they need maintenance and supervision. And the sad part
is maintenance and supervision authorities are responsible for that cause as they approve the
budget before strongly regulating it. So a strong regulatory body regarding the roads constructions
and supervision could indirectly induce the growth of automobiles in Nepal. ‘Asarey Bikash’
culture in Nepal should be eliminated to support the process.
Also government should facilitate the private sector to open the manufacturing plant in Nepal not
only in papers. If one manufacturing plant is established in the country, it will drastically decrease
the price of the automobiles and the companies have to maintain that competition; by which overall
price of the automobiles will decreases as it becomes affordable to most of us. We don’t know the
reason why first Nepali automobile Mustang stopped its production (probably because of the lobby
to government), but it should be continue to foster the automobiles growth in Nepal.

Government should try to implement urban planning policies by which the road networks, road
expansion, parking areas and other road facility should be developed. For that, banking sector

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which is the backbone of automobile sector, should take initiatives. Auto loans and financing
facilities should be facilitated in the market to promote the automobile sectors.

Emerging companies like YATRI should be protected and promoted by the government as it builds
the confidence in the Nepalese entrepreneurs and businessman to open more automobiles
companies in the country. For that government can reduce the import tax on the parts these
companies use. Tax on the production of automobiles in the country could be exempt for 5-15
years which will also encourage the Nepalese companies for the growth of automobiles sector.
Also government should make policies to buy automobiles produced or assembled in the country
which will encourage the companies to do so.

Provision on Recent Budget 2079/80 to Increase incentives for EV assembly

plants in Nepal

The following provisions are made by government in 2079/80 budget to attract and promote car
manufacturing company to Nepal for building manufacturing and assembling plants:

Tax Exemption:
If a new industry for manufacturing four-wheeled electric vehicles or ambulances is established
and if the business is profitable. The tax break is worth up to 40% of the industry’s initial five
years of operation.

Excise Duty Exemption:

To begin, operating an electronic assembly factory in Nepal would necessitate the development of
infrastructure as well as the importation of machinery for manufacturing four wheelers or
ambulances. When bringing materials to the customs center in the excise duty for the 4 wheeler or
ambulance, the equipment and raw materials required for its importation will be taxed at a 50%
reduction.

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Custom Duty Exemption:
On four-wheelers or ambulances that use raw materials, the customs charge will be 25%. Similar
to this, a 1% tax will need to be paid at customs for the necessary raw materials or other
components for the construction of electric vehicle rickshaws, motorcycles, or scooters.

After budget announcement, two electric vehicle companies i.e., Korean Company Moterex
Pvt.Ltd and Shiva Ghimire Assembled Plant received License to establish their manufacturing and
assembling plants in Nepal. The Prime Minister has stated that only electric vehicles, not diesel or
gasoline-powered vehicles, should be manufactured.

Future Prospects of FDI in Nepalese Automobile Industry

At present, the government has shown the interest in automobile industry especially in EVs and
planning various provisions and strategy to promote and develop automobile industry in Nepal.
The Former Finance Minister Janardan Sharma has announced that the government will provide
incentives for companies looking to establish an electric four-wheeler industry in the country. The
government has announced to provide a 40% income tax exemption for electric car assembling
industries on their earning for five years. Similarly, car companies will get a waiver of 50% on the
excise duty and 25% on customs duty. This all will depict that government is trying to create
attractive opportunities and conducive environment for Nepalese automobile industry. This
government initiatives become a great future prospects of FDI for manufacturing and assembling
EVs to Nepal.

Government announced that a working committee will be formed to formulate and implement
policy to shift light-weight vehicles operated on fuel to electric vehicles by 2031. This shows the
great future opportunity for EVs manufacturer in Nepal. Apart from that, government is also
planning to build charging station across the country with the participation of private sector in
order to increase the use of electric vehicles. This will also become a huge future opportunity for
foreign investors to invest in Nepal. As the government promote to use electric-driven products

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and people are more conscious about the environment, Nepal will be the good and profitable
market of electric vehicles in the future. In Nepal the unemployment rate is high which is resulted
in low labor cost. And this will be a good opportunities for foreign investors to setup their
manufacturing and assembling plant in Nepal and utilizing those labor at low cost.

However, for Nepal, the moment has come to be careful about FDI since it can be both a boon and
a curse. Certain countries fell into debt traps after accepting FDI on the heat of the moment without
thoroughly examining the project's terms, conditions, and transparency information. As a result,
only those FDI projects that can boost GDP by providing income and job possibilities for the
general public should be encouraged. Since the majority of Indian enterprises with joint ventures
in Nepal have contributed significantly to the national economy, they must be wooed back in.
Meanwhile, efforts should be made to eliminate administrative bottlenecks and corruption that
deter notable investors from working in the country.

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 REFERENCES

Prasain, K 2022, ‘Nepal to switch to light electric vehicles by 2031 as fossil fuel import balloons’,
The Kathmandu Post. https://kathmandupost.com/national/2021/06/21/nepal-to-switch-to-
light-electric-vehicles-by-2031-as-fossil-fuel-import-balloons

Adhikari, M.et all, Identification and Analysis of Barriers against Electric Vehicle Use’,
Sustainability 2020, 12(12). https://www.mdpi.com/2071-1050/12/12/4850

Shakya, A 2020, ‘What next for Nepal’s auto industry?’ The Annapurna Express.
https://theannapurnaexpress.com/news/what-next-for-nepals-auto-industry-2532

Nepal’s Budget of fiscal Year 2079/80. Retrieve from:

https://www.mof.gov.np/uploads/document/file/1656476715_Budget%20Translation%20
031379%20cv.pdf

Kumar, C 2015, ‘Cars didn’t carry people, people carried cars’, Nepali Times. Retrieve from:
https://archive.nepalitimes.com/article/Nepali-Times-Buzz/last-porters-carrying-cars-
between-Bhimphedi-Thankot,2126

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