Part A: Basic Economic Concepts.

NATURE OF ECONOMICS
Economics is all around you. It is about how
society deals with the problem of scarcity. We
Basic
cannot have everything we want, whether it refers
Economic
to continuous holiday or perfectly clean air. We
Concepts.
have to make choices. Economics is the study of
how society makes these choices. Economics is
not just about incomes, prices, and money. Sometimes it makes
sense to use markets; sometimes we need other solutions.
Economic analysis helps us to decide when to leave things to the
market and when to override the market"
-David Begg, Stanley Fischer and
Rudiger Dornbusch
1
Origin of Economics
Economics is a branch of social science. It commenced with the
publication of Adam Smith's book "An Inquiry into the Nature and
Causes of Wealth of Nations" in 1776. Before that economics was a
part of politics, ethics and religion. In early and middle part of the
19th century, it was called political economy. Towards the end of
century, it was called "Economics" a change from political economy.
Economics was derived from the Greek word Oikos (house and to
manage). Thus, economics means to manage household affairs with
limited fund available in the most economic manner possible.
2 Definitions of Economics.
Economics has been defined in different ways in different times
such as (1) Wealth (2) Welfare (3) Choice and (4) Growth.
Adam Smith:
Adam Smith, the father and foremost among the classical
economists, defines economics as the science of wealth. His book
"An Inquiry Into The Nature And Causes Of Wealth of Nations" is
itself the definition of economics.
The implications of this definition are
(i)
Human beings have wants to satisfy;
(ii)
The main concern of economics is the satisfaction of
human wants;
and,
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(iii)

Wealth satisfies human wants.

Thus, the study of economics show, how wealth is produced and

spent. J. B. Say, another classical economist also has given similar
definition. In his words, "Economics is the science which creates
wealth".
Thus, wealth is main subject matter of economics.
Classical economists Ricardo, Malthus and John Stuart Mill have
followed Adam Smith's definition.
Criticisms of Adam Smith's Definition:
(i)

Dismal Science:
Some eminent literary writers of 18th century like Carlyle
and Ruskin were very critical about Adam Smith's
definition of wealth. According to them, economics is the
"Gospel of Mammon" or the "God of Riches". It teaches
people how to acquire wealth. They criticised economics
as dismal science and as such it disregards the fulfillment
of spiritual life. However, their criticisms were also not
completely right. Even a hermit who has denounced
materialistic world cannot survive without basic minimum
necessities of life. Thus, earning and spending cannot be
regarded as selfish activities

(ii)

Wealth Is Not An End In Itself:

The main defect of Adam Smith's definition of economics
is that it lays too much emphasis on wealth. Wealth is
not an end in itself. Wealth is important because it
satisfies human wants. Thus, human is primary concern
of study and wealth is only secondary. Another defect of
Adam Smith's definition is the classification of economic
and non-economic man. An economic person is that
person whose main concern in life is to earn money and
non-economic person is one who is not after wealth. In
actual life, it is very difficult to find a person who is not
motivated by number of things like love, affection
patriotism, profit etc.

Alfred Marshall:
Alfred Marshall was the founder of the welfare school. He was
very much affected by the criticism on Adam Smith's definition. He
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tried to save economics from the criticism by changing subject

matter of economics. He defines economics as follows:
"Political Economy, or Economics, is a study of mankind in the
ordinary business of life; it examines that part of individual and
social action which are most closely connected with the attainment
and with the use of the material requisites of well-being. Thus it is,
on the one side, a study of wealth; and on the other, and more
important side, a part of the study of man".
According to Marshall, wealth is not an end in itself, it is a means to
an end, the ultimate end being human welfare. It is human beings
who are the main subject matter of economics. Thus, Marshall is
the first economist who placed human activities in the first place
and wealth in the second place. Marshall is of opinion that
economics studies human activities in relation to wealth. Wealth is
only means, which satisfy human wants. The main features of
Marshall's definition are as follow:
(i)
Economics is a Social Science:
It studies the economic problems of those people who live in
the society.
(ii)

Economic studies only ordinary business of life:

Ordinary business of life means income earning and income
spending activities of human beings for living.
Thus,
economics deals with only economic aspect of human life.

(iii)

Material Welfare:
It studies material welfare of human life. Marshall's definition
is classificatory in nature. It has classified human activities in
two categories i.e. material and non-material.
Material
activities are those activities, through which one gets monetary
rewards. Non-material activities are those activities, which do
not bring any monetary rewards. For instance, if a professor
teaches in college he/she gets remuneration and this activity is
called material activity. But if the same professor coaches
his/her own children he/she does not get any remuneration.
Thus, this activity is called non-material activity although
he/she gets immense satisfaction from his/her work.

Criticisms: Marshalls definition has been criticized in the following

grounds:
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(i)

Classification in Nature:
Robbins rejected Marshall's definition on the basis that it is
classificatory in nature. According to him, division of human
activities into economic and non-economic is unscientific.
Human activities cannot be divided into two parts. It must be
taken as a whole. The same activities, at times become
material and at other times non-material. For instance, if a
singer sings for his own pleasure it becomes non-material and
if he sings in public places for money, it becomes material
activities.

(ii)

Narrow Scope:
It has narrowed the scope of economics as it confines its study
into material activities only.

(iii)

Social Science:
Robbins does not want to limit the study of economics only to
material welfare. According to him, welfare is too vague to
make it a sound foundation for building up a respectable
science. Further, welfare definition makes economics purely a
social science. Therefore, it cannot be analyzed scientifically.

Lionel Robbins:
Science of Choice.
The most scientific and widely accepted definition of
economics is the definition given by Professor Lionel Robbins.
According to Robbins, "Economics is the science which studies
human behaviour as a relationship between ends and scarce
means which have alternative uses".
The main ideas of
Robbins's definition are as follow:
(i)
(ii)
scarce;
(iii)
(iv)
wants.

Human beings have innumerable wants or needs;

The means or resources to satisfy them are limited or
These scarce resources have alternative uses;
Human beings have, therefore, to choose between these

(i) Unlimited Wants:

Human beings have unlimited wants, such as food, clothing,
shelter, education, entertainment, leisure etc. When one want is
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fulfilled, immediately another want crops up. For example, when

basic needs like food, clothes and shelter are fulfilled, human
beings immediately feel the need of furniture, radio, TV etc.
There is no end to human wants. The existence of economic
problem is due to the unlimited wants.
(ii) Limited Means:
Means to satisfy human wants are scarce or limited. For example,
human beings have limited money, limited resources, limited
time etc. The scarcity of means lead to the economic problems.
If human beings can have all the goods they want freely, there
would no economic problems. Scarcity is relative term not
absolute. For instance, nobody would like to have garbage.
Therefore, it is not scarce. But as soon as people learn to turn
garbage into fertilizer; then people start demanding for it. Then
it becomes scarce.
(iii) Alternative Uses:
Scarce resources have alternative uses. It is not specific to one use
only. Thus, there is problem of making choice of uses of scarce
resources for what to use, when to use and how to use. Again,
alternative uses are of various importances. Some are more urgent
and some can be postponed for future uses. Thus, choice between
ends and scarce resources is the economic problem and subject
matter of economics. Economic problem arises when there is
multiplicity of wants, scarcity of means and alternative uses of
scarce means.
Superiority of Robbins's Definition:
As compared to Marshallian definition, Robbins definition of
economics is superior on the following grounds:
(i)

Scientific in Nature:
It is scientific in nature. It does not classify between material
and non-material.

(ii)

Wider Scope:
It is wider in scope. Because it covers all types of human wants
whether material or non-material. It has not restricted the
study of economics to wealth and activities relating to material
welfare of human beings.
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(iii)

Scientific:
All classical and neo-classical economists regard economics
both as science and art. But according to Robbins's definition
it is mainly science.

(iv)

Neutral as regards to ends:

According to Robbins, economics is neutral as regards to ends.
It does not pass any judgement. For example, economics does
not say anything regarding whether smoking is good or bad. It
doesnt cover ethical subject-matters.
From this point
economics is positive science.

Criticisms:
Robbinss definition has been criticized in the following grounds:
Although Robbins definition is scientific and has wider scope, it is
also not without criticism. It has been criticized in the following
grounds:
(i)

Lack of Value Judgement:

It ignores the motive aspect and value judgement. Economists
are of the opinion that the function of the economists is not
only to explain and explore but also to pass judgement.

(ii)

Narrow in Scope:
Critics have pointed out that economics is not only to study
resources allocation. It is more than that. It does not cover
Keynesian economics. So it does not explain how the level of
income and employment are determined in a country.

(iii)

Does not cover Thesis of Growth:

It does not cover theories of economic growth, which is now an
important branch of economics. Robbins's definition does not
cover the issue of growth. Economists have constantly been
making an effort to widen and broaden the definition of
economics.

Prof. Paul A Samuelson:

Prof. Samuelson has tried to overcome the shortcomings of
Robbins's definition. According to him "Economics is the study of
how men and society choose, with or without the use of money, to
employ scarce productive resources which could have alternative
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uses, to produce various commodities over time and distribute them

for consumption now and in the future among various people and
groups of society".
Samuelson's definition and Robbins's definition of economics are
similar in many aspects. Both of them have laid stress the problem
of scarcity of means in relation to unlimited ends. Scarce means can
also be put into alternative uses.
The main feature of the definition is as follows:
(i)

Dynamics in Nature:
Unlike Robbins, Samuelson studies the problems of economy
not at a point of time but over a period of time. Thus he has
made economics dynamic by introducing the element of time
in it.

(ii)

Improved Existing Resources:

According to Samuelson, man should not simply satisfy with
the means available to him. To satisfy endless wants an
economist has also to suggest ways and means as to how the
existing resources are to be rationally allocated, and how the
means can be further increased to secure maximum
satisfaction of want for better living.

The theory of economic growth has come to occupy an important

place in the study of economics especially with reference to
underdeveloped countries. Developing countries like Nepal, India,
Bangladesh, and many other countries in Africa and South America
need economic growth and economic stability. Because of ever
increasing fields of study, it is also said that 'Economics is what
Economists do'. Thus appropriate and good definition of economics
is one which covers wide fields.
3

Scope of Economics:

Economics has been divided into different areas for its systematic
study, which are closely related to one another. The broad areas of
the study of economics are as follows:
(i)

Consumption:
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It deals with the use of scarce resources for the satisfaction of

human wants. It is the process of using goods or services for
human satisfaction. For instance, the utility of clothes by
wearing it, food by eating and the services of house by living in
it. Consumption is also defined as destruction of utilities of
commodities for human satisfaction. If clothes get useless by
wearing it, it is consumption because it has satisfied the desire
of consumer to wear it. But if the clothes are torn off
accidentally, it is only destruction and not consumption.
(ii)

Production:
Production involves the use of limited resources for the
production of goods, which satisfy human wants. In short, it
means creation of utility in the commodity. Utility here refers
to power of satisfaction, which the commodity poses.

(iii)

Exchange:
It deals with exchange of goods for goods or goods for money.
Exchange takes place both within the country and outside the
country. In order to satisfy unlimited wants of the people, it is
necessary to exchange goods and services. Normally people
barter or sell what they have for the goods and services what
they need.

(iv)

Distribution:
Goods and services are produced with joint effort of land,
labour, capital and organization. Thus, the wealth of the
country which people produce with joint endeavour has to be
distributed among the factors of production in the form of rent,
wage, interest and profit.

(v)

Public Finance:
Classical economists have divided economics into four
divisions only. They are consumption, production, exchange
and distribution. But later on, public finance was also added.
Public finance deals with adjustment between the income and
expenditure of the government.

Economics as Science or Arts:

While discussing the scope of economics, economists have also

discussed whether it is art or science? The term "Science" refers to a
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systematic body of knowledge, which shows the relationship

between cause and effect. Its phenomena are measurable. When
we look at economics from this point of view, it is science.
Economics is systematic body of knowledge.
Economic laws
scientifically establish the relationship between cause and effect. By
using measuring rod of money, economists can measure the
different nature of human beings. Economists notably, Adam Smith,
Ricardo, Malthus and J. M. Keynes assert that economics is science
which seeks to ascertain facts. It studies facts of human life and
formulates laws from them.
According to critics, economics can not be pure science from the
following points of view:
(i)

Different views of definition of economics:

It is said, "Whenever six economists are gathered there are
seven opinions".

(ii)

Exact measurement not possible:

Exact measurement is not possible in economics like in pure
science. Economic Laws cannot be experimented in a
laboratory like in physical science. For economist whole
universe is a laboratory. Laws and thesis are based on many
assumptions. They are very complex and changeable.

Economics as Art:
Arts deal with doing and solving practical problems. For example,
economics does not simply find out the various causes of rapid
population growth but also suggests the measure to control high
population growth rate.
Economics both Art and Science:
In fact, economics is both science and art. Because it tries to find
causes of economic problems and suggests the solutions to
overcome them. For example, it not only finds out the causes of
unemployment but also suggests measures to solve the
unemployment problem.
5
Positive Science and Normative:
A positive science only explains what is it and normative science
tells what it ought to be. Positive science describes while normative
science evaluates. According to classical economists, economics
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should be concerned only with what is and not what ought to be. It
is neutral as regards to ends. Robbins has also supported neutrality
of ends.
According to David Begg, positive economics deals with objective or
scientific explanations of the working of the economy. It explains
how society makes decisions regarding consumption, production
and exchange of goods. Positive economics asks the questions like
what is the economic impact of free trade. It can be compared with
pure science like physics and chemistry.
It establishes causes and effects of an event. A normative science on
the other hand involves ethical judgement. It deals with things, as
they ought to be. It offers recommendations based on personal
value judgements. It includes economic issues like unemployment
benefits, senior citizen allowances, subsidy etc. However, the
prominent economists say that economics can never be
disassociated from ethics.
From this short discussion, it can be concluded that economics is
both a positive and normative science. Thus, economics is not only
concerned in allocation of scarce resources among competitive
wants but also deals with maximization of total satisfaction
according to one's own judgement.
Both positive and normative economics are important. However,
positive economics is more important in formulation of economic
theory. Because positive statements are testable while normative
statements are not.
6
Micro and Macro Economics:
Micro and Macro-economics are the two branches of economics.
They are two important approaches to the economic analysis. Prof.
Ragner Frisch first coined these two terms during the 1920s.
Economists use these two terms widely for economic analysis.
(i)
Micro economics:
Micro-economics deals with the choices and decision-making
behavior of the individual units like individual household,
equilibrium of firm, wages of the workers, profit of the
entrepreneurs etc. In this approach, economists choose small units
and make detailed study of its operation. The main areas of micro
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economics are demand theory, supply theory, law of diminishing

utility, law of equi-marginal utility, consumer's surplus, price
determination under perfect competition, monopoly and imperfect
competition, price determination of factors of production.
Production function and so on. Adam Smith is considered as the
founder of micro-economics.
Micro-economics deals only with individual units and does not
provide explanation of entire economy. What is true of an individual
may not be true in case of the whole economy. For example,
individual saving is virtue but community saving is vice. In other
words, if everybody starts saving, his or her expenditure decreases
and as the result community income decreases.
(ii) Macro-Economics:
Macro-economics deals with the national aggregate such as national
income, output, total consumption, saving, investment, total
employment, total money supply, inflation, deflation, trade cycle etc.
To understand working of an entire economy macro-economic
analysis is necessary. Similarly, knowledge of macro-economics is
indispensable to formulate economic policies. J.M. Keynes made the
term macro-economics popular with the publication of the book
"General Theory of Employment, Interest and Money". In this book
he argued that government has important role in solving the
problem of trade cycle.
Despite great importance of macro-economic analysis, it has certain
limitations too. For example, rising price level does not affect rich
so much as it affects the poor. Such individual consequences of
certain problems cannot be studied in macro analysis. It generalizes
whole problem, which may lead to disastrous results. For example,
the total population between 1991 and 2001 may be the same. But
the age distribution of population may have vast changes. The
number of the old and the children may have increased and the
number of working age people may have decreased that may result
increase in dependency ratio of the country. Thus to analyze
economic situation realistically, only aggregate information is not
sufficient.
Interdependence of Micro and Macro-economics.
In reality micro and macro-economics are inter-dependent. In fact,
they are complementary to each other. Micro-economics studies
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individual units and macro-economics studies an entire economy.

Thus when we study both these approaches side by side, then only
we can have better understanding of the economic problem. In this
respect, Prof. Samuelson writes there is really no opposition
between macro and micro-economics. Both are absolutely vital.
And you are only half-educated if you understand one and unaware
of the other".

Basic Economic Issues

Scarcity and Choice:

Scarcity means shortage. Every society has limited economic

resources like land, capital, labour and entrepreneurship, which are
required for the production of goods and services. Thus every
society can produce only limited goods and services. But human
wants are unlimited. As soon as one want is fulfilled, another want
immediately appears. It never ends. It is not possible to satisfy all
wants with limited means. Human beings are confronted with the
problem of making choices, which wants are to be fulfilled, and
what means are to be allocated among the competing wants. To
solve the problem of unlimited wants and limited means, people
have to make choice and it is the central problem of every society.
If economic means are free and unlimited, there would not be
problems. People need not worry about budgeting their income.
Scarcity is a relative term. It is related to human wants. For instance,
air does not have price; it is not relatively scarce. People can have it
as much as they want. It is free. Food, cloth and houses have price
because they are scarce.
Economic problems arise due to the following reasons:
(i)
Unlimited Wants and Different Importance:
Human wants are unlimited. Once a want is fulfilled, another crops
up in its place. Even if a particular want is fulfilled at a particular
time, after some time it appears again. It is cyclic process. For
instance, when we are thirsty we drink a glass of water and at that
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moment our desire to drink water is fulfilled. But after some time,
we feel thirsty again. Human wants are not only recurring, it
multiplies all the time. For instance, when a rural area is urbanized
the wants of its inhabitants increase. People require to wear nice
clothes and need many other things, which they were not using
before.
(ii) Different Importance of Wants:
All the wants are not of the same importance. Some wants are
urgent and more pressing than the others. For instance, for a
student study is more important than doing any other things during
examinations. Similarly, for a patient, buying medicine is more
important than buying a box of cigarette. Thus, all persons are
required to prioritize their wants in accordance with their
importance. If all human wants are equally important, then there is
no need of making choices and also there would be no economic
problems.
(iii)

Limited means with alternative uses:

This has two aspects:
(a) Limited means:
Means are limited or scarce. For example, family needs food,
shelter, clothes, medicine, entertainment etc. But they have
limited resources, may be it is time or money or other
economic resources. Scarcity is a relative term. It is in relation
to human wants. For example, nobody wants to have garbage
though it is limited. So it cannot be termed as scarce
commodity. But as soon as people learn to turn garbage into
compost fertilizer, and make money, people start collecting
garbage and it becomes economic resources. It applies to all
countries whether it is rich or poor. Even developed countries
face the problem of scarcity, as their wants have been
multiplied as their country became richer. Thus scarcity is
basic problem and universal in nature.
(b) Means can be put into alternative uses:
Although means are limited they can be put into alternative
uses. It is because of this nature, people need to make choices,
which wants to be satisfied first. For instance a piece of land
can be utilized for several purposes, such as farming, building
a house, making a playground etc. Here lies the problem of
choice.
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(iv) Adjustments between wants and means:

All the people are constantly facing the problem of making
adjustment between limited means, which have alternative uses,
and unlimited wants having different importance. This leads to
the problem of choice, which is fundamental economic problem.
It is rightly said that scarcity is mother of all economic problems.
Had there been unlimited means, there would be no economic
problem. But this is not the case, all face the problem of limited
means. People in all countries and in all situations face the
problem of scarcity of resources.
2 Allocation of Resources:
The basic or fundamental economic problem for the society is how
to reconcile the conflict between people's unlimited desire for goods
and services and scarcity of resources to produce goods and
services. Thus society is required to make decisions to use or
allocate limited resources to satisfy unlimited wants. In this respect
problem arises regarding (a) what is to be produced (b) How it is to
be produced (c) for whom to be produced. These are three basic
problems of economics.
(a) What is to be produced?
The major question is what commodities are to be produced and in
what quantities? A society has to make choice between consumption
of goods like food, clothes, furniture etc and capital goods like
machine, equipment etc. Thus, choice has to be made between
consumer goods like clothes, shoes, books etc and weaponry like
machine guns, fighter planes etc. Likewise, choice has to be made
between mass goods and luxury goods. In this way, a country has
to make choices in deciding allocation of scarce resources for the
production of goods and services.
(b) How are goods produced?
Society must decide who will produce what and how? Which kind of
production technique to be applied for production. For example,
food can be produced either with extensive cultivation or intensive
method of cultivation. Similarly, in industry as well there is choice
of technique of labour intensive and capital intensive method of
production. It depends on the decision of firm, household and
society for how goods and services are to be produced? In case of
labour intensive technique less capital and equipment are used and
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more labourers do the work. Whereas, under capital intensive

production method sophisticated machines and technology are used
and machines replace the work of labourers.
c)
For whom to be produced?
Another question is for whom to be produced? This means how is
national product distributed among the members of the society.
How is national dividend distributed? In other words, who gets the
fruits of development and how much?
Goods and services are made available utilizing various factors of
production. Thus major question is how the national income is
distributed among the various factors of production, i.e., land,
labour, capital, and organization. Do the poor enjoy equally with the
rich is the important question? The main difficulty in distribution of
national income is how to ensure equity, justice and incentive. If
national income is distributed equally to all the members of the
society equity is achieved. However, this discourages the people to
produce more and work hard It diminishes National Income and may
fall down living standard of the people.
Thus, these three problems what, how, and for whom are the main
problems of economy. All these problems come under the problem
of allocation of resources.
3
Production Possibility Curve.
Paul A Samuelson rightly remarked that "Society cannot have
everything they want". Resources and technology available to them
limit the availability of goods and services in given time period. Let
us take an imaginary example, a society can produce either 15000
butter or 5000 guns with given resources or technology. In between
these two extreme possibilities, there are many possibilities like A, B,
C, D, E & F as shown in the following table.
Table No.2.1
Production Possibility
Possibilities
A

Guns
0

Butter
15000

1000

14000

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2000

12000

3000

9000

4000

5000

5000

As shown in the above table if all the resources and given

technology are used for the production of guns there would be no
butter. Similarly, if all resources and given technology are used for
the production of butter there is zero production of guns. In
between A and F possibilities, there are B, C, D and E possibilities
which represent some butter and some units of gun. These
possibilities are represented by Production Possibility Frontier (PPF).
According to Paul A. Samuelson, "The Production Possibility Frontier
shows the maximum amount of production that can be obtained by
the economy, given, its technological knowledge and quantity of
inputs available" PPF represents the maximum of goods and services
available to the society " The PPF can be represented in the following
diagram.
The Production Possibility Frontier Curve.
Figure No.2.1
A

Guns
Butter

Butter

Note: Adopted from Paul A. Samuelson Fig.1.2

As shown in the above figure, society has to decide which

combination of guns and butter has to be produced with given
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resources and technology. There is maximum limitation to the

amounts of butter and guns that can be produced with given
resources and technology in a country.
The increase in the
production of guns requires a reduction in the production of butter.
This explains that society has to reduce the production of one
commodity in order to increase the production of other commodity.
In this case, we assume that society can produce only two
commodities. In our example, they are butter and guns. It explains
that butter can be transformed into guns or guns into butter. In
other words land, labour and machine used for butter can be
transformed for the production of gun. Thus, the production of one
commodity can be transformed into production of another
commodity. The production possibility curve is also known as
Transformation Curve.
Shift in the production possibility curve:
The rightward shift in the production possibility curve indicates the
increase in the production capacity of the economy due to
improvement in technology or new resources or both. The new
curve shows how economy can produce larger quantity of both
butter and guns or more butter and the same number of guns, or
vice versa. Rightward shift in PPC can be represented in the
following diagram.
Figure No.2.2.

