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The Nepali Army’s Growing Business Interests

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The Nepali Army’s Growing Business Interests

There are concerns that civilian control over the military could diminish as its commercial clout grows.

The Nepali Army’s Growing Business Interests

Nepali soldiers march during a Republic Day celebration in Katmandu, Nepal, May 29, 2011.

Credit: AP Photo/Binod Joshi

In an event in September 2022 to mark the completion of his first year as Nepal’s army chief, General Prabhu Ram Sharma asserted that “the Nepali Army is the focal point of hope, trust, and unity of the Nepali people,” adding that the military’s “selfless service and professionalism” (peshagat byabasayikta) during crises, natural disasters, or peacekeeping have brought Nepal praise at the national and international levels.

However, the Nepali Army has courted criticism for its byabasayikta, which also means commercialization.

It has been involved in an array of business enterprises and is reportedly keen on operating the Hetauda Textile Factory located in Hetauda, the provincial capital of Bagmati Province.

Operations at the Hetauda Textile Factory were suspended some 25 years ago and then shut down four years later. Early this month, Sharma called on Prime Minister Pushpa Kamal Dahal to brief him on the army’s plans to revive the factory.

The army said that reviving the textile factory would give fresh impetus to industrialization in the country, contribute to the Gross Domestic Product, build self-reliance, replace imports, and create jobs. It has conducted a feasibility study and estimated that an investment of $15 million would be required to revive the factory, with another $6 million for annual operational expenses. The factory will provide 200 jobs and turn profitable after nine years.

Dahal was reportedly receptive to the idea.

Reviving sick and moribund industries is part of the current government’s policy. The plan and policy document for the current fiscal year provides for a high-level committee to study the status of closed and moribund industries and bring Hetauda Textile Factory, among others, into operation. Dahal has also stressed the need to industrialize the economy. “Since the scope of job creation has shrunk, youths have started going abroad,” Dahal said.

Acting proactively on the government’s policy, the Nepali Army prepared a detailed project report for re-operationalizing the textile factory, which was built in 1975 with the support of China.

The Nepali Army showed interest in the factory’s revival earlier as well. Almost a decade ago, the industry minister of the then-Dahal government invited the army to discuss the revival of the factory. The idea was to produce textiles for all wings of the Nepal security forces, who would invest money through their respective welfare funds. However, the plan did not move forward.

The latest proposal by the Nepali Army to revive the factory has drawn flak. Analysts have expressed concern over the army’s increasing commercial interests and footprint, and the possibility of it becoming a “corporate army.”

This is not the first time that the Nepali Army is venturing into business enterprises.

It sells petroleum products, operates emulsion plants, and runs schools and medical colleges. It is among the largest contractors for building roads. It was tasked with constructing the Fast Track highway linking the capital Kathmandu with Nijgad on the country’s southern border with India. The project’s estimated cost is $1.6 billion, of which $170 million has been appropriated for the current fiscal year.

Besides, the army built a major commercial building in Butwal and rented it out to business enterprises. It replaced the historic Tri-Chandra Military Hospital with a commercial building in the heart of Kathmandu.

The military invests in those ventures through the government-sanctioned endowment fund called the Army Welfare Fund (AWF). The AWF was established for the welfare of incumbent and ex-personnel of the Nepali Army and their families. The army deposits a percentage of the salaries received for participating in peacekeeping missions into the fund. The profit generated from investments also adds to the AWF.

The Nepali Army is lobbying to amend the Army Act 2063, which bars it from investing in business enterprises, companies, and infrastructure projects like hydropower. As a result, a significant proportion of the fund lies inert in banks, accruing only nominal interest. Hence, the military “wanted to invest in projects that give high return,” according to General Ranta Prakash Thapa, who oversees the Army’s legal department. The Army is now seeking legal clearance to “invest money from its welfare funds in business activities as a promoter.”

Critics are raising multiple concerns about the military’s venture into commercial deals. First, such ventures are beyond the primary responsibilities of the army. It is against the spirit of democratic principles. Second, such lust for money corrodes the legacy and legitimacy of the institution and represents an unprecedented threat to national security. It makes the army lethargic and corrupt. Third, the Nepali Army’s engagement in such ventures could crowd out other smaller industries that may not have the means to compete with the might of the military’s political and financial power. Finally, the civilian government risks losing its authority over the military as the army becomes financially independent.

Meanwhile, the army claims that it has a constitutional mandate to engage in economic development. Nepal’s constitution stipulates that the army “may be mobilized in works including development, construction and disaster management.” The seemingly commercial interests, such as the construction of Fast Track, are assigned by the duly elected government through Cabinet decisions.

As Sharma observed at a parliamentary hearing, “The army did not seek the [Fast Track] project; the government assigned them.”

Militaries in other democracies have performed a developmental role, the army has argued.

Additionally, some projects such as the Fast Track project require the use of explosives. The army may be uniquely qualified for the role.

In addition, the AWF is among the largest in Nepal. Given Nepal’s dire economic conditions, investment of these funds in the manufacturing sector could help revive the economy. At the very least, reopening the textile factory could supply the uniforms for the security forces, which at present are importing the garments from neighboring countries. Additionally, the army has the economic muscle and the managerial know-how to operate the industry.

But these are beside the point. The primary question is about the army’s role. Does Nepal want a professional army or a corporate army?

As the army expands its commercial footprint, can the civilian government rein in the activities of the AWF? Former Army Chief Purna Silwal says that the civilian government’s handling of military affairs has been weak under the multiparty democratic system. The army’s commercial ventures could only further weaken its control.