India, Nepal sign bilateral investment promotion pact

India and Nepal on Friday signed a Bilateral Investment Promotion and Protection Agreement, which will help in reducing the cost of doing business by entrepreneurs of the two countries.

"We are in the process of setting a board of investments, which is a body chaired by the prime minister. This outfit will be a helping hand for the potential investor to smoothly execute investment," Nepalese Prime Minister Baburam Bhattarai said at a function organised by industry chambers in New Delhi.

India, is the biggest source of foreign investment in Nepal as also its largest trading partner.

Bhattarai also said, "There is serious imbalance in our trade. Nepal trade deficit with India was USD 3 billion."

During 2010-11, the bilateral trade stood at USD 4 billion. He said the trade imbalance between the nations is not just bad for Nepal, it is equally bad for India in the long-run. Correcting this is in the interest of both the economies, he added.

The Nepalese prime minister also said that both the countries must build trust on political and security related issues.

Stating that safety and security of investments remain a top priority of the Nepal government, he said, "I would like to ask you (investors) to examine this in perspective. The situation in Nepal has improved significantly and it is further improving."

Further, Bhattarai said, his government is mindful that labour rigidities pose difficulties for investors.

"We can achieve labour flexibility, for which trade unions too are ready, by giving them evidence of a workable social security mechanism. We have to set up a social security fund that will help us in having better industrial relationships," he said.

Inviting Indian companies to invest in Nepal, he said, "We have a simplified tax structure and perhaps the lowest tax incidence in South Asia...We are open to discussion with potential investors in further reforming our tax system."

Also, he said, Nepal has planned Special Economic Zones targeting Indian, Chinese and other markets for which infrastructure development is currently underway.

India and Nepal can collaborate in sectors including agro and food processing, power transmission links, infrastructure, tourism, information technology and financial services, he added.

At present, Indian companies including Tata Group and Lanco have their presence in Nepal.