Guns

Butter
In this diagram as compared to PP in P P both butter and guns can
be produced more. Thus PPF explains how the economy grows.

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PART A:3
3

NATIONAL INCOME

1
MEANING OF NATIONAL INCOME:
The term National Income is used to denote money value of the
aggregate production of goods and services of a country during a
specific period, usually one-year. It is used inter changeably with
National dividend, National output and National expenditure.
National income has been defined in a number of ways. According
to Marshall " the labour and capital of a country acting in its natural
resources produce annually a certain net aggregate of commodities,
material and immaterial including services of all kinds. This is the
true net annual income or revenue of the country or national
dividend". In this definition, the word "net" means the deduction
from the gross national income in respect of depreciation and
wearing out of machine. Income from abroad is added in the net
income. This definition is very simple and comprehensive. However,
it has certain defects also. Firstly, it is very difficult to estimate
correctly all the goods and services produced. Secondly, there may
be problem of double counting. In the words of A. C. Pigou, the
follower of Marshall" National income is that part of objective
income of the community including of course income derived from
abroad which can be measured in money". A. C. Pigou's definition is
simple and precise. But it has also some defects. The first problem
in Pigou's definition is making distinction between goods, which can
be exchanged for money and which is not exchanged for money.
According to A. C. Pigou, a woman's service as teacher in school is
included in National Income but excluded when she teaches her
children. This creates the problem of estimation of National Income.
Another prominent economist Irving Fisher adopted "Consumption"
as the basis of national income, whereas, Marshall and Pigou have
based their definition in "Production". According to Fisher "The
national dividend or income consists solely of services as received
by ultimate consumer whether from their materials or from their
human involvement". But from the practical point of view, this
definition is less useful as there are difficulties in getting monetary
value of net consumption. Besides, certain consumption goods are
durable and last for many years like furniture, television set etc.
The above definitions are regarded as traditional. From the modern
point of view, Simon Kuzunets has defined national income as "the
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net output of commodities and services flowing during the year

from the country's productive system in the hands of ultimate
consumers".
The National Income accounting was first introduced in England in
1676. It was based on the book "Political Arithmetics" written by
William Petty. It was continuously developed in 1815 and 19th
century. By 20th century, it was properly developed. After the
Second World War "Simond Kuznets" developed national accounting
systematically.
Irrespective of continuous improvement in National Income,
Women's contribution in household economy is still excluded in
National Income Accounting. This is a great injustice to women.
2 Concepts of National Income
Gross Domestic Product (GDP):
It is the value of final goods and services produced within the
country in a particular year. Goods and services produced include all
types of agricultural, industrial and commercial goods. It can be
calculated both at the market price and factor cost. GDP is
calculated as follows:
GDP at market price = Market price of goods produced + market
price of service produced.
It can be expressed in term of formula as GDP = P (Q) + P (S)
where P = Market price
Q = Quantity of goods produced during the year.
S = Service.
While calculating GDP in accordance with the above formula, the
quantity of every individual goods and services are multiplied by
their price per unit. The total value of the entire individual goods
and services is Gross Domestic Product.
GROSS NATIONAL PRODUCT (GNP):
GNP is the total of the flow of goods and services at the market
value resulting from current production during a year in a country,
including net income from abroad. GNP includes four types of goods
and services. They are (1) Consumer Goods and services to satisfy
the immediate wants of people (2) Gross Private Domestic
Investment in capital goods consisting of fixed capital formation
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residential construction and inventories of finished and unfinished

goods (3) goods and services produced by the government and (4)
export of goods and services i.e. net export of goods and services.
GNP is expressed as
GNP = GDP + (X - M)
Where X - M means net income from abroad or exports minus
imports.
Among the different concepts of national income, GNP is the most
widely used. In computing GNP following considerations are made.
Firstly, to get market value (value in terms of Dollar or Rupees) of
goods and services, it is necessary to group goods and services
produced in a given year with a common denominator like
agriculture, industry, services etc. Secondly, only final goods are to
be included. Thirdly, GNP includes only monetary transaction and
not pure exchange transaction i.e. sale of second hand goods and
gifts etc. Lastly, it includes only flow variable not stock variable.
NET NATIONAL PRODUCT (NNP):
GNP includes the value of total output of consumption goods and
investment goods. During production some fixed equipments wear
out, components are damaged and some became obsolete through
technological changes. All these processes are termed depreciation.
In order to get NNP; we deduct depreciation from GNP.
So NNP = GNP - Depreciation.
NATIONAL INCOME AT FACTOR COST OR NATIONAL INCOME (NI):
In this method, National Income is calculated on the basis of cost
factors of production i.e. rent, wage, interest and profit. The
National Income is expressed as
National Income = NNP + subsidies - Indirect Taxes. The concept of
NI is useful to know distribution of National Income among different
factors of production.
National Income =NNP + subsidies Indirect Taxes.
PERSONAL INCOME (PI):
Personal Income is the income received by individual of a country
from all sources before direct tax in one year. It should not be taken
that all personal incomes will be national income. This is due to the
fact that income earned by firms is distributed among factors. A
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part of the income is retained as undistributed profit. Firms also

pay corporate taxes. Factors also receive transfer income.
Thus Personal Income = National Income - corporate taxes undistributed corporate profits - social security contribution +
Transfer payments.
The concept of Personal Income is useful to assess purchasing
power of households in an economy. It is also helpful to measure
welfare of the people.
DISPOSABLE INCOME (DI):
All Personal Income (PI) is not available for consumption. A part of
the income has to be paid to the government as personal direct
taxes such as income tax, wealth tax, estate duty etc. Thus after
paying all direct taxes from the Personal Income, the remaining
income is known as Disposable Income.
Therefore, Disposable Income = Personal Income - Direct Taxes.
REAL INCOME:
The Real Income (in terms of goods and services) is the National
Income expressed in terms of general level of prices of a particular
year taken at base. It can be calculated by dividing money income by
a suitable index of prices.
PER CAPITA INCOME:
The average income of the people of a country in a particular year is
called Per-Capita Income for that year. Per-Capita Income is
calculated as follows:
National Income for 2000
Per
Capita
Income
for
2000
--------------------------------Population in 2000

The concept of Per-Capita Income is widely used in economic

discussion and writing. It is used to compare the state of economic
development and as an index of changes in the standard of living in
a country.
3.METHODS OF CALCULATION OF NATIONAL INCOME:
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National Income is calculated with the help of following methods:

(1) Product Method:
Under this method the total value of final goods and services
produced in a country during a year is calculated at market prices.
To get the GNP, the data of all productive activities such as
agricultural products, industrial products, forest products,
contribution made by transport, communication, insurance
companies, lawyers, doctors, teachers etc are assessed at market
price. To avoid double counting, all intermediate goods are
excluded. Similarly, depreciation of replacement cost is also
excluded. But new capital assets produced during the period under
consideration are included. Product Method is also known as
census of output method or value added method.
(2) Income Method:
Under this method, the net income received by individuals and
business enterprises in a country during a year is collected and
added up. The total obtained is called the factor payments total. In
order to get factor payment total, necessary data are collected from
government reports and tax returns and government reports.
Income includes wage, salary, social security, contribution of
workers, earning of self employed persons, dividends of
shareholders, undistributed profit, rent of land, factories and
business premises and interest on capital. While calculating National
Income by Income Method following precaution must be taken:
(a) Only the net income of the individual and enterprises are
taken.
(b)Transfer payments is not counted as income.
(c) Payments due to the employer own factors e.g. own house,
capital and labour are counted on the basis of market price.
(d)Goods and services for which no money payment is made
must not be counted. For example work of housewives and
children's help to parents.
EXPENDITURE METHOD:
Under this method, the total expenditure made by the society in a
particular year is added together and includes personal
consumption expenditure, net domestic investment, and
government expenditure on goods and services and net foreign
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investment. While estimating the value of expenditure certain

precautions should be made. They are as follows:
(a)Expenditure on the second hand goods should not be included.
(b)Expenditure on shares, debentures, bonds and securities should
not be included,
because they represent only paper titles.
(c)Transfer payments by the government should not be included like
pension,
scholarship, unemployment allowances, and old age allowances.
Expenditure on final goods and services only should be included.
Expenditure on raw materials and intermediate goods should not be
included.
The three methods stated give the same result. The
comes only as regards to a level at which the national
calculated or non-availability of statistics or overlooking
items. Otherwise income, expenditure and output are
thing looking from three different angles.

difference
income is
of certain
the same

4.DIFFICULTIES OF MEASUREMENT OF NATIONAL INCOME.

There are certain difficulties in the measurement of National Income.
They are as follows:
(a)The National Income must be calculated in terms of money. But
there are certain things, which are not exchanged for money. For
example, unpaid service of housewives. Thus exclusion of this type
of services involves an underestimation of the National Income. In
many countries, though women contribute a lot to GNP, they are not
reflected in GNP due to this conventional measurement of GNP.
(b)Incomes made by illegal activities are not included in the National
Income such as gambling, smuggling, bribery etc.
(c) Sometimes it is difficult to make distinction between final product
and an intermediate product. In this case, it is difficult to
measure National Income.

Babasab patil notes

(d)In many developing countries, tax evasion is rampant. This leads

to underestimation of National Income.
(e)In developing countries, statistics are not always accurate and
complete. This makes difficult to compute National Income
correctly.
(f) In order to compare National Income of different years,
adjustment has to be made for changes in price on the basis of
index numbers. However, index numbers are not always accurate.
Besides it is very difficult to compare index numbers of different
countries precisely.
(g)National Income does not reflect real cost of production.
Apart from the above difficulties, under developed countries face
many other problems also. They are, e.g. lack of reliable data,
absence of proper accounts, difficulty in estimating output,
unorganized production, lack of proper classification of production,
existence of barter economy etc.
5.USES OF NATIONAL INCOME:
(a)Other things remaining the same, economic welfare is greater if
National Income is high.
(b) Higher National Income is generally associated with higher
standard of living.
(c) National Income shows the trend of economic development.
(d) The analysis of National Income statistics reflects the causes of
economic ills of country. It also helps to suggest measures.
(e) National Income determines saving and investment level of the
community. Thus it is used to assess the saving and investment
potentiality of the community.
(f) National Income is also used to forecast future economic events.
(h)National Income is also used to compare the economy of the
country in two different periods.
4 CONCEPTS OF ECONOMIC DEVELOPMENT
1. CONCEPTS AND MEANING OF ECONOMIC DEVELOPMENT:
Economic development has attracted attention of many economists.
The history of concepts of economic development can be traced
from Adam Smith, Karl Mark, J. M. Keynes etc. All of them have
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discussed it in their works. Up to 1930s emphasis of economic

development was given only to the developed countries. After the
Second World War, economists started systematic study of the
problems and process of economic development in developing
countries of Africa, Asia and Latin America. In the process of study,
the main concern of developed and wealthy nations is to maintain
high rate of their economic growth and save it from adverse effects
of trade cycle. Similarly, the main concern of developing countries
is to reduce inequalities of income and wealth, to reduce poverty
levels and to achieve rapid economic development.
Different economists have expressed their different views regarding
the concept of economic development. According to Joseph
Schumpeter, "No simple answer is feasible. Defining economic
development is a difficult task. The literal meaning of development
is a passage from a lower to higher stage. In general, economic
development implies an improvement in material terms, that is in
terms of goods and services that are available to the people."
According to the Development Economists Prof. Meier and Baldwin
"Economic development is a process whereby an economy's real
national income increases over a long period of time". Similarly,
another developmental economist M.P. Todaro has defined
economic development as a multidimensional process involving
major changes in social structure, popular attitudes and national
institutions, as well as the acceleration of economic growth, the
reduction of inequality and eradication of absolute poverty.
The meaning of economic development and economic growth is not
the same, though, they look alike. Economic growth refers to the
increase in GNP or per capita income. The growth is measurable like
expansion in labour force, in capital, in saving and consumption
while economic development refers to the underlying determinants
of economic growth, such as changes in techniques of production,
social attitudes and institutions. In short, economic development
refers to the problems of under developed countries and economic
growth to those of advanced countries.
2. INDICATORS OF ECONOMIC DEVELOPMENT.
The meaning of economic development is very wide and it is getting
more and more precise with the passage of time. The widely
accepted indicators of economic development are as follows;
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a) Real National Income as an Index of Development:

Development Economist Simon Kuznets, Meier and Baldwin have
used national income as an index of economic development. The
"Real National Income" refers to the country's total output of final
goods and services in real terms rather than in monetary terms.
But this indicator has certain inherent problems like changes in
value of money and growth of population. For example, if rate of
population growth is higher than the rate of increase in Real
National Income, economic development retards instead of
advancement.
b) Increase in Per Capita Real Income:
Another index of economic development is the use of rates of
growth in per capita GNP. Prior to the 1970s development was
assessed on the basis of per capita income. Development
strategies have therefore focussed on rapid industrialization at
the cost of agriculture and rural development. Social indicators
like improvement in literacy rate, health condition and housing
are given only casual importance. Similarly, the problems of
unemployment and inequality of income are given only secondary
importance. Thus, many countries witnessed falling standard of
living of masses irrespective of increase in per capita income.
Besides, few rich people instead of sharing it with the poor enjoy
the fruits of development.
c) The Modern View On Economic Development:
During 1970s economic development was redefined in terms of
the reduction or elimination of poverty, inequality and
unemployment along with increase in GDP. "Redistribution from
Growth" became the common-slogan. Even the World Bank, which
used to emphasize economic growth as a goal of development
during 80s, shifted its emphasis to a better quality of life. M. P.
Todaro, a development economist writes, "Development must
therefore be conceived of as a multi-dimensional process
involving major changes in social structures, popular attitudes,
and national institutions, as well as the acceleration of economic
growth, the reduction of inequality, and the eradication of
poverty."
Three-core values of development are:
(a)Sustenance (b) Self esteem (c) and Freedom from servitude.
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(a)Sustenance:
Sustenance means ability to meet the basic needs such as food,
housing, clothing, primary education, health care etc. Most of the
people in developing countries are not capable of fulfilling their
basic needs due to poverty.
(b)Self-esteem:
It refers to the feeling of self-respect and independence. However,
most of developing countries are dependent economically and
technologically on advanced countries due to the poverty and low
literacy rate.
(c)Freedom from Servitude:
"Freedom here is to be understood in the sense of emancipation
from alienating material conditions of life and from social
servitude to nature, ignorance, other people, misery, institutions
and dogmatic beliefs" M. P. Todaro. Freedom from servitude
refers to ability and freedom of the people to choose greater
leisure, have more goods and services and also lead a religious
life if people want.
Therefore, the three main objectives of development are:
(a)To increase the availability and widen basic needs of the
people like food, shelter, health and protection.
(b)To raise standard of living. This means raising income,
providing more jobs, better education and greater attention to
cultural and humanistic values.
(c) Expand the range of economic and social choices. It means to
free oneself from ignorance, human misery and servitude
3. HUMAN DEVELOPMENT INDEX:
The United Nations Development Programme put forward Human
Development Index in its annual Human Development Report 1990.
Mahbub ul Haq is the pioneer of introducing this concept.
The Human Development Index (HDI) has been made from three
aspects of human development. They are life expectancy at birth,
adult literacy and GDP per head. HDI ranks each country from 0
scale to 1 on the basis criterion of development. The HDI classifies
the countries into three groups by using three criterion of
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development - low human development from 0.0 to 0.50, medium

human development from 0.51 to 0.79 and high human
development from 0.80 to 1.0. The HDI for Nepal is 0.48 in 1999
and in 2000 it is 0.466. In 1990 HDI for Nepal was 0.414.
Following table shows the Basic Human Development Indicator for
SAARC Countries.
Table No.4.1
Basic Human Development Indicator in SAARC Countries
Countries
Life
Adult
GNP
per HDI
expectancy literacy
capita US$,
at
birth rate
(%) 1999
(year 1990) 1999
Bangladesh 59
40.8
370
0.47
Bhutan
62
42
510
0.735
India
63
56.5
440
0.571
Maldives
65
96.2
1200
0.739
Nepal
58
40.4
220
0.48
Pakistan
65
45
470
0.498
Sri Lanka
74
91.4
820
0.735
Source: Human Development in South Asia, 2001.
Economists agree that HDI is dependable and considered as a most
recent medium for measuring economic development of countries.
The HDI evaluates economic development both from economic and
social aspects. It emphasizes the need of investment in social
aspects like, education and health in order to achieve higher level of
economic development.
4.CHARACTERISTICS OF DEVELOPED AND DEVELOPING COUNTRIES.
Countries can be classified into developed and developing countries.
Countries having high GNP per capita, higher living standard of the
people, higher life expectancy and higher quality of education and
knowledge are grouped under the category of developed countries.
United States of America, Japan, Switzerland and western European
countries are examples.
The main characteristics of develped countries are as follows;
(a)High Development of Industrial and Service Sector:
Main sources of national income in developed countries are
industry and service sector. Agriculture is subsidiary income of
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the people. But agriculture is also highly capital intensive. Capital

plays dominant role in production.
(b) Large Scale Production:
Mechanization is adopted in production. Goods are produced in
large scales for export. Specialization and division of labour are
introduced for improving quality of the products. All the goods
are produced to make high profit.
(c)Technological Advancement:
Goods are produced using advanced software technologies.
This makes possible to produce quality product at cheaper price.
(d)High Growth Rate of National Income:
Developed countries enjoy high growth rate of National Income
and per capita income due to development in industrial sector.
(e)High Level of Literacy.
The adult literacy rate is quite high in developed countries. More
than 90 per cent of adult are literate.
Characteristics of Developing Countries.
Under developed countries or developing countries or least
developed countries are one, which have lower standard of living.
According to the United Nations, an under - developed country is
one in which per capita real income is much lower when compared
with the per capita incomes of the USA, Canada, Australia and
Western Europe. But this definition considers only one aspect of
under development. Low level of living standard, absolute poverty,
low per capita income, low consumption level, low level of use of
technology, poor health service, occurrence of high birth rate and
high death rates are some of the characteristics of developing
countries. The countries having per capita income of less than
US$5000 are grouped under developing countries.
The main characteristics of developing countries are as follows:
(a)General Poverty:
Underdeveloped countries are characterized by low per capita
income. Based on per capita GNP, the World Bank has classified
countries as low income, middle income and high-income
countries. The countries having income of US$785 or less are
classified as low-income countries. The countries having income
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of US$785-9,655 are classified as middle income countries. The

high-income countries enjoy income of $9,656 or more. Nepal
falls under low-income category. Most of low-income countries
lie in Asia and Africa. In SAARC region India, Pakistan,
Bangladesh, Nepal and Bhutan fall in low-income category.
(b)Under Utilization of Natural Resources:
Most of the underdeveloped countries are unable to utilize their
available resources.
In under developed countries available
natural resources are either unutilized or underutilized.
Many of the under developed countries have rich natural
resources like land, water, forest, mineral etc. To utilize these
resources, under developed countries do not possess necessary
capital, manpower and infrastructure and technology. For
example, Nepal is rich in water resources. Similarly many African
countries are very rich in mineral resources like, iron, copper, tin,
bauxite and gold. South America has vast forest resources. Thus,
under developed countries have natural resources but they are
unutilized and some times mis-utilized.
In Nepal, one of the causes of mis-utilization of resources is due
to lack of good governance. Nepal Human Development Report
2001 indicates that the persistence of poverty and the crisis in
good governance are the major dominant concern of Nepal.
(c)Lack of Capital:
Underdeveloped countries are characterized as "capital poor"
countries. In these countries not only present capital stock is poor
but also the current rate of capital formation is very low. People
have low capacity to save due to low level of income. In most under
developed countries gross investment is only 5 - 6 per cent of gross
national income.
(d)Demographic Features:
Rapid population growth is one of the common features of all
developing countries. In all countries, death rate is declining due to
modern medical facilities but birth rate is not falling. The birth rate
in developing countries is approximately 40 per thousand. Thus
even if these countries increase GNP to some extent; they are not
sufficient to feed increasing population. Lack of female education,
employment, easy access to family planning and traditional value of
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society are responsible for high natural growth of population. One

of the implications of the high population growth is increase in the
number of young age dependent population.
The working
population is required to support the children, which decreases
saving and investment for capital formation.
(e)Under Employment and Disguise Unemployment:
Under developed countries suffer from the problem of
under-employment
and
disguise
unemployment.
As
non-agricultural employment is limited people remain unemployed
during off-seasons. Even if people are working they do not get
sufficient work to increase productivity. Excessive pressure of
population results in disguise unemployment.
(f)Dualistic Economy:
One of the features of underdeveloped economy is dualistic
economy. This means that market economy and subsistence
economy exist side by side. The developed market economy is
found in urban areas and rural areas are characterized by
subsistence economy. In urban areas, handful of the people enjoys
all modern facilities like cellular phone, car, houses etc. Their life
style is lavish. In rural areas, people are living with bare minimum
necessities of life. In some underdeveloped countries, foreign
companies are utilizing valuable natural resources of the country
and enjoying the major portion of profit from it. On the contrary,
the native are given minimum wage for their labour.
These
companies make huge profit, which are taken to their own country.
They contribute very little to the development of underdeveloped
countries.
(g)Absence of Entrepreneurship:
In developing countries people have very little means to develop
their hidden talent of entrepreneurship. Low level of literacy,
ineffective government policies, lack of market, lack of
infrastructure, limited resources, social rigidities and lack of security
are responsible for hesitation of people to undertake new initiative
and venture in entrepreneurship. Only small group of people
engage in trading and industry including service industry and
financial sector.
In Singapore and Indonesia, however, immigrant
people from under developed countries have contributed in the
economic development of these countries. For instance Chinese
immigrants in Singapore and Indonesia have played crucial role in
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economic development of the country. Similarly, Indian immigrants

have contributed economic development of Burma, West Indies and
Sri Lanka.
(h)Lack of Infrastructure:
Lack of physical infrastructure is common feature of
underdeveloped countries. The infrastructure like road, electricity,
irrigation net work, bridge, drinking water, hospitals/health posts,
communication, and financial institutions etc are the pre-requisite
for economic development.
Mobility of people and goods has been hampered by the absence of
quick transport and communication. Similarly, necessary capital for
investments is not easily available. People have to depend on
traditional sources of borrowing. People's health condition is poor
due to lack of easy access of health care.
(i)Technological Backwardness:
The under developed countries rely on primitive methods of
production, which takes more efforts and less production. Their
technological backwardness is reflected in high average cost of
production, poor quality of product, low productivity of labour and
capital. Limited availability of capital, illiteracy, lack of skilled
manpower and research are responsible for technological
backwardness. These countries depend on imported technology,
which in many cases are not suitable for the country.
(j)Economic Backwardness:
The low labour efficiency is another feature of under developed
countries. Due to the illiteracy, poor health, lack of training and
specialization, people earn very little from their hard work. There is
also occupational immobility of labour due to caste system. In
many countries caste system has been abolished. But in rural areas
still occupation is classified on the basis of caste.
Another problem of under developed countries is exploitation of
children and women labourers. Though child labour is illegal and it
exist extensively in various industries, mining, restaurants and
domestic works. Prevalence of low status of women in the society is
another problem. Women are discriminated in work and wage. Equal
wage for equal work remains only in the law. This problem is more
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widespread in private sector. Strict implementation of law is lacking

in many cases.
(J)Lack of Dignity of Labour:
Another problem of underdeveloped countries is lack of dignity of
labour. The white-collar jobs are given undue importance in
comparison to labour oriented jobs. The civil employee enjoys many
privileges and prestige. Manual workers are looked down even if
they contribute a lot in national economy. Agriculture labourers in
Nepal toil under scorching heat and rain to produce different
agricultural products and contribute to national income and feed the
people. However, their labour is not given so much importance as
white-collar jobs. Traditional values and social structure are
responsible for this.
(k) Excessive Dependence on Agriculture:
The main occupation of the people in developing countries is
agriculture. A large number of people between 70 to 90 per cent of
total population derive their livelihood from agriculture. Due to
sluggish growth of non-agricultural sector, people are forced to
work in agriculture even if they get meager return. Most of farmers
are operating on subsistence farming forcing them to be in the
vicious circle of poverty. As family members have no alternative
jobs, people are forced to carry agricultural operation. This has
resulted sub-division and fragmentation of land holding. The small
size of land holding again obstructs the use of modern farming
machinery, which is essential to improve productivity of land.
(l)Political Factor:
The underdeveloped countries are also trapped in party politics. The
political parties instead of working for the benefit of the people may
engage in mis-utilization of power for personal benefit. Corruption,
lack of transparency in government work, lack of justice, slackness
in implementation of law and order, insecurity of life and wealth,
mis-appropriation of country's resources are responsible for despair
and frustration among the people. Lack of people's participation in
decision making which shape their lives lead to failure of the system.
Political instability is the major cause of economic backwardness in
many underdeveloped countries. For instance, Tamil problem in Sri
Lanka, Maoist problem in Nepal, occasional communal violence in
India, Indonesia, have disrupted and retarded economic growth of
these countries
Babasab patil notes

PART B: NEPALI ECONOMY

5. INTRODUCTION
1.Geographical Feature
Geographical Location and Area:
Location:
Nepal is located between 26 22' north and 30 27' north latitude and 80 4'
east to 88 12 east longitude.
Border:
The boundaries of Nepal are Tibetan Territory of China in the North, the Indian
States of Sikkim and West Bengal in the East, Uttar Pradesh and Bihar State in
the South and Uttar Pradesh in the West.
Size:
The total area of the country is 147,181 sq. km. The average length of the
country is 885 km stretched East to West. The width of the country is not
uniform. Mean width is 193 km North to South.
Physical Feature:
Ecologically it can be divided into three major divisions ascending from south to
north. They are the Tarai plains, the Hills and the Mountains.
(a) Tarai Region:
The broad belt of low and flat land stretching East to West (Mechi to Mahakali)
in the southern part of Nepal is called Tarai. It has been formed out of fine and
fertile soil brought down and deposited by the rivers flowing from the north. It
is 25 to 32 km broad. The region comprises 25 per cent of the total land area.
This region is also called greenery of Nepal, because it has 40 per cent of
cultivable land. Wide varieties of crops such as paddy, maize, wheat, sugarcane,
vegetables, tobacco, tropical fruits are grown in the region. Around 46.7 per
cent of the population live in this region. As this region is most suitable for
cultivation and open to Indian border, the population of the region is increasing
at a very fast rate. This region is densely populated.
(b) Hilly Regions:
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It is the region lying between the Himalayas and Tarai.

The altitude of this

region varies from 610 meters to 4877 metres above the sea level. It consists of
Mahabharat Mountain Range, Churia Hills and river basins. The Kathmandu and
Pokhara valleys lie in midland region. The Churia range extends upto Koshi
River. This range is also known as Siwalik range.
The altitude of the Mahabharat range varies from 1500 meter to 3000 meter
high. Most of areas are covered by forest. It is also the biggest physical region.
It covers 42 per cent of land area. About one tenth of land is suitable for
cultivation. In fact, before the construction of concrete houses, there was much
fertile land where cultivation of cereal crops, cash crops and vegetables were
grown particularly in Kathmandu valley. Now most of the fertile land has been
used for construction of office building or residential houses.
(c) Mountain Region:
It occurs in the northern part of Nepal. The altitude ranges between 4,877
meters to 8848 meters above the sea level. It covers 25 per cent of land area.
A large number of peaks and mountains lie in this region including the highest
peak on the Earth "Sagarmatha" (Mt. Everest). The other notable peaks are
Kanchanjungha

(Third

highest),

Makalu,

Ganesh,

Gaurishanker,

Lhotse,

Dhaulagiri, Annapurna, Cho Oyu etc. Similarly, some of the main Himalayan
ranges like Kumbhakarna, Mahalangoor, Rolwaling, Ganesh, Annapurna,
Dhaulagiri etc, are situated in this region. The mountains over 5000 meters is
snow covered. The big glaciers and big rivers originate from this region.
Approximately 2 per cent of land are suitable for cultivation and about 7.3 per
cent of population inhabit in the region.
There are many well-known peaks in the region and people come from
different parts of the world for mountaineering and trekking. The region has
great potential for adventure tourism, particularly mountaineering.
2. Rivers, Lakes and Glaciers:
(a) Rivers
Being mountainous country, there are many rivers and streams originating in
the Himalayan region. Most of them are flowing from North to South.
Babasab patil notes

The

Koshi River in the East is the longest and biggest, formed out of seven
tributaries namely Arun, Tamor, Sunkosi, Dudhkosi, Tamakosi, Likhukosi and
Indrawati. The Gandaki River in the middle of the country also is with seven
tributaries namely Trisuli, Burigandaki, Marsyangdi, Seti, Daraundi, Kaligandaki
and Modi. The Karnali River in the west formed with five tributaries namely
Mugu Karnali, Humla Karnali, Bheri, Seti and Tila.

The Karnali River is the

second largest and longest river.

The rivers in Churia range depend on monsoon rainfall and are mostly dry in
winter. Tilawe, Sirsia, Bagari Mohana, Balan, Ratu are some of monsoon fed
rivers. The rivers originating from Mahabharat range depends on spring and
rainwater. The Bagmati, Mechi, Mahakali, Kankai, Kamala, Rapati, Tinau, Babai
are main rivers which originate from Mahabharat range.
(b).Lakes:
There are many beautiful lakes. The most famous lakes are Rara (biggest) in
Mugu District, Phewa, Begnas, Rupa in Pokhara valley, Phoksundo in Dolpo,
Satyawati in Palpa and Tilicho in Manang.

The Gosaikund, Suryakund,

Bhairavkund are religiously famous lakes of Nepal.

(c) Glaciers:
The huge masses of ice moving along mountain valley are known as glaciers.
Most of them are located in the eastern Himalaya. The biggest is Khumbu
glacier in Mahalangur Himalaya. The Langtang glacier of Langtang Himal is the
largest one.

3. Climate:
Nepal has monsoon type of climate. But, being a mountainous country, the
climatic condition differs from one part to another, generally on the basis of
altitude - higher the altitude cooler the climate. There are three main seasons
in Nepal.
(a) Summer:
March to July is summer season, which is characterized by high temperature. In
Tarai, temperature exceeds 30
in altitude.

C. Temperature decreases along with increase

Days are sunny, windy and dusty.

frequently originate in this season.

Babasab patil notes

Because of heat, storms

(b) Rainy:
June - September is rainy season. Monsoon blows from southeast direction and
brings rain to the country.

The southern slopes of Mahabharat and Churia

ranges in eastern Nepal receive heavy rainfall of over 200 cm. The Pokhara
valley receives the highest amount of rainfall (over 300 cm) and Himalayan
ranges get less than 50cm, which is mostly in the form of snow.
(c) Winter:
October to February is the winter season. The temperature gets very low and it
becomes cold in most of the areas of the country. The temperature in Tarai
belt is about 15 C and Himalayan region far below 0 C. Morning is foggy or
frosty. The western wind brings some rainfall, which decreases from west
towards east. Heavy snowfall takes place in high mountains.
Types of climate:
There are five types of climates in Nepal.
(a) Sub-tropical Monsoon Climate:
In the Tarai and upto the altitude of 1200m, climate is very hot during summer
and cold in winter. Rainfall varies between 170cm in the east and 100cm in the
west.
(b) Temperate Monsoon Climate:
Between 1200 to 2100 m of altitude, the climate is moderately hot during
summer and cooler during winter. The rain varies from 200cm to 100cm. This
is most pleasant climate.
(c) Cool Temperate Climate:
Warm in summer and cold in winter.

The average rainfall is about 150cm,

which occurs more in east and less in the west.

(d) Alpine Climate:
The lower part of Himalayan region between 3300m and 5000m of altitude has
alpine climate, which is slightly warm in summer and winter is very cold. The
rainfall varies from 50cm to 100cm and sometime snowfall.
(e) Tundra Climate:

Babasab patil notes

Above 5000m the climate is very cold round the year. The precipitation is low
and is in the form of snow. Snowstorms in the afternoon are very frequent in
many parts of the country having this climate.

4. Characteristics of Nepali Economy.

Nepal is one of the least developed countries in the world. The main features
of Nepali

economy are widespread poverty, low human

development,

under-utilization of resources, ineffective administration, corruption, lack of

security and low status of women and girls. The main charac0teristics of Nepali
economy are as follows;

Geographical Characteristic.
(a) Unfavourable Physical Feature:
Nepal is a mountainous country.

Nearly 83 per cent of land is hilly and

mountainous terrain. Ecologically, the country is divided into three regions; the
Mountain region, Hill region and Tarai region.

In the mountain regions,

development of transport and communication is very difficult and expensive.

Thus, many VDCs still lack basic facilities like health, drinking water, electricity
and communication. Besides, in almost every rainy season villages suffer from
natural disaster like landslides and flash flood. Being landlocked country, Nepal
has to depend on India to get access to sea which sometimes face difficulty due
to disagreement in transit problem between the two countries. Except in Tarai
region river transportation is not possible in mountain region due to fast
flowing rivers. Nepal is rich in varieties of vegetation due to its varied climate
across the country. People from different parts of the world can easily adjust in
Nepal. Similarly different types of crops can be cultivated in various parts of the
country.
(b) Under-utilization and Misutilization of Natural Resources.
The main natural resources of the country are fertile soil, water and mineral
resources.

Proper utilization of valuable and rare herbs is lacking due to

absence of effective policy.

Rampant smuggling of forest products is

widespread in many parts of the country. Similarly, Nepal is very rich in water
Babasab patil notes

resources but is not being able to harness it for the economic development.
Likewise, mineral resources is also not properly explored and exploited due to
lack of effective policy. As for soil, indiscriminate use of chemical fertilizer has
spoiled its quality much to the distress of farmers in many parts of the country.
Economic Characteristics:
The economic characteristics include poverty, investment, saving, agriculture,
industry, trade and technology etc.

(a) Human Poverty:

The Human Poverty refers to lack of capabilities, lack of political stability,
inability to participate in decision-making, lack of personal security and
inability to participate in the life of a community. Poverty is wide spread in
Nepal. The per capita income is only $210. About 42 per cent of people live
below the poverty line. Most of the people are very poor and can not even get
basic necessities of life.

The Household Survey in 1976/77, Multipurpose

Household Budget Survey in 1984/85, Nepal Rural Credit Survey in 1991, and
Nepal Living Standard Survey in 1995/96 revealed the increase of poverty from
33 per cent in 1977 to 42 per cent in 1995/96.

The Global Human

Development Report 2004 estimated Human Poverty Index (HPI) for Nepal at

44.2 and Nepal ranked 69 position out of 95 developing countries. Human

Poverty Index in rural areas is 41.4 whereas for urban areas it is only 23.9. The
Mid and Far Western Development Regions are characterized by high population,
low income and ?????? ,
(b) Dependence on Agriculture:
The agriculture is main basis of Nepali economy. Nearly 40 per cent of Gross
Domestic Product is contributed by agriculture sector. Similarly 60 per cent of
economically active people depend on agriculture. Among them 40 per cent are
female.

The women in rural Nepal are intimately involved in agricultural

production process. Although women participate extensively in agricultural

production but their productivity, however, remains constrained in several ways.
Women have limited access to information, credit and complementary services
than men.

Agricultural policy has not taken appropriate consideration of

Babasab patil notes

women's special needs and concerns.

Besides, the necessary inputs are

required for the improvement of agriculture which is not available to all farmers.
The farmers are facing problems of not only inputs but also market for output.
The competition with imported agricultural products is depriving farmers to get
their due price in the market.
(c) Adverse Balance of Trade:
The trade is important to import necessary material for economic development
and

export

Nepali

products

for

earning

foreign

exchange.

Lack

of

diversification in exportable products and continuously increasing volume of

import is creating problems of adverse balance of trade. Nepal's main items of
export are carpet, ready-made garments, handicrafts, wool and woolen
products, silver products and paper products. The export of these products is
not increasing due to several problems associated with the trade policy. The
export of traditional agricultural products is also declining due to low
production and quality.
(d) Low Level of Investment:
Due to low per capita income and wide spread poverty both saving and
investment is very low.

During the period of 1995 - 99, the economy has

slowed down with compare to early nineties.

Political instability, frequent

changes in government, Maoist problem and rampant corruption in all fields led
to slower GDP growth of per capita income, government revenue, expenditure,
investment and saving. The average annual national saving was recorded at
16.5 percent at the end of the Ninth Plan, which is more than the target rate of
16.1 percent. The growth in national saving mainly was due to the foreign
employment. The average annual growth rate of investment in the same plan
period was recorded at 3.5 percent as against the 6.1 percent target.
(e) Dualistic Economy:
Nepal's economy is highly dualistic.

The urban sector is characterized by

non-agricultural

area

sector

while

rural

is

characterized by

backward

agricultural sector. Agriculture is still the backbone of rural economy where

majority of people live. Agricultural growth was only about 3.3 percent on an
average by the end of Ninth Plan (2001). The average production of food grain
was 2.53 per cent per annum. The non-agricultural growth rate 3.95 per cent
Babasab patil notes

per annum during the same plan period. The poor performance of agriculture
further created a wide gap in economic development between rural and urban
areas.

Demographic Characteristics:
(a) High Population Growth:
Another characteristic of Nepali Economy is the high growth of population. The
population of Nepal increased from 15 million in 1981 to 18.5 million in 1991
and increased to 23.1 million in 2001. The annual growth rate is 2.2 per cent
in 1991-2001 decade. According to 2001 census, crude birth rate is 32.5 per
1000 population. The crude death rate is 9.3 per 1000 population. The total
fertility rate is 4.1 per women. The infant mortality rate is 64.1 per 1000 live
birth and life expectancy at birth is 59.7 years.
(b) Population Density:
In 2001 population density was 157 persons per square kilometer.

Among

development regions, the lowest population density was found in Mid-Western

Development Region (71 persons) and highest in the Central Development
Region (293 persons).
(c)Sex Ratio:
The sex composition of a population is indicated by sex ratio. According to
2001 census there were 99.80 male for 100 females. Females have slightly out
numbered males.

This is because of the fact that adult males used to go

abroad in search of jobs.

Social - Cultural Characteristics:

(a) Social Value and Institution:
The backward social value and institution are deeply rooted in Nepali society.
Although caste system is already abolished but it is still prevalent in many
communities. The people from lower caste are discriminated by the upper caste
and often deprived them from the use of community resources like public tap
and well.

The children from lower caste are not allowed to sit beside the

children from the upper caste in the classrooms.

Babasab patil notes

The majority of Nepali people in geographically isolated regions have not

received basic necessities of life like education, health care, access to safe
drinking water and sanitation due to the laxity of concerned institution. The
lack of transparency and accountability in management of the service has
further deteriorated the situation in geographically isolated regions.

The

development policy failed to mobilize rich tradition of community participation

and

initiatives

for

community

development.

The

mushrooming

of

Non-Government Organizations also could not provide the expected results in

the development of remote regions.
(b) Low Status of Women:
The Nepali society is patriarchal. The male dominates the society. This results
wide differences in the development of male and female in physical survival,
health, educational opportunities, and ownership of assets, mobility and
cultural value of society. The Gender Development Index (GDI) rank for Nepal is
116 in 2004. The Index varies widely across the ecological region. The GDI is
higher in hills and lower in mountains due to greater access to knowledge,
information, health facilities and economic opportunities.

The Mid-Western

and Far Western Development Regions are more backward than the rest of
regions. The GDI also follows same pattern with HDI. Where HDI is lower GDI is
also lower.

6 Natural Resources
Planned and careful utilization of natural resources is necessary for lasting and
sustainable economic development of any country. Natural resources are free
gift from the Mother Nature to mankind. The atmosphere, water, soil, forest,
wildlife, land, minerals are all natural resources. There are two types of natural
resources, renewable and non-renewable. The renewable resources are those
resources which with short recycling times that is, the length of time required
to replace a given quantity of a resources that has been used with an equivalent
quantity in a similar form. For example, agricultural crops, pasture grassland,
trees, wild and domestic animals, air, water, solar energy, forest crops etc
Babasab patil notes

While non-renewable resources once consumed or utilized cannot be replaced.

For example, if a barrel of kerosene once consumed it is gone forever. Similarly,
all mineral resources are not renewable. Thus, the economic development of a
country depends upon not only availability of natural resources but also in its
proper utilization. Three major natural resources of Nepal are water, forest and
mineral.

1. Water Resources:
Water is a vital resource of Nepal. It is life giving as well as life saving.
1. Potentiality of Water Resources.
The water resource is the most important natural resources of Nepal.

It

possesses about 2.77 percent of the world's water resources. Nepal is said to
be the second richest country in water resources in the World.

The major

sources of water are glaciers, snowmelting from Himalayas, rainfall, ground

water and lakes. It is estimated that there are 6000 small and big rivers. The
first grade rivers are the Karnali, Narayani, and the Sapta Koshi. The second
grade rivers are the Bagmati, Rapti, Kamala, Mechi, Kankai, Babai etc. And the
third grade rivers are those rivers which originate in the Siwalik range and dry
up during dry season. The surface water is wide spread in the country. There
is great potentiality of developing ground water resources in Tarai region. The
water table is generally found at about 15 meter from the surface in the
northern part of Tarai. And in the southern part ground water comes near the
surface in the form of spring. .
2. Role of Water Resources in Nepali Economy.
(a) Hydro Electricity.
Nepal has huge potentiality to generate hydro electricity power. Water is also
popularly known as White Coal. Generally two physical conditions are required
to harness hydro electricity irregular-mountain topography and speedy
perennial rivers.

Mother Nature has provided Nepal with both of these

conditions. The country not only has perennial rivers but also posses many
water falls. The estimated potentiality of hydro electricity is 83,000,000KW.
However, the total installed capacity of the present hydro electricity projects is
only 397 MW.

This accounts little more than 0.3 per cent of the potential
Babasab patil notes

capacity. This shows that there is a huge potentiality still to be harnessed. At

present, most of the electricity produced are consumed in urban areas and rural
areas are still deprived of this energy.

The low consumption of electricity

indicates the poor state of country's economy.

(b) Drinking Water.
Water is one of the basic necessities of life. It is used for cleaning, washing,
drinking and cooking.

Nearly 90 per cent of the people depend upon river

water. Most of them do not have knowledge of purifying the water to make it
safe for drinking. Piped water is supplied only in Kathmandu valley and certain
towns in Tarai. At present, 46 per cent of water supply in Kathmandu is from
ground water sources. The city's drinking water supply despite coming through
purifying plants is not safe for drinking.
contaminated from sewerage waste.
Nepal.

The tap water often is found

Water related diseases are very high in

Diarrhoea is common and is responsible for almost half the child

mortality. Another problem is maintenance of drinking water project. Due to

lack of community participation in the drinking water projects, the sense of
ownership of the project is lacking.

However, now a days the maintenance

work of drinking water project is done by the Water Users Committee formed
in many Village Development Committees.
(c) Spring water:
Nepal is well known in the world due to its Himalayan ranges. Himalayan spring
water has its exotic value for its purity as well as its rarity. It can be promoted
commercially as bottled spring water within the country and abroad.
(d) Irrigation:
Water resources are source of irrigation. Nepal being an agricultural country,
irrigation is very important to increase the productivity of land and expansion
of agricultural land. The modernization of agriculture requires dependable
irrigation facilities. Irrigation is essential to cultivate different types of high
yielding crops. Thus, to improve the economic condition of the farmer and
reduce the risk from the vagaries of monsoon rain, irrigation is very important.
So far the irrigation facility is inadequate in Nepal. Out of 2,642,000 hectare
cultivated land only 1,104,000 hectare of land has been irrigated till
1999/2000 (Water Resources Strategy Nepal, 2002). At present, 42 percent of
Babasab patil notes

cultivated land has irrigation facility, but only 17 percent of cultivated land have
irrigation facility throughout the year.
(e) Industrial Development.
Water is equally important for all industries whether cottage or manufacturing
industries like steel, paper, cloth, carpet dying etc. Carpet and hand made
Nepali paper are among the major export items of Nepal. The supply of water is
essential for the development of these industries. Water mills are used in most
of the rural areas both for grinding grains and generating electricity through
micro hydro projects.
(f) Development of Transport.
Water is equally important for navigational activities. River navigation is cheaper
mode of transportation. Therefore, the navigational opportunity in the country
has to be fully explored. It is used for local transportation in some of the rivers
in Tarai.
(g) Protecting Forest Resources.
The forest is the principal source of energy especially in rural areas. Rural
people are forced to use wood for household necessities, industrial use and
other purposes due to lack of electricity facility. If the facility of electricity
available at affordable price, the use of wood will be reduced.
(h) Recreational use.
Water entertainment is not developed in Nepal like in other countries to attract
people. Water parks, water surfing and other amusement park can generate
both income and employment. However, white water rafting is becoming
popular among the vacationers.
(i) Fisheries and Aquaculture:
Fishing is done in some rivers and lakes in Nepal. So far commercial fishery is
limited to pond fisheries in limited areas. It can be extended to rivers as well
with scientific studies. It could generate rural employment and food supply to
domestic and foreign market
(j) Save Foreign Exchange.
Every year Nepal, spends millions of Rupees in the import of diesel, kerosene
and gas for household energy. The expenses can be saved if these energies are
Babasab patil notes

substituted by generating available waterpower in the country.

Besides, the

problems of occasional shortage of these materials due to roadblocks by

landslides in the rainy season or due to storage capacity can be avoided.
3.Current Situation of Water Resources.
The current situation of water resources can be assessed from the following.
(a) Drinking Water.
One third of population still do not have access to safe drinking water. The
Ninth Plan (1997/2002) aim was to provide drinking water facility to all the
people in the country in phase wise manner.
Table

6.1:

The

Ninth

Plan

Progress

(Population in thousand)
Description

Target

Progress

Additional
9700
2904
Population
benefited
by
drinking water
facility
Source: The Tenth Plan, HMG.

Progress

The population benefited at the

Percentage

end of the Plan

29.94

17017 (71.6%)

As shown by the above Table 6.1 the progress of the Ninth Plan is far from its
target.
The Tenth Plan aims to provide drinking water facility to additional population
of 38,52,000 in rural and 7,39,000 in urban areas.
(B) Irrigation.
One of the main objectives of the Ninth Plan was to make available irrigation
facility as per the need of crops and to reduce dependency on rainwater.
Another objective was to raise water utilization efficiency of surface and ground
projects, and to enhance people's participation in the management of irrigation
system through user groups. The target of the plan was to irrigate 142400
hectare of new land. It manages to achieve 65 per cent of the target.
The Tenth Plan (2002-2007) target is to irrigate 177600 hectare of additional
land.
(c) Electricity.

Babasab patil notes

The present hydroelectric project is 253 MW, which is said to be of only 0.3 per
cent of the total capacity of the country. Recently Kali Gandaki A - the largest
hydro project in Nepal came into operation generating 144MW of electricity.
One of the objectives of the Ninth Plan was to supply electricity at affordable
price internally and to export it at competitive price by developing reliable
and quality hydropower. During the three years period of the Ninth Plan,
electricity facility has been provided to 670,000 users achieving 47.85 per
cent progress. The target of the Ninth Plan was to provide electricity to
828000 users or 20 per cent of the total population during the planned
period.

The electricity facility has been available to 75 districts, 58

municipalities and about 800-village development committees. During the

Tenth Plan it is aimed to provide electricity facility to additional 10 per cent
people from the national grid connection which will cover additional 2,600
village development committees. Similarly, additional 5 per cent people will
get electricity from alternative energy sources.

4.

Problem of Water Resources Development.

There are many problems for the development of water resources in Nepal.
They are as follows;
(a) Lack of Adequate Capital.
Nepal lacks adequate capital to launch new electricity projects, drinking water
projects and irrigation projects. The only way to get finance for big projects is
through foreign aid and loan, which is conditional and most of time it is not in
accordance with the need of the people.
(b) Lack of Technician.
Nepal still lacks right kind of human resources to plan and implement big
projects. The government has not yet come up with right type of education to
fulfill need of technical human resources. On the other hand, trained people
are also leaving the country due to lack of proper motivation and job
opportunity and exposure.
(c) Lack of Transport Facility.
Lack of transportation facility is a big hurdle for proper utilization of water
resources. The potential areas of water resources are not easily accessible due
Babasab patil notes

to non-existence of roads. On the other hand, the existing roads are often
damaged during rainy season mainly in hilly region. The regular maintenance of
roads during rainy season is difficult and it takes long time.
(e) Limited Market.
The people's economic situation has not improved despite the implementation
of many development plans. It is said that the electricity tariff in Nepal is the
most expensive one in the whole of South Asia.
The poor have to strive for the basic facility such as drinking water, irrigation
and electricity. The internal market is very limited.
(f) Political Instability.
Nepal witnessed political instability especially after the restoration of multiparty
system 1991. The elected leaders and Parliamentarians failed to fulfill the very
basic needs of Nepali people. This has created great frustration and
dissatisfaction among the people. The poor have not experienced any change in
their livelihood.

The drinking water, electricity and irrigation projects never

became available in remote and backward area despite expenditure of Crores of

Rupees.
(f) Defective Government Policy:
Irrespective
management

of

formation

of

development,

various
there

commissions

are

related

shortcomings

in

to

resource

design

and

implementation of projects. Proper utilization and maintenance of projects are

not well conceived as the result irrigation canals remain without water and
electricity plant ceased to operate.
Nepal has adopted the liberal economic policy but the government could not
ensure guarantee to private sector as the result it is not coming forward to
develop water related projects. In fact, no well-orchestrated and broad-based
visions have been projected in this regard.

2. FOREST
All kinds of plants, which grow in natural habitat, are known as natural
vegetation or forest. The land use of Nepal shows that 37 per cent (5.4 million
hectare) of the total land area is covered by natural forest of which 17 per cent
is conifer, 59 per cent hardwood and 24 per cent mixed type forest.
Babasab patil notes

1.Types of Vegetation.
On the basis of climatic zones, natural vegetation of Nepal generally classified
into five main types.
(a) Sub-tropical Evergreen Forest.
The growth of forest is rapid in Tarai, inner Tarai, Churia range upto 1200
metre altitude. The tall and thick trees are evergreen in the area because the
region has warm temperature and gets generous rainfall. The main vegetation
of green forest is Sal, Simal, Sissao, Khair, Cane, Sabai and elephant grass.
(b) Deciduous Monsoon Forest.
It is found in hilly region upto the altitude of 2100 metre. The trees in this
region shed leaves in winter. The main species found in the area are Oak elm,
Beech, Birch, Maple etc.
(c) Evergreen Coniferous Forest.
The forest is found in higher parts of Mahabharat range and lower parts of the
Himalayan region upto 3300 metre altitude. The main species here are Pine, Fir,
Spruce, Larches, Rhododendrons etc.
(d) Alpine Grassland.
The Himalayan region upto 5000 metre altitude has cold climate and low
rainfall. This region is not suitable for growing trees. The main vegetation of
the region is grass, bushes and other flower plants.
(e) Tundra Vegetation:
The climate over 5000 metre altitude is too cold and dry. As a result, no plant
can grow. The region is also called cold desert. However, minute plants like
mosses and lichens are found there.
The Table No.6.2 provides area under forest.
Table No.6.2
Area Covered by Forest
Base Year

Area

Per cent

Source

1954

64,78,000

47.6

FAO, 1954

1964

64,02,000

45.6

HMG/USAID, 1964

1977

52,59,348

35.7

Dur Sambedan Kendra, 1985

1977/78

56,17,000

38.7

LRMP, 1986

1985/86

55,18,000

37.0

Forest Development Master Plan

Babasab patil notes

Source: Statistical Year Book of Nepal 1997.P.153.

2. Benefits of Forest.
The forest resources are important and valuable for Nepal.

It has following

direct benefits.
Direct Benefits:
(a) Fuel Wood.
The forest supplies about 90 per cent of total fuel consumption. The rural
people depend on forest product for their day to day use due to lack of fossil
fuel.
(b) Fodder for Livestock.
The forest is the principal source of food for domestic animals. It provides more
than 50 per cent of fodder to rural livestock.
(c) Manure.
Grass and the leaves could also be used to make compost needed for farming.
The compost manure has great value to produce healthy agriculture products.
(d) Herbs.
Different types of valuable herbal plants are found in the high Himalayas. The
people in the rural area have been using herbal plants to cure different diseases.
The herbs collected from the region are sold to pharmaceutical industries
mainly in India and some are exported abroad.

In the Fiscal Year 1995/96,

government earned Rs.2,06,88,000 from the sale of herbs.

(e) Raw Materials.
The forest products are source of raw materials for different types of industries
in the country. There are various industries based on forest products such as
furniture, paper, hand made paper, medicines, rubber etc.
(f) Residential Construction.
Wooden timber, Khair, Sisao and Oak are used for construction of house. The
window frames, doors, rooftops all are mostly made out of wood. The people
in rural areas are heavily depending on forest products for fulfilling their
construction works.
(g) Export.

Babasab patil notes

There is high potential for earning foreign exchange by exporting the forest
products such as timber, herbs, rubber products etc to third countries.
(h) Employment.
The forest also generate employment opportunity to people in different forest
based industries. Apart from the industries, a large number of people are
employed as Forester, Ranger, Guards etc in the government service.

Forest resources provide following indirect benefits.

(a) Prevention of Landslide and Soil Erosion.
The surface topsoil is very important for agricultural country like Nepal. It is
estimated that about 240 million cubic meter of soil is eroded every year. Soil
erosion and landslide depend on the nature of rainfall and the type of
vegetation spread over the area. The natural vegetation helps to protect the
soil erosion and landslide. The massive deforestation in 1950s is causing
landslides and soil erosion in different parts of the country every year. The
proper management of forest and vegetation in the hills help preventing
landslide and soil erosion.
(b) Support to Agriculture.
The forest and agriculture are inter-related in many respects.

The forest

provides raw materials needed to make compost for farming.

The proper

conservation of forest is essential for the sustainable development of

agriculture.
(c) Prevention of Desertification:
The Himalayan region is environmentally very fragile.

Rapid deforestation is

catching due to cutting out the trees and causing ecological imbalance. The
topsoil is washed away by rain with the loss of trees. Most of the areas are
turning into desert and semi-desert and growing no vegetation. The proper
aforestation and sustainable development programme can prevent the process
of desertification in the region.
(d) Drinking Water.
Ground water is important source of drinking water for majority of people in
many part of Nepal. The majorities of people in Tarai solely depend on ground
water and extensively use hand pumps for water. The case now is not new to
Babasab patil notes

the people of Kathmandu valley because most of the people have to depend on
ground water. The forest also helps to maintain ground water table.
(e) Oxygen Supply.
The forest vegetation provides life saving Oxygen to all living being. This is one
of the reasons that people prefer to live within greenery of nature.
(f) Environmental Balance.
The forest helps to maintain ecological balance. The beauty and benefits of
forest is so immense that any disturbance of over using it or disrespecting its
resources can have disastrous and counter-productive impact in the form of
flood, draught and disease.

3.Causes of Deforestation.
"Hariyo Ban Nepal Ko Dhan" was the popular slogan in the country some forty
years ago which is no more now. This important resource is rapidly declining.
In

"Char Kose Jhari", once a very famous forest belt is getting thinner and

thinner every year by encroachment and illegal logging. The conservation of

forest has became Herculean task. The main causes behind this grave situation
are as follows;
(a) Population Growth.
One of the causes of its declining situation is rapid increase of population. In
order to provide food for the growing population, forest areas are cleared for
cultivation and also for human settlement. Such land is also distributed to the
people who migrated from hill and mountainous regions.
(b) Cutting Trees for Fuel.
Most of the rural people in Nepal use wood as the primary source of household
energy for cooking and other purposes due to lack of other means of energy.
(c) Logging Contract System.
The logging work is awarded to highest bidding contractor every year. The
system has become one of the major and very serious causes of deforestation.
The contractors cut down trees more than the allocated quantity. Every year
huge number of timber is illegally exported to the neighboring cities in India.
(d) Meeting the Demand for Raw Material.

Babasab patil notes

The number of forest based industries are increasing in the country. Obviously,
the demand for raw materials is also increasing.
Apparently, there is no proper mechanism to manage the supply of raw
materials to the industries. This creates the situation of using forest resources
indiscriminately.
(e) Deforestation: Ignorance/Negligence.
Most of the people are ignorant about the consequences of deforestation.
Equally most of the people neglect it even knowing it for personal benefit.
Thus, the pace of cutting down trees continues due to lack of adequate control
of the concerned authority.
(f) Defective Government Policy.
The government forest policy is not effectively implemented. The illegal log
traders are not punished. The logging continues in broad daylight. The policy
relating to community forest is discouraging for the participation of people in
forest management.

4. Forest Conservation Effort and Measures

In order to conserve and maintain ecological balance of wild life species,
national parks, wildlife reserves and conservation areas have been established
in various parts of Nepal. The National Parks are Chitwan, Sagarmatha,
Langtang, Rara, Shey-Phoksundo, Khaptad, Bardia and Makalu. Similarly, Royal
Shuklaphant, Kosi Tappu, Parsa, Shivapuri and Dhorpatan are the wildlife
reserve areas. The conservation areas are Annapurna and Makalu Barun.

The community participation was low in mid seventies and early eighties in
forest conservation activities. However, the participation of community in tree
plantation and conservation of forests increased in the following decades. In
1993/94 out of total plantation of tree 57.4 per cent is through community
participation.

Bagmara Community Forest in Chitwan and Multi Community

Forest in Saptari are managed by women community. In order to conserve

forest following measures should be undertaken;
(a) Fixing Forest Boundaries.

Babasab patil notes

There has to be demarcation of all forest areas in order to avoid illegal

encroachment.
(b) Afforestation.
The priority for afforestation has to be addressed properly and encourage
people broadly to participate in it especially in rural areas. The plantation of
new sapling helps to maintain forest area in the long run. In other words, the
pace of aforestation has to be accelerated at the war-foot level.
(c) Watershed Conservation.
Watershed conservation programme should be implemented in order to prevent
soil erosion, landslide and flood.
(d) Public Awareness.
In order to generate sense of belonging, the feeling of ownership and
awareness among the people about the importance of forest conservation,
various conservation programmes have to be launched in print and electronic
media regularly.

School children too should be involved through essay

competition, quiz contests etc. Symposium, seminar and conference need to be

frequently organized.
(e) Forest Technicians.
Appropriate training should be given to the people in order to increase human
resources necessary to conserve the forest area.

The training policy and

module should be adhered to women and include the concerned and needs of
women.

The women are not only users of fuel, fodder and other forest

products but also are the one who is directly affected by deforestation. Thus
women should be included in all phases of project cycles.
(f) Use of Alternative Source of Energy.
There must be alternative choice of energy like solar, electricity, kerosene and
biogas in order to control deforestation in the country. Simple and affordable
means of energy sources must be available to the people at an affordable price.
4. Community Forest.
The guidelines of the Master Plan for the forest sector of Nepal put all
community forest management under the control of forest user group to ensure
equitable share of costs and benefits among the stakeholders of the community
Babasab patil notes

forest. The intended objective is sustainable forest management in Nepal. Up

to 1997, 5277 forest user groups were formed and a total of 345,914 hectares
of national forest have been handed over as community forest to the user
groups. The government introduced the Forest Act 1993 and by-laws in 1995
to empower user groups. However, the poor and the disadvantaged women are
not benefited from it. The main reasons for this are the low literacy level of
women, gap in communication, high opportunity cost for the poor women and
family to participate in the community forest.
powerful

village leaders

and

Most often the clever and

elite people dominate

the users group.

Appropriate income generating programme should be launched for the benefit

of the poor and time saving labour devices should be introduced to enable
them to involve in community forest.
3. MINERAL RESOURCES
Mineral resources are very important for economic development of the country.
The exact situation of mineral resources is difficult to assess due to lack of
extensive and scientific geological survey of the country.
The preliminary surveys and studies indicate the availability of the following
mineral resources in Nepal.

1. Potential and Current Situation of Mineral Resources.

(a) Iron ore.
Iron ore is the main mineral resource of Nepal. It is found in different parts of
the country, some of which are Phulchoki in South of Kathmandu, Thosey in
Ramechhap and Labdikhola in Narayangadh.

It is estimated that about 10

million metric tons of iron ore from each of the site can be obtained. Besides,
these major areas, Jirwang and Gothe Danda in Chitwan, Ghatkhola in Bajhang,
Bhootkhola near Bandipur. Bhainse, Kulekhani, Pyuthan, Godavari and Pharping
are said to be other probable areas. However, the commercial production of the
mineral has not taken place in any of these areas.
(b) Copper.

Babasab patil notes

The main areas where Copper is found are Budhakhola near Bandipur, Gyaji in
Gorkha, Arkhauli in Makwanpur, Nangre in Nuwakot, Baitadi, Illam, Wapsa,
Banglung and Barabise.
(c) Mica.
Mica is found in several places of Nepal. The main areas are Bajhang, Chainpur,
Doti, Bhojpur, Lamjung, Gosaithan, Nuwakot, Dhankuta, Sundarijal and Sindhuli.
However, the exact quantity is difficult to estimate due to lack of authentic
information.
(d) Lead.
Lead is found in several places of Nepal. The main places are Ganesh Himal
area, Arkhuli, Rasuwa, Banglung, Phulchoki, Baitadi and Tipling.
(e) Zinc.
It is found in several places of Ganesh Himal, Phulchoki, Rasuwa, Majer Khola
and Tipling in Nuwakot.
(g) Magnesite.
This is important raw material for the production of chemical fertilizer. Its
production started in Dolakha for some time. It is also found in Udaipur at
Kampughat.
(h) Limestone.
It is used to manufacture cement. It is found in several parts of the country.
The main areas are Bhaise, Chobhar, Murkhu, Jogimara, Hetauda, and Godavari.
The quality of limestone in Nepal is of high quality.
(i) Petrol & Gas:
Petrol and natural gas are called fossil fuels.

Commercialization of these

mineral resources is not made so far. The main areas of occurrence are Surkhet,
Dailekh, Muktinath, Pyuthan, Dhangadi, Chisapani and Kathmandu.
(j) Coal:
Coal peat is found in various parts of Kathmandu valley. This is fossil fuel. But
they are not of high quality. The main areas of coal are Dang, Salyan, Chatra,
Thakkhola in Mustang, Chitwan, Kailali and Kanchanpur.
(j) Gold:

Babasab patil notes

Tiny flakes of gold are occasionally found in the sand of various rivers like
Sunkoshi. Kali Gandaki, Marsyangdi & Budhi Gandaki.

However, scientific

survey on the volume of deposit has not done so far.

(k) Nickel:
The main places of occurrence of Nickel are Ramechhap, Sindhupalchok,
Khakling and Tungdhap. But the availability of actual quantity is not known yet.

2. Role of Mineral Resources in Economic Development.

(a) Development of Industries:
Different mineral resources are required for the development of industries.
Coal is prime source of industrial energy. Similarly, iron is major raw material
for heavy machinery industry. The machines and raw materials are required for
large-scale industries and cottage and village industries. Every year Nepal
imports machines and raw materials for various industries. Such importation
could have been lessened by developing mineral resources in the country and
also fulfill the need of raw materials for industrial sector.
(b) Employment:
The development of mineral resources helps to create new jobs to the growing
labour force in the country. Unemployment is one of the critical problems of
Nepal. It was estimated that at the end of the Eight Plan, the size of labour force
in Nepal stood at 11.669 million. Out of total economically active labour force,
4.9 per cent is fully unemployed. Among them only 5 per cent is employed in
industry, mines, power and construction. The poor women and girl child are
employed in stone quarries for manual labour at meager wage.
(c) Development of Agriculture.
The chemical fertilizer is widely used for the growth of agriculture development
and it is imported almost every year. The farmers most often face the problem
of scarcity of fertilizers in the market. It is also reported that farmers are being
cheated by supplying fake fertilizer by traders. The situation can be improved
if country can develop mineral resources like Magnesite, which is the basic raw
material for chemical fertilizer.
(d) Development of Transport.

Babasab patil notes

The transportation is the basic infrastructure required for the economic

development of the country. Vehicles like truck, tractor etc are the means of
transportation in the country. If the country is to manufacture these means of
transportation,

development

of

mineral

resources

and

engineering

are

prerequisite.
(e) Fulfillment of Basic Construction Material.
The basic construction material like cement, iron rod, pipe and zinc sheets are
necessary for construction works. The demand for these raw materials is
increasing due to rapid increase of construction works both in the public and
the private sector. Every year huge quantities of cement, rods are imported to
fulfill the need of construction works. The development of mineral industries
helps to fulfill the need of raw materials to these basic construction materials
industries.
(f) Foreign Exchange Earning.
The development of mineral resources also helps to earn foreign exchange by
exporting raw minerals as well as finished mineral products.

The foreign

exchange earned from export can be used for the import of goods from abroad.
3.Work done for the Development of Mining.
The exploration of metal ad non-metal minerals in an area of 6000 sq. km was
targeted during the Eight-Plan period. The progress during the Plan period was
as follows;
- The extensive survey of gas reserve in Kathmandu valley for commercial use
was completed.
-Geo-scientific study for petroleum exploration was completed in an area of
31,000 sq. km.
-Attempts have been made to promote cement industries in Surkhet,
Arghakhanchi and Dhankuta.
-Mineral Act, 1985 has been amended.
-Mineral Regulation 1995 has been drafted.
-The capacity of using remote sensing Geographic Information System (GIS) was
developed to produce qualitative geological mapping.

Babasab patil notes

4. Causes of Non-Exploitation of Mineral Resources in Nepal.

(a) Lack of Transportation.
Despite of many years of economic development planning, transportation
facility required for the development of mineral resource is not achieved. Lack
of well-identified and coordinated development of transportation has been
hindering the development of mineral base industries. Accessibility to remote
areas to explore the hidden treasure of different mineral resources will only be
possible with the availability of transportation facility.
(b) Lack of Investment.
The survey and exploration of mineral resources involve high investment. Many
survey works have to be given up due to lack of necessary fund.
During the Eight Plan the target of conducting seismic survey, drilling and
magnetic survey for exploring petroleum had to be given up due to the failure
of getting foreign assistance. Same was the reason for the plan of producing
the qualitative geological map.
(c) Lack of Research and Survey.
The extensive qualitative survey is required to ascertain quantity and quality of
different types of mineral deposits available in the country and its utilization.
Such surveys have not taken place due to different problems.
(d) Lack of Human Resources.
The technical human resources like cartographer and required number of
geologists have not given training due to lack of budget. Tribhuvan University
has been running M. Sc. degree course in geology. This has helped to some
extent in producing human resources. The students should be motivated to
study geology by assuring them of employment opportunities which is only
possible if mineral based industries are developed in the country.
(e) Lack of Successful Implementation of Plan.
The target is set to conduct geological survey and to carry out activities related
to the development of mineral resources in every development plan. But the
achievements are far away from the target due to lack of coordination, budget,
human resources and commitment on the part of the government. The Plan
remains only in documents.

Babasab patil notes

6. NATURAL RSOURCES
4. ENVIRONMENT AND NATURAL RESOURCE MANAGEMENT
1. The Importance of Environment and the Global Concern.
Environment is our surrounding made up of biotic and abiotic factors.
Environment includes everything that relates to person and nature. It includes all
aspects of surroundings of humanity affecting individuals and social grouping.
Environment includes (i) Built environment means house, roads etc and (ii) Natural
environment means all the natural resources including air, land and water. To protect
environment means to maintain the continuity of species on the Earth. The survival of
species depends on the availability of natural resources from the eco-system. Thus, to
maintain sustainability in the supply of natural resources, prudent utilization of the
resources is essential.
The existing state of equilibrium will not change as long as there is no external
disturbance. Pollution and all other changes made in nature will themselves maintain a
state of equilibrium by a different natural cycle upto the carrying capacity of the Earth.
Any further exploitation of both renewable and non-renewable resources will disturb
the equilibrium of the eco-system and cause environmental degradation and loss of
bio-species.
The reckless exploitation of scarce resources, both in developed and developing
countries, creates deterioration in environment resulting acid rain, depletion of Ozone
layer and high incidence of deadly diseases. Almost all the developing countries are
facing difficulties in providing regular supply of safe drinking water. Similarly, topsoil
of arable land is also washed away due to floods and landslides. All these are highly
expensive and dangerous for peaceful existence of mankind.
The world is facing many critical issues of importance.

There are issues of

conflicts and wars, violation of human rights, issues of peace and preservation of
eco-system as well as issues relating to right to education and health facilities,
reproductive rights and property right of women. All these issues concern billions of
people living on the Earth and also the coming generation.
In the midst of all these problems, the problem of environmental degradation is
growing fast. There can be no two opinions that if there is no place to live on this
Earth then we are sure to be doomed.

Thus addressing environmental issues and

peace is a matter of great concern for all of us.

The 1992 Rio Earth Summit was successful in introducing the global
environmental monitoring system under " Earth Watch". The landmark achievement of
Babasab patil notes

the United Nations conference on Environment and Human Development was the birth
of a common understanding named "Agenda 21" which brought out a comprehensive
action plan and a new concept of economic growth. It devised a plan for a long-term
sustainable development requiring the adoption of development policies, which meet
the needs of the present generation without compromising the needs of future
generations.
2.The Concepts of Natural Resources Management and Sustainable Development.
There are two types of natural resources (i) Renewable and (ii) non-renewable.
Renewable resources mean those resources, which can be obtained again after short
recycling time. It means that the length of time required for replacing a given quantity
of resources that have been used with an equivalent quantity in a similar form. For
examples trees, pasture grass, agricultural crops, wild and domestic animals, air, water
and solar are renewable resources. Non-renewable resources mean those resources,
which once consumed cannot be replaced. For example, a barrel of petrol once
consumed is gone forever in that form.

Mineral resources are non-renewable

resources.
The concept of natural resources management adopts the theory of carrying
capacity of the natural eco-system.

This means the use of renewable and

non-renewable resources in such a way as to sustain the maximum benefit for present
and future generation. It refers to the quality of environment in order to safe guard
human environment and promotion of human welfare in sustainable way. According to
the Ninth Plan document "resource management means not only protection but also
judicious utilization which fulfil the needs of existing generation and guarantees to
fulfil the future needs.
In the context of Nepal, sustainable resources management means ensuring
sustainability of available resources by fulfilling the interest and needs of Nepali
people.
Sustainable development means to meet the needs of the present without
compromising the ability of future generation to meet their own needs. It emphasizes
an integration of environmental, social and economic consideration in decision making.
3. Importance of Natural Resources Management.
Natural resources management is necessary for mankind to lead healthy, happy,
prosperous and peaceful life. In Nepal, according to latest census 2001, 86 percent of
the people resides in rural areas. Landslide, flood, soil erosion, loss of forest and
Babasab patil notes

drying up of springs and water spouts affect the fulfillment of daily needs of wood,
grass and drinking water etc of rural population.

Poor women in rural households who depend extensively on natural

resources for their own and their familys survival affects acutely by environmental
degradation.
The relationship between women and natural resources is very close, as they
require food, water, fuel, fodder and income from the surrounding resource because of
socio-economic role of women. Women have been performing socio-economic roles
of productive, reproductive and community over the generations.
In urban areas too, there are many problems like smoke, dust, water
contamination and lack of proper management of garbage, which are adversely
affecting health of the people.
4.Consequences of Environmental Mismanagement.
(a) Deforestation.
The growth in the size of population, internal migration from hills and
mountains to Tarai region and urban centers has caused a massive deforestation in
Nepal after 1950s.

Illegal logging contract system and forest land distribution for

political reasons are other factors, which led to deterioration of forest in Nepal. This
has caused frequent landslide, flood, and change in climate and other natural disasters.
(b) Soil Erosion.
It is estimated that 240 million cubic meter of soil is eroded every year. The
main causes of soil erosion are deforestation, improper cultivation of land, over
grazing of pasture land and development works. As the result, productivity of the soil
is decreasing every year. It has become serious concern for farmers.
(c)Water Pollution and Scarcity of Drinking Water.
Most of river water near to big settlements is polluted. The problem is acute in
Bagmati and Bishnumati rivers in Kathmandu. The result is number of untimely death
due to water borne diseases like typhoid, diarrhea etc.

Due to depletion of forest

underground water is also decreasing causing acute shortage of water for domestic
and industrial use.
(d)

Air Pollution.
Air is precious natural resource. The living beings cannot survive without it.

Due to excessive smoke from vehicles and industries, air has been polluted especially
in the cities. The studies have found high pollution level in the air in various places of
cities and industrial areas. The air pollution causes lung disease. The smoke and dust
Babasab patil notes

in the air affect the health of children and aged most. This not only increases cost for
health care, but it may also cause untimely death or become disable.
(e)

Noise Pollution.
Un-maintained machines and vehicles in the cities cause noise pollution.

It

leads to many diseases like blood pressure, heart diseases and mental disorder.
(f)

Global Warming.
Due to global warming atmospheric change is occurring in the world.

The

human lives have been affected tremendously and eco system has deteriorated.
5. Present Situation of Environment.
Thoughtless human activities are deteriorating both nature and man made
environment. The excessive uses of forest, land, water and unplanned growth of cities
are destroying valuable natural resources. The forests have been destroyed leading to
natural disaster.

The pastureland areas have been overgrazed. Water has been

polluted destroying the lives of aquatic lives like crocodiles, fish, turtles etc. The high
population growth has created unmanageable garbage in cities.

The people are

suffering from various health problems leading their lives to further poverty and
misery.

All these have been created by mismanagement of natural resources,

unplanned growth of cities and neglecting the rule of environment. The Ministry of
Population and Environment is responsible for carrying out the Environment Impact
Assessment (EIA) of each and every development projects in the country.
6. Measures to Remedy the Problem:
For the proper management of natural resources following measures should be
undertaken.
(a)

Lack of Property Rights:

One of the causes of mismanagement of natural resources is due to the lack of

property rights. The users must be involved and must have sense of ownership of
available resources for its proper utilization.
The concept of community forest has helped to preserve the forest. Because
community forest programme made the users both owner and the manager of the
forest property.

Ownership of brooks, rivulets and watersheds help to arrest

environmental degradation.

(b)

Use of Traditional Skill and Knowledge:

Both men and women have extensive knowledge about the surrounding where

they live. For instance, rural women have knowledge of the places from where they can
Babasab patil notes

get drinking water, firewood, fodder etc.

So not only men folk but also women

knowledge should be utilized in the formulation of plans and policies.

(c)

Legal Provision:
Due to increasing number of use of vehicles in city area, pedestrians are

compelled to breathe polluted air. As a result, people have been facing several health
problems and accordingly health related expenses are also increasing.
Thus necessary legal provisions should be enforced to maintain the standard
emission level and decrease air pollution. A system of compensation for the public
should be introduced to maintain social equality.
(d)

Land Use Planning:

Intensive agriculture and monoculture system has caused decline in productivity of

land. Another problem is use of environmentally fragile land and encroachment of
forestland for cultivation. A proper land-use plan is necessary to control declining
condition of land and forest.
(e)

Revival of People Based Organizations:

In the past generally villagers themselves use to build and protect village taps,
irrigation canal, temples and other community resources. Disappearance and
non-functioning of religious and cultural community group led to destruction of
natural resources for selfish motives. Therefore, it is necessary to revive and make
people based organizations effective.

(f)

Developing Reusing and Recycling Technology:

The society is becoming more and more consumption oriented. Accordingly,

resources are also used more and more.

Thus, the habit of the people has to be

developed to use less resource and encourage recycling of the used resources.
(g)

Proper Coordination of Economic, Social, Natural and Human Resource

Development:
Sustainable development of economy requires a proper coordination of
economic, social, natural and human resources as they are interrelated in environment
protection. While framing economic development plan, special care should be taken to
the fact that development and environment are inseparable parts.

Thus, it is

necessary to tie up environmental programmes and management with development

planning from the very beginning.

(h)

Environmental Education and Awareness Programme:

Suitable awareness programmes and environment protection education should

be launched along with development programmes in order to make realization of the

Babasab patil notes

importance of environment. Participation of people should be encouraged widely in

environmental resources conservation programmes and development.

(i)

Control of Population Growth:

One of the main causes of environmental degradation is intense activity of

human population. Old age security, improvement of status of women, improvement

in child mortality and development of rural areas help to reduce population growth.
Educating women, creating jobs for women and encouraging people to shed off the old
values about the birth control could check the growth of population.

(j)

Crop Insurance.
Introduction of crop insurance reduces the risk of crop failure and excessive

pressure on existing resources for peoples survival in rural areas.

7. HUMAN RESOURCES
"The real wealth of a nation is its people both women and men. And purpose of
development is to create and enabling environment for people to enjoy long, healthy
and creative lives. This simple but powerful truth is often forgotten in pursuit of
material and financial wealth."
Human Development Report, 1995.
1 Role of Human Resources:
The number of people of working age (both male and female) available in a
country at a particular time is called human resources. The population means total
number of people residing in any defined area, Nepal, India, Bangladesh etc. Skilled,
educated, healthy, labourious and committed people are wealth of the country. Human
resources or human capital is necessary for rapid economic development. Many
prominent economists like Schultz, Harbison Dension and Kuzentss studies show that
educated people in America have contributed in development of American economy. It
is well-established fact that one of the prerequisites of economic development is the
development of human resources.

Human beings are not only consumer of the

product but also active agent of production. Among the four factors of production
labourer, land, capital, and organization - labourer and organizer are active agents of
production. Human resources help in the development of the economy in the following
ways:

Babasab patil notes

(a) Development of Physical Capital:

The development of physical capital like road, highway, bridge,
dam, irrigation networks, hospital, school depends on availability of
technicians, labourers, administrators and engineers. So it is said that
investment in education and health bring more return than investment in
roads and other physical capital. The development of physical capital is
possible only with the development of human capital.
(b) Development of Natural Resources:
The natural resources are necessary but not a sufficient condition
of economic development of a country. The country may have rich and
varied natural resources but they are not enough. What is more essential
for rapid economic development of a country is the quality of its human
resources.

Given the similar natural resources, a country having an

optimum level of skilled, acquisitive and entrepreneuring human

resources will have a better chance of having a higher standard of living
than any other country where the condition of human resources are not
equally favourable.
(c) Development of Industries:
Human resources are important to develop industries. The
existence of different skilled manpower like mechanical engineer,
computer

specialist,

chemical

engineer

is

pre-requisite

for

the

development of industry.
(d) To Develop Government Services:
Human capital is necessary for staffing even in government
services. Government becomes effective when needed-trained staffs are
available. Innovative and important changes in government are possible
only if human resources are available.
(e) Save Foreign Exchange:
Underdeveloped countries not only import physical capital but also
import technical know how and skills. With foreign aid, technical
personnel are also imported. Thus development of human resources help
to reduce the expenditure on foreign expert too.
(f) To Remove Economic Backwardness:
Underdeveloped

countries

are

characterized

by

economic

backwardness. Low labour efficiency limits specialization in occupation

and trade. Similarly, deficiency in supply of entrepreneurship is
Babasab patil notes

responsible for economic backwardness. Skilled, educated, experienced

and healthy manpower helps to overcome economic backwardness of the
country.
(g) Improve Traditional Skill and Culture:
Some of the traditional belief, culture and values are not healthy
and conducive for economic development. For example, witchcraft, caste
system, dominance to women folk by male members of society, all these
practices are not good for economic development and human progress.
The development of education, science and technology and other social
reforms help to overcome these problems in the society.
2 Current Population Situation
(a) Size of Population:
According to the latest population census of 2001, the total population is
23151,423 among them 11,563,921are male and 11,587,502 female. The
annual growth rate is 2.25 per cent.
Table No.7.1
Population Size, Growth Rate and Doubling Time.
Census year

Total population

Growth rate

Doubling time

1911

5,638,749

1920

5,573,788

-0.13

1930

5,532,574

-0.07

1941

6,283,649

1.16

60

1952-54

8,256,625

2.30

31

1961

9,412,996

1.65

42

1971

11,555,983

2.07

34

1981

15,022,839

2.66

26

1991

18,491,097

2.08

33

2001

23,151,423

2.25

31

Source: CBS, 1995; CBS 2002.

(b) Composition of Population:
The composition of population means the number of people according to
sex, age, religion and mother tongue.
11,563,921

males

(49.94%)

and

On the basis of sex, there are

11,587,502

Babasab patil notes

(50.05%)

females.

Female

population outnumbered men by a little more than 23 thousands. The overall

sex ratio in 2001 for Nepal, measured as number of males per 100 female
population, stands at 99.80.
(c) Age Structure:
Nepals population is primarily young. Out of total population 39.35 per
cent of the people are between 0-14 years age group. Similarly, 54.15 per cent
of the population is in the age between 15-59 and 6.50 per cent of the people
are in age group of 60 and above. Population above 60 age and below 14 age
groups is known as dependent population. The dependent population has to be
supported by the economically active people who fall in the age group between
15 - 45 ages. The age structure shows that one person is in working age for
every one dependent person.
According to WHO definition, age range 10-19 is called adolescents and age
range 15-24 is youth. Thus adolescent population constitutes 23.62 per cent and
youth population is 19.38 per cent of the total population.
Table No.7.2
Percentage distribution of population by 5 years age group, 2001
Age Group

Male

Female

Total

04

12.29

11.95

12.12

59

14.38

13.87

14.12

10 14

13.50

12.73

13.11

15 19

10.44

10.57

10.51

20 24

8.33

9.40

8.87

25 29

7.23

7.95

7.59

30 34

6.39

6.71

6.55

35 39

5.73

5.79

5.76

40 44

4.75

4.82

4.79

45 49

4.13

3.99

4.06

50 54

3.46

3.28

3.37

55 59

2.80

2.49

2.65

60 64

2.31

2.27

2.29

65 +

4.26

4.16

4.20

Source: CBS, 2002.

(d) Religion and Language:
Babasab patil notes

Nepal is the only Hindu Kingdom in the world. On the basis of religion,
latest population census reveals that 80.62 per cent of the people follow Hindu
religion, 10.74 per cent Buddhism, 3.60 per cent, Kirat, and the rest are other
religions like Islam, Christian, Jain, Sikh etc.
The official language is Nepali. According to the population census 2001,
the classification of population by mother tongue shows that 48.98 per cent of
people have Nepali mother tongue. And population speaking Maithili, Bhojpuri,
Tharu, Tamang and Newari tongue are about 12.4, 7.6, 5.2 and 3.7 per cent
respectively.
(e) Density of Population:
The density of population means total number of people living in per square
kilometer area. The density of population for the country is 157 persons per square
kilometer while in terms of ecological regions, 33 persons in mountain, 167 persons in
hill and 330 in Tarai. According to latest census, the lowest density (71) is found in
Mid-Western Development Region and the highest (293) in the Central Development
Region.
(f) Rural/Urban Population Distribution:
There are 3914 Village Development Committees (VDCs) and 58
Municipalities in the country. There are certain criterions to be urban areas like
the total number of population must be 20 thousand and there should be road,
electricity, health and education facilities.

According to population census

report 2001, 85.8 per cent of the people live in rural areas and 14.2 per cent in
urban areas.
(g) Population Distribution by Development Regions and Districts.
Nepal is divided into 5 Development Regions, namely Eastern, Central,
Western,

Mid-Western

and

Far-Western

Development

Regions.

Each

development region is composed with number of districts. Altogether there are

75 districts. In terms of district ranking, Kathmandu district contains highest
population size (1,081,845) and Manang district has only 9587 population.

8 AGRICULTURE
Land is main source of agricultural production.

Total agricultural land in Nepal is

about 2.6 million hectares. A farmer, on average, holds 0.95 hectare (18.6 Ropanies)
of land. However, 70 per cent of farmer holds less than one hectare of land. Among
Babasab patil notes

them 44 percent farmers have less than 0.5 hectare of land. The actual farmers having
cultivation skill have less land. This has been a great problem for the development of
agriculture.
1 Role of Agriculture in Economic Development.
Agriculture is the backbone of Nepali economy. It occupies an important place in our
economy. The role and importance of agriculture are as follows:
(a) Contribution of Agriculture to National Income:
About 41 per cent of GDP comes from agriculture. Agriculture plays a significant role
in the national income, as the non-agricultural sector is very small in the country.
(b) Source of Employment:
According to the latest census, 86 per cent of the people live in rural areas and major
source of employment and livelihood for about 81 percent of people is agriculture.
(c) Source of Food:
Agriculture is the source of food to the growing population and livestock.

Paddy,

Maize, Millets and Wheat are principal food grains of Nepali people. It also provides
fodder for livestock.
(d) Source of Raw Material for Industries:
All agro-based industries like jute, oil, rice, sugar etc depend on agriculture. Besides,
agriculture also provides healthy and strong manpower to the industries.
(e) Development of Cottage Industries:
During the off season, farmers are engaged in village and cottage industries. The raw
materials, manpower, skill and capital required for the village industries are supported
by agriculture.
(f) Basis of Foreign Trade:
Agriculture helps both internal and external trade. Food grain, vegetable, fruits etc are
purchased by all people.

Thus, development of trade depends on agricultural

production. Similarly, most of the exportable commodities are of agricultural origin

pulses, ghee, jute, hides and skin, and tea are important items of exports.
(g) Source of Public Revenue:
Agriculture is one of the main sources of government revenue. The registration of land
and revenue from the export of agricultural products constitute an important source of
government revenue.
(h) Main Source of Employment and Earning for Women:
In Nepal, both men and women work in agriculture. Women in particular take care of
livestock, kitchen garden, and poultry. These activities supplement family income and

Babasab patil notes

also fulfill family diet. Thus agriculture is particularly important for the development
of the women and makes them economically independent.
(i) Basis of Economic Development:
Agriculture is the basis of economic development in the country as it provides capital
and employment to a large number of people. It earns foreign exchange, and provides
food to the growing population. It is also source of income to the government. Thus
economic prosperity of our country depends on the development of agriculture.

2 Characteristics of Nepali Agriculture.

(a) Subsistence Farming:
Nepali agriculture is subsistence farming in nature.

Subsistence farming is one in

which the sole aim of the production is to produce for self-consumption and thereby
make living from it. Most of production in farming is just enough for farmer's own
consumption and for the consumption of the family members.
(b) Predominance of Food Crops:
In subsistence type of agriculture, the farmer gives priority to the cultivation of food
crops. Since the primary aim of production is to meet the domestic requirement, food
is the most important crop. It is only when the food need of the farmers have been
fulfilled they devote their time and resources for the production of other crops for
marketing.
(c) Regional Variation:
Due to varied topography and climatic conditions, different crops are cultivated in
different regions of the country. The total cultivated area for food crops such as paddy,
maize, wheat, millet and barely occupy 85 per cent and the rest, i.e. 15 per cent of
cultivated land is occupied by cash crops. Paddy occupies 55 per cent of the total
cultivated land. All Tarai districts, Kathmandu valley and Pokhara valley are main areas
of Paddy production. Maize is produced in hilly areas and inner Tarai area. Wheat and
Barley are produced in Kathmandu and Pokhara valleys. Jute, Sugarcane, oil seeds,
Tobacco are cultivated in Tarai.

Besides these cash crops, Tea, Potato, Pulses,

Cardamom and fruits are also cultivated. Horticulture, floriculture, bee farming, poultry
farming Sericulture and domestic cattle are also raised in different parts of the country.
(d) Scanty Irrigation Facility:
Nepali agriculture is still depending heavily on monsoon rain. Up to the Ninth Plan only
37 per cent of cultivated land got irrigation facility throughout the year.

Scanty

irrigation facilities has hampered the crop diversification and also productivity of land.
Babasab patil notes

(e) Small Holdings:

The farm size is very small and also fragmented over the year. The average size of
farmland is 0.96 hectare as reported in National Sample Census of Agriculture (NSCA).
The farm sizes tend to be larger in Tarai as compared to hills. The farm size is also
smaller in urban areas compared to rural areas. Another problem of Nepali agriculture
is fragmentation of land holding. Fragmentation is more common in western part of
the country. Among geographical regions, fragmentation is highest in the mountain,
lowest in Tarai belt. About 70 per cent of farmers own less than 0.5 hectare of land.
Because of this small holding, intensive cultivation and modernization of agriculture is
difficult. The big landholders are mostly absentee Jamindar who do not cultivate by
themselves. In Nepal, it is most unfortunate that actual farmers do not posses the
economic size of land to improve agricultural production.
(f) Land Tenure System:
Dual land ownership is still prevalent in Nepal. The big landowners usually rent land to
tillers on share cropping basis. The renting of land for fixed quantity of produce is
prevalent in most parts of the country. One of the long-term objectives of land reform
is to eliminate tenancy (Mohiyani) system by eliminating dual land ownership.
(g) Low Productivity:
Excessive dependence on monsoon, traditional method of cultivation, small holding,
pressure of population on limited land and limited irrigation facilities are the main
causes of low productivity.
(h) Land Area Distribution:
A majority of households in Nepal own land. About 95 percent of households own
land; 35 percent of the households rent land and about 5 percent of households do not
own land in 1995/96. According to the Nepal Living Standard Survey, 1996 (NLSS) the
concentration index for the total land operated was 0.54??. This shows the presence of
large number of small farms in the country. The bottom 40 percent of agricultural
households operated only 9 percent of total land area.

On the other hand top 6

percent of agricultural household own more than 33 percent of the total land.
There are 70 per cent farmers who own less than 0.5 hectare of land. Thirteen percent
of large farmers operate with 2 hectare and more land. Smaller farmers predominate in
Hill region and large farms in Tarai region
(i) Household Heads:
The majority of agricultural household heads in the country are men. Women headed
agricultural households constitute less than 15 percent of the total agricultural
Babasab patil notes

households. Women headed agricultural households are most common in hills and less
prevalent in Tarai. In hill region due to out migration of men folk for employment,
agricultural operation has left to the women.
3 Problems of Nepali Agriculture:
Agriculture is the mainstay of Nepali economy. According to Agricultural Prospective
Plan (APP) the annual growth rate of agriculture is 3.3 percent and annual growth rate
of population is 2.25 percent.

Irrespective of implementation of long term APP,

agriculture still faces many problems due to lack of clear-cut strategy and ineffective
implementation of agricultural plan. The major problems of agriculture are as follows;
(a) Pressure of Population on Land:
More than 81 percent of working population depends on agriculture.

Due to slow

growth of non-agricultural sector, people are forced to depend on agriculture. As a

result, there is disguised unemployment, which is also responsible for low productivity
per worker. Most of poor and small farmers have not benefited from the development
programmes due to ineffective strategies to reach them. People are forced to work on
limited land due to lack of non-agricultural employment
(b) Technological Problem:
One of the responsible factors for the backwardness of agriculture is the use of poor
and unscientific technique for production. Peasants are still using age-old method of
cultivation and using chemical fertilizer haphazardly. The use of suitable fertilizer is
equally important. Farmers need to use fertilizers after detailed soil tests. Due to
ignorance in most of cases farmers have not used chemical fertilizer after testing soil
as a result, the productivity of soil has not improved. Besides, only small percentage
of farmer use improved seeds. For instance, only 5 percent of farmers use improved
seeds in paddy cultivation. Similarly, mechanization of agriculture is very low. Only
few farmers can afford modern equipment like tractor, thresher and water pump set
for irrigation.
(c) Lack of Adequate Irrigation Facility:
Water is lifeblood for any living being. Absence of irrigation facilities forces farmers to
depend on rainwater in mainly monsoon, which is uncertain in time, quantity and place.
Winter season in Nepal is quite dry, as such diversification of crop is not easy.
(d) Lack of Adequate Agricultural Credit:
Farmers still depend on traditional sources of agricultural credit due to lack of easy
access to institutional credit in rural areas. The institutional credit accounted to only

20 percent of agricultural credit. The Production Credit for Rural Women (PCRW) and
Babasab patil notes

Micro Credit for Women, though highly successful in catering need of women it still
has to be reached to more needy women farmers. Besides, due to extreme poverty,
farmers have no resources to undertake necessary investment in agriculture. They are
even forced to borrow money for consumption and social activities leading to perpetual
indebtedness.
(e) Lack of Marketing Facility:
Lack of marketing facility is still another problem. Due to lack of storage facility and
affordable transportation facility, farmers are unable to bring their products in the
market to get good price for their product. Instead, they are obliged to sell their
product to middlemen at very low price. It is not only the problem for output market
but also a great problem to the farmers to purchase seeds, fertilizers and insecticides.
For women farmers marketing is critical problem as there is no security in long
distance transportation, no allocated place in the market and toilet facility.

Thus,

women farmers are forced to depend on men or middlemen to sell agricultural

products.
(f) Defective Land Tenure System:
Although Land Reform Act of 1964 insured tenancy right and fixed rent, in practice,
poor and ignorant farmers are required to pay more than 50 percent of rent fixed by
the Act. Shrewd and cunning landowners always enjoy the hard toil of farmers without
making any effort by themselves. This is also responsible for de-motivation for the
farmer to improve agricultural productivity. The Land Administration Rules of 1968 AD
(2024 B. S.) is also discriminatory towards women.

Similarly, the Land Reform Act

2021 B. S. (1978 AD) deprives tenancy right to a daughter who is under the age of 35
years.
(g) Lack of Research:
The National Agriculture Research Council (NARC) was established in 1991 AD as an
apex autonomous body for undertaking agricultural research in the country.

It is

primarily concentrated in commodity research in order to increase productivity rather

than the farmer's problems. As such women farmers need is not in priority agenda of
research activities.
4 Measures or remedies to Overcome Agricultural Problem:
Following measures should be taken to overcome problems in agriculture sector:
(a) Control Population Growth:
Population is increasing very fast in Nepal. The high population pressure on land is
one of the critical problems. Therefore, attempts should be made to reduce population
Babasab patil notes

growth rate including migration from neighbouring countries. The population control
programme should be implemented through effective family planning programmes,
spread of female education, increase employment to the women, implementation of
income generating programmes for women and improvement of socio-economic
status of women. Besides reducing population growth, non-agricultural sector should
also be developed at a faster rate.
(b) Development of Simple and Affordable Technology:
Improved technology should be within the reach of all farmers. As women are also
involved side by side with men in agriculture activities, such technology should be
women friendly.
(c) Adequate Irrigation Facility:
Adequate knowledge should be provided to farmers for the proper use of water and
maintenance of irrigation system.

The users should be involved in all aspects of

irrigation planning.
(d) Organized Marketing Facility:

There should be organized agricultural marketing facility to ensure fair price for
agriculture product and availability of agricultural input in time.
Bazars

Similarly, in Hat

women's needs and concern should be well taken care so that woman's

products could be marketed at fair price.

(e) Adequate Credit:
Easy access to credit is one of the main factors to encourage farmers to invest in the
agricultural development. As 40 percent of people live below the poverty line without
easy access to credit facility, it is not possible for poor farmers to undertake
investment in agricultural development. Hence, provision should be made to make
available agricultural credit at easy and farmer friendly terms.
(f) Agricultural Extension Service & Research:
The result of agricultural research should be disseminated to the farmer.

The

extension officer should provide information about agriculture both to men and
women equally. There should no discrimination between male and female farmers. As
female farmers also play equally important role in agricultural development, women
should have easy access to extension services.
(g) Transfer of Ownership:
Most of the farmers are tenants and do not own their own land. Obviously, landowner
takes away most of the produced. This weakens motivation of farmer for higher
1

Hat Bazar: small temporary market for local products.

Babasab patil notes

production from land. Therefore, in order to motivate farmers to work very hard for
the improvement of land and its productivity, ownership of land should be transferred
to the actual tillers according to the objectives of land reform Act.
5 Agricultural Marketing in Nepal
The development in agriculture increases the output of farm products. There
must be market to sell these products and prices for them must be enough to cover
the cost of production including farmer's effort. There are three essential things for
marketing. They are;
(i)

Demand for the product;

(ii)

Marketing system or someone through whom to sell farm products, and;

(iii)

Confidence of farmers in working with the marketing system.

The middlemen and intermediaries control most of agricultural marketing in

Nepal. The people in intermediaries business collect agricultural products from the
doorsteps of farmers and sell it to consumers. These people buy farm products at
cheaper price and sell it to the consumer at higher price. Therefore, the middlemen
make the lion's share of profit.
Agricultural marketing is not organized in Nepal. Farmers either sell agricultural
products directly to the consumer or to traders in small Hat Bazars in Tarai. In local
village market mostly producers sell their products directly to consumers.

The village

markets are linked with the major markets through whole sellers, trading agents,
dealers, retailers, hawkers, consumers and farmers.
Problems of Agriculture Marketing.
The main problems of agricultural marketing in Nepal are as follows:
(a) Buyer's Market:
It is well understood that a systematic organization is necessary for successful
marketing of any product. The farm product traders are well organized in their trading
network than farmers. As a result, farmers are forced to sell their products at the price
fixed by buyers. Once the agricultural product reaches the local markets it is difficult
to take back and it is also not feasible for everybody to store it to sell later. So, they
are forced to sell at a price fixed by those middlemen.
(b) No Grading and Standardization:
In order to get good price of agricultural products, farmers are required to grade their
agricultural products according to product quality. But most of the farmers have not
Babasab patil notes

adopted this practice. Therefore, the farmers are unable to get desired price for their
products.
(c) Transportation Problem:
Nepal still lacks cheap transportation facilities. Therefore, it is very difficult to sell
agricultural products at a deserving price. The problem is more critical with small and
women producers because it is not economical to transport small quantity of their
agricultural products to main markets.
There is also a women specific problem. Women farmers are forced to depend on their
men folk to sell their products due to the lack of security to travel to main markets.
(d) Lack of Cold Storage and Warehouses:
Agricultural products are perishable in nature if they are not stored in proper
temperature. Food grains are usually stored in mud-built containers, which are easily
spoiled by insects and pests. Perishable products like vegetable and fruits cannot be
preserved for long time without cold storage facility.

Unfortunately, most of the

farmers do not have access to this facility.

(e) Lack of Marketing Information:
Due to illiteracy and ignorance, most of the farmers do not know the prevailing market
price and types of goods, which are in demand in the market. In both the cases, the
sufferers are farmers.
(f) Lack of Institutional Marketing:
Most of the farmers have to bring their products to the market individually because
there is no organized marketing system. As a result, they have to pay additional
expenses which makes the products cost high and they get less price for their product.
Measures to Improve Agricultural Marketing:
The following are some of the measures, which should be carried out systematically
and effectively to make the agricultural marketing system more efficient.
(a) Easy and Cheaper Transportation Facility:
One of the means to improve the agricultural marketing is to provide easier and
cheaper transportation facilities by improving the existing rural road network. This will
enable farmers to bring their products in the market with low transportation cost and
at suitable time to get good price.
(b) Assurance of Fair Price:

Babasab patil notes

The government must assure fair and reasonable price for the agricultural products.
This is possible only by efficient management of agricultural marketing system. Fair
price encourages farmers to make hard effort to improve agricultural production.
(c) Effective Implementation of Metric System:
The metric system of measurement and weighing has been introduced in the country
since a long time; but the substandard weighing and measurement systems are still in
use in many parts of the country. The authority concerned must pay special attention
to curb such practices through regular observation and investigation.
(d) Cold Storage and Warehouse Facilities:
Farmers get very low price for their products because most of the farmers are forced to
sell their output immediately after harvesting season when prices are generally very
low. They are compelled to do so because of lack of warehouse facilities. If warehouse
and cold storage facilities are available, products could be brought to the market
according to demand situation and get a good price for their products.
(e) Facilities for Processing Agricultural Products:

The processing facilities of agricultural products should be made available in various

parts of the country so that farmers can easily process their products and get
reasonable price for their labour.
(f) Market Information:
Proper information is essential for efficient marketing of any product. Therefore, the
market information should be easily accessible to the farmers. This will help to get the
right commodities to the right places at the right time and with minimum waste.
Reliable and proper market information help to get fair price for agricultural products.
Agricultural Marketing Policy and Programmes:
Agricultural marketing is an important component of agricultural development. The
government has approved following policies in respect of agricultural marketing:
-

To provide marketing support measures in production pocket areas or commercial

production centres.

To encourage involvement of private sector.

To fix and implement minimum support prices for principal cereal crops.

To develop marketing infrastructure like wholesale market centres and collection

centres etc.

To provide agro-marketing information service to the producers, traders and

consumers.

To enhance the role of farmer groups in agricultural marketing.

Babasab patil notes

To develop Hat-Bazars in rural areas.

To provide legal support for agricultural marketing development.

In order to develop agricultural marketing following programmes have been developed.

(a) Wholesale Market Centres:
The Wholesale Market Centre of fruits and vegetables has been developed at Kalimati,
Kathmandu Metropolitan City.
(b) Minimum Support Prices:
The minimum support prices announced by the government covers cost of production
plus a reasonable profit.

Minimum support price programmes for cereals are

implemented through Nepal Food Corporation.

(c) Price Information System:
The daily-wholesale prices of fruits and vegetables in Kalimati Wholesale Market are
broadcasted through Radio Nepal. The Marketing Division of Ministry of Agriculture
and Cooperative publishes prices of some of the agricultural products in its annual
bulletin.
6. Agricultural Finance:
In the general sense, the term agricultural credit means the short term, medium term
and long term loans, given to the farmers by any financial institution to enable them to
use for the agricultural production.
Role of Agricultural Credit:
(a) For Agricultural Inputs:
The agricultural productivity is very low because the majority of farmers use traditional
methods of cultivation. To modernize agricultural sector, farmers need modern tools
and other inputs like fertilizer, seed, insecticides etc. But average farmers cannot
afford to buy themselves those inputs. Thus the agricultural credit is necessary for
farmers to buy these agricultural inputs.
(b) For Buying Land:
The excessive pressure of population on land has made the nature of land holding very
small. The productivity from the small size of holding also goes down. Thus there is a
need to consolidate the land holding. Therefore, whenever an opportunity comes for a
farmer to consolidate his land holding, he needs money to buy adjoining land. For this,
farmers need a long-term agricultural credit.
(c) Agricultural Related Activities:
Babasab patil notes

Farmer needs money to buy ox, buffalo, cow, goat, poultry etc. and to carry on
agricultural related activities. Besides, farmers also need both medium and long term
credit for buying heavy agricultural equipment such as water pump sets, tractors,
thrasher etc.
(d) Social and Domestic Expenditures:
Farmers also need credit to meet consumption expenditure during off-season and
social expenditures like marriage, death ritual, social modes etc.
(e) Agricultural Enterprise:
The agricultural credit is needed for secondary occupations such as cottage industry,
livestock farming, fish farming, bee keeping, mushroom farming etc. For these
activities, farmers need long term and medium term credit.
Sources of Agricultural Credit:
Farmers get agricultural credit from the following sources:
(a) Village Moneylenders:
The traditional source of credit includes village moneylenders, friends and relatives. In
rural area, village moneylenders are usually a Jamindar. They are the main sources of
agricultural credit.
The poor farmers get loans from these landlords and village moneylenders whenever
they need it. The village moneylenders not only charged an exorbitant interest rate but
also charged extra amount of money. Thus, once a poor farmer borrows money, they
are forced to give away their property including farmland to the village moneylenders
due to inability to pay back the loan.

But, after the implementation of the Land

Reform Act of 1964, such practices have been curbed down to a great extent. But, in
remote areas, farmers are still compelled to borrow money from local moneylenders
due to the absence of institutional credit facility. On the other hand, poor can not get
loan from institutions due to lack of collaterals.
(b) Friends and Relatives:
The farmers also borrow money from their friends and relatives. But as majority of the
people in rural area lives below the poverty line, credit from friends and relatives are
also limited.
(c) Institutional Source:
After the introduction of economic liberalization in Nepal, a number of financial
institutions came into operation.

At present, there are 16 Commercial Banks, 16

Development Banks, 5 Regional Rural Development Banks, 53 Finance companies, 34

Saving and credit cooperatives and 18 Non-government Organizations that have been
Babasab patil notes

operating up to 2003AD. According to Nepal Rastra Bank's policy, 12 percent of the

total loan disbursed by a commercial bank should be given to priority sector credit and
out of 12 percent, 0.25 to 3 percent should be given to the deprived sector. The single
borrower loan limit of deprived sector was raised to Rs.30,000 from Rs.15,000 in 1998.
(d) Production Credit for Rural Women and Micro Credit

In 1982, Production Credit for Rural Women was also introduced which added a new
dimension to rural credit.

The Ministry of Local Development implemented the

Production Credit for Rural Women (PCRW) project. Now, it is under the Ministry of
Women, Children and Social Welfare, with loan assistance from Internal Fund for
Agricultural Development. This is the first programme focused on women in Nepal.
The PCRW covers 55 districts. Under this programme, women can borrow money from
designated branches of Nepal Bank and Rastriya Banijya Bank against a group collateral
basis.
With slight modification in implementation modality, Micro Credit Project was started
in 1994 with financial assistance from Asian Development Bank in 12 districts and 5
municipalities. This loan was also based on group approach. This is the first credit
programme in which the government recognized the role of NGOs in micro-finance
activities. The main activities of NGOs are to form women groups, help to mobilize
group saving and link women group members to commercial banks. Thus, selected
NGOs act as a social mobilizer and also as credit agent. In the last stage, selected
NGOs work as Financial Intermediary. The commercial banks provide 2 to 4 percent
interest commissions to credit agents/NGOs as service charge on interest earned which
is determined on the basis of loan recovery rate.
The PCRW and Micro Credit for Women covers 67 out of 75 districts of Nepal. They
provide services in 624 village development committees and 28 municipalities. Loan is
given to women for income generating activities like purchasing livestock, setting up
small enterprises and other agriculture related activities. Loan recovery shows that
women are careful about repaying loans on time.
(e) Small Farmer Development Programme (SFDP)

Small Farmer Development Programme was introduced by Agricultural Development

Bank (ADBN) in 1975 as a pilot project in 75 districts. At the end of FY 1997/98,
170,170 families benefited through 381 projects in 604 VDCs. In these projects
Rs.544.7 million was invested and Rs.473.7 million was recovered. Similarly, group
saving reached up to 75.8 million by the end of FY 1997/98. This includes both male
and female group.???????
(f) Rural Development Banks:
Babasab patil notes

To provide collateral free loan to the economically deprived people, Rural Development
Banks have been established in all of the five development regions. By mid 1999, rural
development banks have disbursed a total credit of Rs.2090.20 million to its 87,317
members through 19,410 groups.
(g) Intensive Banking Programme (IBP)
Under this programme, 60 percent of priority sector credit should be given to the
families living below the poverty line or people whose annual income is less than
Rs.2,511. This is a poverty focused credit programme of commercial bank.
9: POVERTY
1 Definition of Poverty.
The concept of poverty has been defined in different perspectives. They are as
follows:
a) Income perspective
b) Basic needs perspective
c) Capability perspective.
In general, Human Development approach has taken in all of the above three
perspectives but particular emphasis has been given to capability perspective.
However, development is a process of enlarging peoples' choices and raising the level
of well being. The concept of poverty focuses on choices and opportunities most basic
to human development for long, healthy and creative life, decent standard of living,
freedom, dignity, self respect and respect for others.
Poverty is socio-economic phenomenon, which does not have any precise
definition. According to the World Bank, the people with annual per capita income of
$275 are termed as extremely poor and per capita income of $370 as poor. With per
capita income of $210 Nepal falls under the category of extremely poor.
Poverty is classified into two categories:
(a) Absolute poverty:
According to the World Bank, absolute poverty is "as a condition of life so
degraded by disease, illiteracy, malnutrition and as to deny its victims basic human
necessities." The absolute poverty approach focuses on poverty from minimum level of
income required to sustain life or estimation of minimum dietary needs. Dietary needs
differ from country to country. For Asia the estimated dietary needs is 2250 calories
per day.
(b) Relative Poverty:

Babasab patil notes

The comparison between the rich and the poor or income gap between
developed countries and poor countries is known as relative poverty. Thus, absolute
poor people are the great concern than relatively poor people for any country.
2. Characteristics of Rural and Urban Poor:
The poor include landless, small land holders, agricultural labourers, village
artisans, poor village women, low paid unskilled workers, landslide/flood victims and
unemployed persons. Similarly in urban areas, slump dwellers and poor unemployed
people are the poor.
The main characteristics of the poor are as follows
(a) Rural and Urban Poverty:
The poor mostly found in rural areas where people suffer from unemployment,
malnutrition, ill health, illiteracy and lack of opportunity for gainful employment.
Occasional landslide and deforestation have further complicated the extent of poverty.
Internal insecurity due to Maoist problem and ineffective government has further
deteriorated the situation.
In urban areas, migrated people in search of jobs, slump dwellers, unskilled
construction workers suffer from uncertain jobs.

Low wage, exploitation from the

middlemen and brokers, ill health, lack of basic needs are the major problems of the
poor. There is also danger of sexual exploitation of women and girls who come from
rural areas seeking for jobs in urban areas. Even poor boys are vulnerable to sexual
exploitation.
(b) Larger Family Size:
The size of family is generally large in a poor family. They do not have access to
modern contraceptives. Besides, due to prevalence of a strong son preference and
benefit from child labour, they do not want to use contraceptives.

As it is not

compulsory to send children to school, poor family children help the parents in
economic activities. Thus, they do not mind to have a large family. On the contrary, a
poor family aspires to have more children to get support for household and
agricultural activities. Due to lack of education and income generating activities, the
status of women in rural areas is very low. Although, women work same jobs like men
they are paid less. Equal wage for equal work is not strictly implemented. Low status
women is also one of the reason for large family size.
(c) Land Major Asset:

Babasab patil notes

Land is important asset in agricultural country. The poor don't own productive
land. They have to cultivate in marginal land, which do not have facility of irrigation or
are most prone to landslide in the hilly areas and flood in Tarai. Because of lack of
asset, it is very difficult to borrow credit from banks.
(d) Lack of Education:
Poor also lack education, training and information to improve earning capacity.
As the result, they are forced to remain in the vicious circle of poverty. Poor women
again suffer from the burden of reproductive and productive work. Due to lack of easy
assess of basic needs like water, fuel and fodder most of their time is spent for
meeting needs of familys survival instead of attending school. Even if they attend
school, most of them are dropouts from school due to early marriage and need of
undertaking household responsibilities.
(e) Dependence on Agriculture:
Agriculture is main source of income for poor people in rural areas.

But

subsistence agriculture does not bring much income to the poor farmers. The main
source of supplementary income is labour wage in construction work.
In urban areas poor people are self-employed in micro enterprise like small
shops, teashops, wage labour and other informal sectors.
(f) More Expenditure on Food:
The poor people can spend very little income on education and health.
Whatever they earn, they are required to spend on food. The distribution of food in
the family is again biased to male and earning member of the family. Thus women are
malnourished resulting in poor health.
(g) Status in the Society:
The poor have low status in the society, as they are uneducated, unskilled and
have fewer opportunities. Their representation in the government, political parties and
other sectors is very low. They are marginalized, exploited and manipulated
everywhere. Even they are deprived of basic human rights.
(h) Gender Discrimination:
In rural family, there is discrimination between sons and daughters. Generally,
daughters are treated as liability, because after marriage they have to leave the family
and live with husband's family. Therefore, parents do not want to invest on daughters
education. There is less gender discrimination in urban areas as compared to rural
areas.

Babasab patil notes

3. Poverty Level:
The National Planning Commission estimated that 42 per cent of the population
is living below poverty line. The poverty level was estimated to be Rs.4404 on the basis
of a daily per capita calorie requirement of 2250 and other expenses in non-food
items. Nepal Living Standard Survey, 1996 (NLSS) conducted by the Central Bureau of
Statistics (CBS) provides the most recent estimate of poverty both at national and
regional levels on the basis of household consumption expenditure data. NLSS shows
that 44 percent of the rural households and 23 percent of the urban households were
estimated to live below the poverty line. Nepals, being agricultural country, access to
land is very important about 70 percent of farmer own less than 0.5 hectare of
farmland. Poverty is wide spread in Nepal. However, the incidence of poverty is more
critical in the mid-western and far-western regions of the country. Similarly, the plight
of bonded labour in Banke, Bardiya, Kailali, Dang and Kanchanpur and some
indigenous people and castes as Kami, Damai and Sarki, Kamaiya etc is even
deplorable. The condition of low caste group women is even worse.
4. Poverty Alleviation Programme:
The Ninth Five-Year Plan has placed its sole goal to poverty alleviation. It has
targeted to reduce the poverty level from 42 percent to 32 percent by the end of the
planned period. The long-term goal is to reduce poverty level to 10.0 percent by the
year 2016. By the end of the Ninth Plan the population living under poverty line has
fallen down to 38 percent.
The Tenth Plan (2002-2007) brought out Poverty Reduction Strategy Paper. Like
in the Ninth Plan the sole objective is to reduce poverty level from 38 percent to 30
percent by the end of the Tenth Plan. The poverty reduction strategy is based on four
conditions. They are (a) Broad based economic growth (b) Targeted programmes for
the ultra poor, vulnerable and deprived groups (c) Social sector development including
human development and (d) Good governance.
In order to reduce poverty level following policies and action plan will be adopted.
-

To increase employment opportunity.

To increase the access of poor to employment

To implement targeted programme of income generation and employment for the

marginalized class.

To enhance productivity for the increment of income level of employment

To maintain labour interest and harmonious relation between management and

labour
Babasab patil notes

To promote foreign employment.

The target is at the end of the Tenth Plan period the total unemployed including the

fully unemployed is expected to decrease from 17.4 percent (FY 2059/60) to 13.5
percent

10. INDUSTRY
1. COTTAGE AND SMALL INDUSTRIES (CSIs)
Cottage and Small Scale Industries:
Simple commodities are produced in cottage and village industries usually by a single
family or with a few hired employees.

Nepal has a long history of household and

cottage industries. In villages weaving of baskets and ropes, paper making, utensils,
cloth weaving, shoe making, jewelry, wood craft, stone craft, metal craft etc are carried
out as household industries. The Malla period was regarded as the golden age for the
development of cottage and village industries in Kathmandu valley and adjoining
settlements. The temples, Pagodas, stone waterspouts, carved wooden objects etc are
all living examples of glorious days of handicraft industry in Nepal.
In earlier days, many villages were even specialized in the production of different
commodities like "Karuwa" and Dhaka clothes in Palpa, Bhadgauali Topi in
Bhaktapur, Khukuri in Bhojpur, cooking (mustard) oil in Khokana and so on.

Earlier,

people were self sufficient in most of their requirements. Women used to engage in
production of household requirements like clothes, Sukul (straw floor mat), Dala
(Bamboo basket), Doko etc. The Gharelu Prachar Elam Adda, which was established in
1940 AD, had promoted cottage and small-scale industries in different parts of the
country.
During the Ninth Plan (1997-2002) HMG and UNDP has been implementing Micro
Enterprise Development Programme (MEDP) with the objective of poverty alleviation
and employment generation.
1) Definition of Cottage and Small Scale Industries (CSIs):
The industries, which are labour intensive based on local resources and reflect
country's traditional art and culture, are known as cottage industries. According to
Industrial Policy of 1992 AD, the industries having fixed investment up to Rs.1 Crore
are classified as small-scale industries. In terms of industrial units, still more than 90
percent of the industries fall under small and cottage industry. Such industries have
contributed over 76 percent of employment in the industrial sector, and 50 percent in
Babasab patil notes

value addition. Thus, there is a huge potential for using the development of
small-scale and cottage industries as important means for poverty alleviation.

There are 9,890 units of cottage and village industries with investment of Rs.7,720
million in 2001/02 as reported in the Economic Survey of 2002/03. (HMG/Ministry
of Finance).
2) Importance of Cottage Industries:
Cottage and small-scale industries are important for Nepal due to the following
reasons:
a. Low Investment:
The cottage and small-scale industries do not require large investment. Most of
the works are mainly done by hands or with the use of simple tools and machines.
Cottage and small-scale industries have been provided loan from the
intensive-banking programme of the commercial banks. In Fiscal Year 2001/02, a
total of 1,246 cottage and small-scale industries spread over five development regions
of the country, were provided with the loan amounting to 145.4 million.
b. Based on Local Raw Material:
The cottage and small-scale industries are based on local resources like forest
products, mineral and agricultural products.

Thus, they are most suitable for the

mobilization of local resources.

c. Require Simple Skills:
The cottage and small-scale industries do not require sophisticated skill or
formal training. The required skill is acquired by doing and observing. Thus, all the
members of household can contribute to the production process just learning by doing.
d. Proper Utilization of Spare Time:
Farmers need not work in the fields throughout the year. During the off-season,
farmers can engage themselves in these household industries and supplement their
incomes.
e) Suitable Work for Rural Women:
Most of rural women are illiterate and poor. But they are labourious and engage
their spare time in cottage and village industries and earn some income to improve
their economic condition.
f) Local Market:
The products of cottage and small industries do not require big market. These
products can be sold in the local markets and Hat Bazars.
g) Source of Employment:
Cottage and small-scale industries have contributed to the economic and social
upliftment of the country by lessening the problem of unemployment, and poverty.
The cottage and small-scale industries provide employment to the rural people. There
Babasab patil notes

is tendency of migration of adult people from villages to towns and from hilly areas to
Tarai region and even outside the country in search of jobs.

This has led to the

disintegration of family and villages. Villages are left with old people and children and
town has been flooded with more people resulting a different socio-economic problem.
Developing cottage and village industries can control this kind of problem.
h) Reduce Import and Increase Export:
The imports of goods are more than export. This causes unfavourable balance
of trade and depletion of scarce foreign exchange.

The development of cottage and

small-scale industries can help in reducing import of goods and even boost country's
export.

The handicraft and traditional industries produce products like Carpets,

Pashmina, Rhadi, Pakhi, Leather goods, Cheese, Butter etc. These products of cottage
and small-scale industries are gaining popularity in local as well as in international
markets.
i) Promote Tourism Industry:
Tourists usually buy handicraft products as souvenir. Thus cottage and small
industries also help to promote tourism in the country.
j) Protect Culture and Tradition:
The products of cottage and small-scale industries reflect culture and tradition
of different communities living in different parts of the country. Thus these industries
are important to preserve culture and tradition of the country.
k) Help Large Scale Industries:
The small and cottage industries can provide intermediate products which
large-scale industries use in their production processes.
industries help each other.

Thus, small and cottage

There are certain products, which are not suitable to

produce in large-scale industries but are necessary for them. The small and cottage
industries produces such products. For example, containers are required for packing
finished goods produced by large-scale industries. These items can be produced in
cottage and small-scale industries.
(l) Decentralization:
The Cottage and Small Industries can be established with a minimum resources
and simple skill. Thus they can be established in any part of the country to diversify
industrial production and reduce regional disparity in economic development.
3. Problems of Cottage and Small Scale Industries:
Irrespective of crucial role of cottage and small-scale industries, they are not
free from problems. The main problems of these industries are:
Babasab patil notes

a. Problem of Finance:
The cottage and small-scale industries face financial problem. Usually, initial
investment comes from own sources and credit from non-banking sources at very high
rate of interest.

The banks shy away to provide loan to cottage and small scale

industries. The small entrepreneurs have no access to modern development banks in

rural areas.
b. Shortage of Raw Material:

These industries also faces continuous shortage of raw

materials at reasonable price. For example, forest based industries
like bamboo is facing difficulty to get raw material due to depletion
of forest in the country.
c. Problem of Modern Technology:
The market structure is changing very fast.

Most of the small and cottage

industries have not been able to introduce modern technology to meet the demand of
competitive market due to lack of access to suitable technology.
d. Problem of Marketing:
The goods produced by cottage and small-scale industries are generally not of
standard. Usually, they suffer from poor design and quality. The prices are also not
competitive. As a result, it is difficult to market the products. Many products like
bamboo products, pottery, hand knitted straw floor mats are facing marketing problem.
e. Problem of Transportation:
There is difficulty in transporting finished products to the market due to lack of
easy and cheaper means of transportation facilities. The same problem applies for
necessary raw material for the industry.
f. Middle-person Exploitation:
The small producers are not able to sell their product directly into the market.
They are obliged to sell the products at cheaper price to the middle-persons. The
government owned cottage industry shops are also not able to promote cottage and
village industries.
2. Medium and Large Scale Industries (MLSI).
1. Beginning of Organized Industries:
The medium and large-scale industries started with the promulgation of
Company Act 1936 AD in the country.

Establishment of many other industries

followed the establishment of Jute Mill in Biratnagar. Many consumer goods industries
Babasab patil notes

were established during the post World War II period. The objective of establishment
of such industries was mainly to meet the scarce condition of consumer goods created
by the war. Unfortunately, the end of Second World War brought together the closure
of many industries due to the depression and lack of basic infrastructure like transport,
communication and financial institutions. The first industrial policy was introduced in
1957 and amended many times. Some financial infrastructure namely Nepal Industrial
Development Corporation (NIDC) and industrial estates were established for the
development of medium and large scale industries. After the restoration of multiparty
democratic system, new industrial policy was introduced in 1992. According to the
new industrial policy, the industries having fixed investment of Rs.1 Crore to 5 Crore is
classified as medium scale industries and industries having investment of above Rs.5
Crore is classified as large-scale industries.

The main medium and large-scale

industries in Nepal are Biratnagar Jute Mills Ltd., Raghupati Jute Mills Ltd., Morang
Sugar Mill, Mahendra Sugar Company of Bhairahawa, Match Factories in Birgunj, Butwal,
Hetauda. Bhadrapur, Cigarette Factories in Janakpur, Birgunj and Hetauda, Cotton
Textile Industries, Himal Cement Factory, Saw Mills, Brick & Tile Factories, Beer
Factories, Noodle Factories, Carpet Factories, Garment Factories and so on. Most of
the industries are located in eastern Tarai and Kathmandu valley.
2.

Importance of Medium and Large Scale Industries:

The medium and large-scale industries produce goods at large scale.

Thus,

they can supply superior quality goods at cheaper price to the consumer.
The medium and large-scale industries have following importance:
a.

Development of Capital Goods Industries:

The capital goods industries are those industries, which help production of
other goods. Production of equipment, raw materials like cement, iron rods,
building plants are capital goods industries. The capital goods industries are
medium and large-scale industries and established both in private and public
sectors. The development of capital goods industries is essential for achieving
rapid economic development in the country.

b.

Development of Consumer Goods Industries:

The establishment of medium and large-scale industries is essential to fulfill the
growing needs of edible consumer goods and durable consumer goods. The
medium and large-scale industries can produce goods at large scale of superior
quality at cheaper price to satisfy the demands of the people.

c.

Raise Income:
Babasab patil notes

Agriculture production is affected by vagaries of nature. Thus, it is difficult to

raise national income by agriculture alone. The medium and large-scale
industries play an important role to increase national income. The economies of
industrialized countries like Japan, USA and Europe show this fact.
d.

Improve Standard of Living:

The cottage and small industries alone can improve standard of living of people.
The development of medium and large-scale industries is important to produce
more goods at shorter time at cheaper price.

f.

Utilization of Natural Resources:

The development of medium and large-scale industries help to mobilize
national resources likes water, mineral and forest resources.

g.

Creation of Employment:
Unemployment, underemployment, seasonal

unemployment

and disguise

underemployment are critical problems of Nepal. The educated unemployment

is also increasing every year. The development medium and large industries
absorb growing labour force of different skills and specialization.
h.

To Reduce Imports:
Nepal imports both consumer and capital goods.

Establishing import

substitution industries like cement, sugar, and other consumer goods can
reduce the import of goods. Similarly, export promotion industries like carpet
and readymade garment also can be developed to overcome the problem of
adverse balance of trade.
i.

Defense Goods:
For national security and defense purpose, capital goods industries should be
established within the country.

3.

Problems of Large Scale Industries.

The process of development of medium and large-scale industries is very slow

and existing industries are also not healthy. The private sector is hesitant to establish
large-scale industries due to ineffective government policy and uncertain political
environment. Many medium and large-scale industries in the public sector have been
sold out to private sector after the adoption of privatization policy. The problems of
medium and large-scale industries are as follows;
a.

Lack of Capital:

Babasab patil notes

According to recent Human Development Report (2001) 40 per cent of the

people live with abject poverty. Thus both saving and investment rates are very
low. As the result, industries suffer from paucity of necessary capital.
b.

Lack of Transportation and Communication Facility:

Nepal still lacks transportation and communication facilities. Many parts of the
country are still to be connected by roads. The existing major highways are also
frequently blocked for hours and days due to multiple landslides during the
rainy season.

Same is the case with communication network. All this impends

the development of medium and large-scale industries in the country.

c.

Lack of Power:
Though Nepal is very rich in hydro energy resources, electricity is not cheap and
also supply of electricity is not regular. Many parts of the country are still not
connected by national grid.

Frequent interruption and loadshheding have

hampered many industries for smooth operation.

d.

Lack of Technical Know-how:

Technical people are not motivated to work in Nepal. Every year many people
leave the country in search of job out side the country creating shortage of
necessary manpower for medium and large-scale industries.

e.

Competition with Foreign Products:

The Nepali industries are not protected from undue competition from foreign
products. Once flourished industries like Himal Cement Factory, Balaju Cotton
Mill, Hetauda Cotton Mill and many other industries have closed down due to
competition of foreign goods including cheaper smuggled goods across the
northern and southern borders.

f.

Absence of Entrepreneurial Class:

Investments in large-scale industry are not only risky but also have to wait long
time for return from the investment.

The gestation period of medium and

large-scale industries is quite long. Thus enterprising persons only venture in

this field. Nepal has not been able to produce such enterprising people.
g,

Class Struggle:
After the restoration of multiparty system, there were many clashes between the
workers and management due to the absence of clear-cut policy and political
intervention. Workers adopted the methods of strikes, dharnas and gherao etc
and the management had adopted the policy of lockouts.

Babasab patil notes

In this way,

disturbance continued due to the lack of clear-cut policy for dispute settlement
between employer and employee.
h.

Industrial Finance:
The medium and large-scale industries still face problem of necessary capital.
The general people are hesitant to invest in industries due to the poor
performance of industrial groups. The NIDC is also not able to supply necessary
capital to the medium and large-scale industries.

i.

Lack of Political Stability and Security:

Although current industrial policy has been introduced in 1992, the government
is not able to build up necessary confidence among industrialists. The frequent
change in the government and Maoist problem are creating insecure
environment for the industrialist to undertake investment.

3. Salient Features of Current Industrial Policy, 1992.

The main feature of current Industrial Policy (1992) is as follows;???
a.Definition:
Four kinds of industries have been defined in current industrial policy. They are
Traditional Cottage Industries, Small-scale Industries, Medium Scale Industries and
Large Scale Industries. The industries have been defined in terms of fixed capital
investment except traditional industries. The industries with fixed investment upto 1
Crore is classified as Small Scale Industries.

The industries with the fixed capital

investment from 1 Crore to 5 Crore is classified as Medium Scale Industries. Likewise,

the industries having fixed capital investment excess of 5 Crore are called Large Scale
Industries.
The economic survey of 2002/03 state that analysis of some major industrial
items revealed that production of some items under food and beverage category had
increased in Fiscal Year 2001/02. Likewise, production of tool, industrial and electrical
equipment did well in that Fiscal Year compared to Fiscal Year 2000/01, also the
production of wood and wooden goods, other chemicals, leather products, plastic
goods, non-metal minerals, iron and steel goods and machinery goods had increased.
It is said that among the products that have recorded noticeable increase in production
in Fiscal Year 2001/02 are; noodles (727mt), sugar (3,887mt), tea (488 mt), animal
feed (649 mt), vegetable ghee (3632 mt), soap (810 mt), detergent powder (50 mt),
cement (17,902 mt), synthetic textiles (518,000 meters), shoes (35,000 pairs), plywood
(24,000 sq.ft), matches (23,000 gross), sandals (194,000 pairs), iron bars and angles

Babasab patil notes

(4,049 mt), GIHB wire (1,107 mt), dry cell batteries (1,156 million pieces) and plastic
goods (32 mt).
b. Classification of Industries:
The current industrial policy of Nepal has classified industries into seven
categories.

These categories are (1) production oriented industries, (2) energy

oriented industries, (3) agro-based and forest based industries, (4) mineral-based
industries, (5) tourism industries, (6) service industries and (7) construction industries.
c. License and Registration:
There is no

need to have license for establishment, expansion and

modernization of industries except those related to defense, public health and

environment.

For the industries, which require license, decision for approval or

disapproval is made within 30 days of application.

c. Facilities:
The facilities given to the industries in the current industrial policy (1992) are as
follows;
(i)

Traditional Cottage Industries are exempted from excise duty, sales tax and
income tax.

(ii)

Manufacturing, energy, agro and forest based, and mining industries are
exempted from income tax for 5 years from date of starting of production.
Industries, which are of national priority, are exempted from income tax for 7
years.

(iii)

Income tax is not levied on export earning.

(iv)

Industries, which provide direct employment to six hundred or more persons is

given tax holiday for two years.

(v)

Added incentives are given to those industries, which reinvest their earning in
the same or ancillary activities.

(vi)

All needed services for domestic and the foreign investor are given through one
window policy by the government.

(vii)

No new industries are nationalized while public industries are gradually

privatized.

(viii)
Nepali
(x)

The ownership of cottage and small-scale industries are reserved only to the
citizen. Foreign participation is allowed only in technology transfer.
Sick industries are rehabilitated in accordance with rehabilitation feasibility
study.

Babasab patil notes

4: TOURISM:
1. MEANING OF TOURISM:
Visits by people from one place to another for entertainment, meeting friends
and relatives, enjoying natural beauty, mountaineering, trekking and visiting religious
places are known as tourism. The services provided to visitors are known as tourism
industry. All the organizations like hotels, lodges, restaurants, travel agencies etc
come under Tourism Industry.

It is age-old industry. In old days due to limited

means of transportation and communication facilities, few people could travel from
one place to another. The developments of transport and communication have enabled
people to move from one place to another easily. In fact, these days the world has
become Global Village. People can visit different parts of the world due to amazing
growth and development of air transportation. Thus, development of transport and
communication has given a big boost to the tourism sector. Nowadays, people can
safely travel from one place to another in the short time. People can now enjoy and
gain knowledge visiting different places and meeting people from different countries.
2. Tourism Development in Nepal:
Tourism industry in Nepal began from 1950 AD onwards when Nepal opened its door
to foreigners. Nepal got membership of the International Union of Travel Organization
in 1959 AD. The Tourism Board was established in 1957 AD. The UN Conference on
International Travel and Tourism, which was held in Rome in 1963 AD, highlighted the
importance of tourism for developing countries to improve economic condition. In
1972 Tourism Master Plan was introduced in the country. However, only in 1977 the
Ministry of Tourism was established. In Eight Plan (1985-90) emphasis was given to
quality tourism, conservation and maintenance of historical and cultural heritage areas.
Private sector was involved in the development of tourism. The country observed Visit
Nepal Year 1998 with the objective of attracting over 500,000 tourists in that year.
Nepal Tourism Board (NTB) was established in 1999 AD in the form of partnership
between His Majestys Government and the private sector tourism industry of Nepal.
The NTB is responsible for marketing activities aimed at promoting Nepal as a premier
destination.
3. Potentiality:

Babasab patil notes

Nepal is known as the land of Sagarmatha (Mt. Everest), the land of the birthplace of
Siddhartha Gautam and also as Shangri-La in the world. It possesses immense
potentiality to develop tourism industry. It has natural beauty, geographical diversity,
and cultural and artistic heritage.
A brief description of potentiality of tourism industry is given below:
(a) Natural Beauty:
Nepal is very rich in natural beauty. The presence of Mt. Everest, the highest peak in
the world has made Nepal renowned in the world. Out of 14 above 8000m peaks in
the world, eight are in Nepal. Besides, these high mountains, there are 122 Himalayan
peaks above 7000m. These mountains attract people from other countries.
There are many famous and beautiful lakes like Phewa in Pokhara and Rara in
Jumla. The thick jungles of Bhaber region and many kinds of wildlife equally attract
visitors. Different types of climatic conditions are also equally suitable according to the
taste of people. Nepal is considered as one of the best places for bird watching. Exist

bird pops?
(b) Cultural Feature:
Nepal is very rich in cultural heritage. There are numerous artistic temples scattered
all over the country especially in Kathmandu valley. Each place is unique in its cultural
value. Every month there is some sort of celebration in the country like Holi, Dasai,
Tihar, Indra Jatra, Vibaha Panchami, Teej and many more religious festivities. Similarly,
there are many places, which are very popular from religious and historical perspective.
Lumbini, Pashupatinath, Janakpurdham, Gorkha, Muktinath, Swayambhu, Gosaikundan
are some of the examples. Bungamati in Lalitpur is known for its wooden handicraft.
Similarly, Patan, Bhaktapur, Kirtipur, Janakpur, Palpa, Dhankuta and other places are
known for traditional handicrafts and arts.

(C)Friendly People:
Nepali people are friendly and hospitable to the tourists. They can easily mingle with
different communities living in different parts of the World. This is one of the reason,
many tourists return to Nepal..
4. Importance of Tourism Industry.
Babasab patil notes

The importance of tourism industry is increasing day by day as source of foreign

exchange earning and source of employment. The importance of tourism industry is
given below.
(a) Source of Foreign Exchange:
The tourism industry is an important source of foreign currency earning. In FY
2001/02 foreign exchange earning from tourism sector was Rs.7,798.5 million, a drop
of 33.4 percent compared to FY 2000/01. During the first six months of FY 2002/03,
earnings from this sector totaled Rs.5,343.4 million representing 22.7 percent of the
foreign exchange earnings from export of goods. 14.4 percent of the export of goods
and services and 11.2 percent of the total foreign exchange earnings of the country. In
comparison to ratios of earning in FY 2000/01, all these three ratios have increased
during the review period. In 2002,US$ 106.8 million foreign exchange was made from
tourism. It is accounted to 8.0 percent of total foreign exchange earning. The foreign
exchange is very important to import goods and services required for the economic
development and to fulfill the needs of growing population.
The number of tourists arrival varied year to year. The total number of tourists arrival
from 1997 to 2001 was 2,201,928. A total of 2,75,468 tourists visited in 2002. The

highest number of tourists were from India.

Gross Foreign Exchange Earnings in Convertible Currencies by Fiscal Year
F/Y

Rs. (000)

US$(000)

% Change in US$

2018/19 (1961/62)

593

78

2038/39 (1981/82)

493,842

38,149

2048/49 (1991/92)

3,090,700

72,467

27.7

2049/50 (1992/93)

3,082,000

67,721

-6.5

2050/51 (1993/94)

3.397,600

69,309

2.3

2051/52 (1994/95)

5,896,200

118,563

71.1

2052/53 (1995/96)

6,605,800

119,060

0.4

2053/54 (1996/97)

6,158,800

108,527

-8.8

2054/55 (1997/98)

8,084,930

131,042

20.7

2055/56 (1998/99)

11,584,912

171,403

30.8

2056/57 (1999/00)

11,709,098

169,848

-0.9

2057/58 (2000/01)

11,969,174

162,513

-4.3

2058/59 (2001/02)

7,798,535

101,628

-37.5

Babasab patil notes

Source: Nepal Rastra Bank.

The following table shows the target and achievement of Ninth Plan (1997-2002) for
number of tourists and Foreign Currency.

Year

Tourist Arrival

Foreign

Currency

(in numbers)

Generation
(US $ in million)

Achievement in %

Target

Achiev

Compa Compa Target

Achiev

Compa Compa

ement

red to red to

ement

red to red to

target

1997
1998
1999
2000
2001
Total

Achievement in %

420,00

421,8

57

462,00

463,6

84

508,20

491,5

04

559,02

463,6

46

614,92

361,2

37

2,564,1

2,201,

42

928

previo

target

previo

us

us

year

year

101.4

7.2

.213

115.9

54.4

-0.6

101.4

9.9

255.6

152.5

59.7

31.6

96.7

6.0

306.7

168.1

54.8

10.2

82.9

-5.7

368.1

166.8

45.3

-0.7

140.2

31.74

-15.9

745.3

47.0

441.6
58.74

-22.1

1585

85.9

(b) Source of Employment:

Babasab patil notes

Unemployment is critical problem of Nepal.

High population growth further

aggravated this problem. The population is growing at the rate of 2.25 per cent per
annum and 300,000 labourers enter the labour market every year 47 per cent of the
total population remain unemployed. The projected total employment from tourism
industry is 257,000 for FY 1997, and 685013 for FY 2015. In 2002 mountaineers
expedition teams employed 10,599 persons.
(c) Development of Handicraft Industries:
Tourist industry helps to boost up ailing handicraft industries. These industries are
source of income to rural people.

Tourists like to buy various types of goods and

handicraft products.
(d) Source of Government Revenue:
Tourism is also the source of income of the government. The Government receives
income from royalties paid by the mountaineering expeditions, visa fees and taxes
paid by the hospitality sector.
(e) Manpower Development:
The development of tourism requires different types of manpower like tourist guides,
personnel in hotel and travel agencies. To supply necessary manpower for tourism
industry, the Hotel Management and Training Centre provides training on tourism
related subjects. Even in higher education of Tribhuvan University, hotel and tourism
management courses are provided.

This subject is getting popular among the

students.
(f) Development of Business;
People come to visit not only to spend holidays but also promote business between the
countries. In 1995 some 21829 persons and in year 2002, 16,990 visited Nepal for
business purpose. This helps to develop trade between countries.
(g) Development of far off places:
Most of the tourists come to visit for mountaineering, trekking and pilgrimage. They
travel different parts of the country for days, this helps to generate development
activities in remote parts of the country.
(h) To Promote Friendly Relation:
Babasab patil notes

Tourism helps to promote friendly relation among people of different countries. This
helps to establish peace among the countries and avert conflict. Love, affection and
friendship will be fostered when people meet one another. People can also learn and
exchange ideas.
(i) Improve Balance of Payment:
Nepal being developing country, the value of imported goods and services is many
times more than value of export causing unfavourable balance of payment.

The

foreign exchange earning from tourism industry helps to correct unfavourable balance
of payment.
5. Problems of Tourism Industry in Nepal:
Irrespective of great potentiality of development of tourism industry in Nepal, it is not
progressing satisfactorily. Even Visit Nepal Year could not attract expected number of
tourists.

The main obstacles for the development of the tourism industry are as

follows:
(a) Internal and External Disturbances:
One of the most important factors, which affect the flow of tourists, is internal and
external disturbances.

Since the restoration of democracy in 1991, Nepal had

numerous strikes and protests. Maoist problem has further deteriorated internal
security. The Twin Tower Trade Center attack in the USA in September 11, 2001 has
had negative impact in Nepali tourism as well.

Thus, internal and international

disturbances not only slowed down the growth of tourism it even decreased the
number of tourist arrivals.
(b) Pollution:
The cities in Nepal are labelled as one of the most polluted areas in the world.
Occasional solid-waste dumping problem in Kathmandu city has destroyed the image
of Nepal. Even in trekking routes and along the trail of famous peaks, garbage left by
trekkers and mountaineers is also acute.
(c) Lack of Adequate Transportation and Communication Facility:
Although Nepal has many breathtaking beautiful places like Rara lake, Humla, Jumla,
Muktinath etc they are not easily accessible by road and regular air services. As such
torurists can not visit such places easily. This is one of the reasons for shorter stay of
Babasab patil notes

tourists in Nepal. On average tourists spend only one week in Nepal. Shorter duration
of stay has reduced the possibilities of earning more foreign exchange.
(d) Quality Hotels:
By the end of 1999 there were 785 hotels out of which 95 were star hotels and 690
were non-star hotels. The number of hotel beds were 32,214 upto 1998. Most of star
hotels are located in Kathmandu valley. All the hotels do not have required facilities to
encourage the tourists to lengthen their stay.
(e) Tourist Sites:
The historical, religious and other tourist sites are not well developed. Most of the
beautiful temples are in bad condition. Even in Kathmandu city, historical monuments
like Dharahara, Swayambhu area, Pashupati area etc are not well tended.

Lumbini

which is sacred place for Buddhists all over the world, is not kept clean even after
implementation of master plan for many years.
Tourism industry is most sensitive industry. Any kind of negative information deters
arrival of tourists. Once the potential tourists are lost, it is very difficult to win them
back. Thus, keeping country clean and safe is very important to attract the tourists. If
tourists take back pleasant memories of their visit to Nepal, they tell this to their
friends and relatives back home.

Their presentation of image of Nepal is most

important to lure other potential tourists.

6. Visit Nepal Year 1998.
The Visit Nepal year 1998 was implemented with much publicity which aimed to attract
5 Lakh tourists within a year, extend stay up to 13 days and increase income from the
growth of tourists.

The major objectives of visit Nepal year 1998 were to further

enhance the image of Nepal to the world as a unique visitor's destination. Plan was
made for the effective campaigning to familiarize Nepali art, skills and cultures to the
world, to increase number of tourist arrivals.

During the campaign year a total of

463,684 tourists visited the country.

7. Tourism Development Programme in the Tenth Plan:

In consideration of the already emerging importance of tourism
industry the current plan (Tenth Plan) aims at sustainable
development of tourism sector; protection, conservation and
Babasab patil notes

practical use of historical, religious, cultural and national

heritage sites; and make air transportation secured, dependable
and affordable to all.
8. Measures:
Tourism is not only world's most profitable business but also a volatile and
unpredictable business. Any bad image or negative information about the country will
easily change tourists destination. Thus, to avert any such adverse impact following
measures should be taken to develop tourism industry.
(a) Environment Situation:
Environmental situation in and around tourist destinations should be clean and healthy.
The concerned authority should take their responsibility seriously and sincerely.
Besides, campaigns should be launched to raise civic and sanitation awareness of the
people. Anti garbage dumping measures should be strictly implemented.
(b) Pollution:
Pollution situation in Kathmandu valley should be controlled. The vehicle emission test
must be strictly implemented.
(c) Ensure Security:
Political and social situation of the country must be peaceful. The government must
ensure security of visitors in the country. The general strikes and unstable political
environment always rips the tourism industry.

(d) Depedable Trasportation:

Transportation system should be secured and dependable. Tourists come to visit Nepal
to relax, enjoy place and learn new things with planned time and budget. Any slight
lacking in transport facility discourages to lengthen stay and their revisits.
Tourism Industry Related Organizations:
Following are some of the associations related to tourism industry;
-

Nepal Association of Travel Agents (NATA)

Pacific Asian Travel Association (PATA)

Nepal Mountaineering Association (NMA)

Babasab patil notes

Union of International Alpine Association (UIAA)

Trekking Agents Association of Nepal (TAAN)

World Tourism Organization (WTO)

Hotel Association of Nepal (HAN)

xxx
Mountain Tourism:
Policy of opening up more mountains for climbing, the government has already opened
326 peaks for climbing. It has come up with different tourism friendly polices to
facilitate mountain tourism. Some of the proactive steps that the government has taken
towards this end include waiving the royalty on 20 peaks, reducing the royalty by 75%
for 40 peaks and provision of liaison officers for peaks above 6500 meters only.
Mountain tourism generated over Rs.18 million in royalty in 2003.

5. Role of Privatization in Nepal.

The economic reforms was started during mid 1980s in Nepal under the World Bank
and IMF Structural Adjustment Programme.

The first elected government in 1991

initiated the process of globalization and economic liberalization in the country.

1. Objectives of Privatization:
The act of privatization was introduced in Nepal in 1994. The main objectives of
privatization are as follows:
(a) To reduce financial and administrative burden of His Majestys Government.
(b) To ensure efficiency and productivity.
(c) To expand private sector participation.
(d) To stimulate overall development in the country.
2. Measures taken for privatization.
Following measures have been adopted for privatization.
(a) Selling the assets of enterprise concerned. For example, Bhrikuti Pulp and Paper
Factory, Leather and Shoe Factory and Harisiddhi Bricks and Tiles Factory were sold
to private sector.
(b) Giving on Lease:
For Example Bhaktapur Brick Factory Ltd was leased for 10 years from Aug 1997.
(b) Selling shares to people:
Shares of Agriculture Tools Factory Ltd, Nepal Bank Ltd, Raghupati Jute Mills, Rawhide
Collection and Development Company, Bitumen and Barrel Industries Ltd, Nepal Lube
Oil Ltd, and Nepal Film Development Company were sold to the public.
Babasab patil notes

(c) Liquidation of the company:

Tobacco Development Company and Nepal Jute Development and Trading Company
had been liquidated.
Regarding privatization, there are both negative and positive points. They are briefly
discussed below:
3.Defects of Privatization:
Privatization is considered bad because of the following reasons:
a) Profit motive:
The private sector investors are in general only interested in making profit. As a
result, the consumers are likely to be exploited by the private sector producer.
b) Public Welfare Ignored:
Private sector producers only produce those goods, which are profitable.

Thus

goods which are necessary for increasing public welfare may not be produced.
c) Wastage of Resources:
Generally luxury goods bring more profit than essential goods. Thus, private sector
producers produce luxurious goods at the cost of essential goods.
d) Exploitation of Labour:
Under privatization, workers are exploited because they are forced to accept
minimum wage and limited facilities. Security of job is also lacking.
e) Lack of Government Responsibility:
Once industries are privatized, governments responsibility to provide people
welfare is also reduced.
e) Development of Remote Areas Neglected:
Private sector concentrates its business only in urban areas. Thus, remote and
backward areas are neglected.
4. Needs of Privatization:
Privatization is recommended because of following advantages:
a) Free Competition:
Free competition reduces the cost of production and consumers can get goods at
cheaper price.
b) Optimum Utilization:
Under market economy, resources are utilized in optimum way.
c) Technical Development:
For healthy competition, efficiency is essential.

Thus producers try to improve

technique of production to increase efficiency. This helps to produce goods at cheaper

price.
Babasab patil notes

d) Employment Opportunities: Private producers work hard to expand the business and
make profit. With the increase in profit more investment is made and employment
opportunities increases.
e) Loss Prevention: Losses in business leads to close of business. Private producer
always tries hard to avoid losses.
f) Workers Participation:
In modern organization, workers are also given opportunity to participate in
organization by allowing them to purchase share of the company. In this, way even
workers can own the business.
g) Capital Mobilization:
When the public companies are sold to private sector the unutilized private sector's
capital will be mobilized to prevent losses.
6. Liberalization:
Liberalization

means

non-intervention

of

government

in

economic

activities.

Privatization is a part of liberalization. The transfer of economic activities of a country

from a government sector to private sector is known as privatization.
Liberalization policy has adopted following measures:
a. Registration and Licensing:
License is provided to all industries except defense industries.
b. One Window System:
Different facilities required for industries are given from one source like water,
power, transport and communication.
c. Encouragement of Foreign Investment:
Necessary facilities will be given to remit the profit and repatriate capital in
home countries to the foreign investors.
d. Loan:
Nepal Industrial Development Corporation (NIDC) provides loan to industrialists.
They are also granted foreign exchange facilities.
e. Foreign Trade:
Foreign trade has been liberalized. No restrictions have been imposed on export
and import of goods except those goods, which are in the negative list.
f. Foreign Exchange:
Foreign currencies can be sold and purchased openly in free market without

restriction.
g. Financial Sector:

Babasab patil notes

Financial sector is liberal. There is no restriction in establishment of commercial

banks in private sector. Banks can fix rate of interest on competitive basis.
h. Capital Market:
Capital market has been opened for private sector. Investors can buy and sell
shares, bonds and debentures in open market.
i.

Guarantee Against Nationalization:

Government has given guarantee that none of the enterprises will be

nationalized.
Forest Sector:
Forest sector has also been made liberal. Provision has been made for private and user
group community forests.
Power Sector:
Power sector has opened to the private sector.
The experience of Nepal for more than a decade shows that liberalization has not
benefited the poor people except rich people of urban area. It has been criticized as
anti-rural, anti-poor and anti-agriculture.

It has not been able to reduce the

magnitude of poverty and create employment to the growing population.

On the contrary, it has further perpetuated inequality in asset and income distribution.
It is suggested that liberalized policy should be implemented to benefit the poor and
rural people as well. It means to say that liberalization should be with human face.

11: TRANSPORTATION AND COMMUNICATION

Efficient transport and communication systems play a vital role in economic
development of a country. The transport and communication system provide the basic
infrastructure for the progress of underdeveloped country like Nepal.
The major means of transportation are road, airways, waterways, cable car, railways,
trolley bus, and ropeways. Similarly, the major means of communication are radio,
newspaper, television, internet and telephone.
1 Role of Transport:
a) Development of Tertiary Industry:
Banking,

hotels,

insurance

companies,

schools,

hospitals,

transports

and

communications are known as tertiary sector. At present, tertiary sector is

considered as the second largest sector, which provides employment to large
Babasab patil notes

number of people. Additional employment opportunities will be created with the

development of transportation and communication.
b) Agriculture:
The development of transportation and communication systems helps timely
distribution of fertilizer, improved seeds, modern agricultural tools and other
agricultural inputs which help to increase agricultural production. Besides inputs, the
development of transport and communication help to disseminate technology through
radio and television programmes and print media.

The Radio Nepal and Nepal

Television broadcast agricultural programmes regularly, which provide important

information about seeds and its uses, information about various crops, poultry farming,
fishery, livestock as well as proper use of fertilizer and insecticide etc.
c) Extension of Market:
Efficient and cheap transportation and communication facility enlarge the market
for goods. Rural transportation facility helps small farmers and artisans to bring
their products into market and get reasonable rewards for their hard labour. The
availability of transport and communication facility can also help to minimize
exploitation of middlemen.
d) Industrial Development:
Transportation and Communication are essential for the development of industrial
sector in the country. The availability of cheap and efficient means of these
infrastructures provides access to the market for inputs as well as for the outputs.
Industrial development helps the country to achieve rapid economic development.
Industrial development is necessary even to develop agriculture sector.
e) Increase Mobility of Labour:

The transportation system helps in the mobility of people. They can move from one
place to another to work. This will help to solve the problem of unemployment and
underemployment. The mobility of laborer helps to get better and remunerative jobs.
Similarly, facility of communication provides information to the people regarding job
opportunities in different places.
f) Development of Natural Resources:

Babasab patil notes

The development of transport and communication help to mobilize the natural

resources like forest product, water and mineral resources. Unexplored natural
resources can be utilized for the economic development of the country. Similarly, the
development of roads helps in the conservation of forest and wildlife too.
g) Balance Regional Development:
Several villages of Nepal are located in remote areas and these villages are yet to have
basic facilities like education, health and security. To develop these areas and provide
basic facilities to the people, transport and communication play a vital role.
h) National Integration:
Easy and cheap transportation and communication provide opportunity to meet people
from different parts of the country. Such opportunity help to bring people closer and
discuss problem, exchange ideas, know each others tradition and culture, which help
them in understanding local and national situation. This again creates environment for
collective endeavor for viable solutions to the national problems. These activities help
in generating feeling of national integration among the people.
i) National Defense:
Well-developed transport and communication system is equally important for national
security and unity.

During national crisis, arms and ammunition and defense

personnel should be able to move easily in different parts of the country. Similarly,
efficient and effective communication system helps the quick action and relay
important messages to appropriate authority.
j) Supply of Food in Deficit Areas:
Hill and mountain areas face food deficit every year due to difficult terrain. But in low
land Terai, food is usually in surplus. The facility of transportation plays important
role to carry food from surplus areas to deficit areas.

At times, the situation gets

worse and had to airlift the basic food grains to deficit areas, which is expensive.
k) Tourism Development:
Tourism is one of the important industries for employment generation in the
country.

It also earns foreign currencies and also develops cottage and village

industries.

The development of transport and communication is prerequisite for

tourism development. Tourists come to enjoy natural beauty, visit religious places,
Babasab patil notes

for trekking and experience indigenous culture. Without the efficient facility of
transportation and communication, tourists cannot be attracted and their stay in
Nepal will be short.
2. PRESENT SITUATION OF TRANSPORT AND COMMUNICATION:
a) Road:
Road is major means of transportation in Nepal. Roads can be basically classified into
three types black topped, graveled and earthen.

The major roads are Mahendra

Highway, Tribhuvan Rajpath, Siddhartha Rajmarg, Prithivi Rajmarg, Dharan Dhankuta

Rajmarg, Arniko Rajmarg and Mechi Rajmarg. Though, road is an important means of
transportation, 14 districts of Nepal do not have facility of roadways. Similarly, 18
district headquarters of the country are not connected with road network. Many
villages are still isolated from neighboring villages due to lack of basic facility of roads.
The total length of road in 2007 B. S. was only 376 km. In the beginning of the first
plan in 2013 BS, the total length of road was 624 km. The Nepal Road Statistics
2000AD records construction of road so far is 15905 km that include 29% blacktop,
24.9% graveled and 46.1% earthen.
Type
Black topped
Graveled
Earthen
Total

Km
4,617
3,958
7,330
15,905

Plan Year

Year of the Start of Plan

2007 BS
First
2013 BS
Second
2019 BS
Third
2022 BS
Fourth
2027 BS
Fifth
2032 BS
Sixth
2037 BS
Seventh
2042 BS
Eighth
2049 BS
Ninth
2054 BS
Source: Ninth Plan Document.

Portion in %
29.0
24.9
46.1
100

Total Length/km
376
624
1193
2049
2730
3173
4940
5925
8851
11714

b) RAILWAY:
The first railway line, which is known as Nepal Government Railway (NGR), was
constructed in 1927.

It covers a distance of 29 miles from Amlekhgunj, Nepal to

Babasab patil notes

Raxaul in the Indian border. This railway is not in operation now. The other railway
line, which is known as Nepal Jayanager - Janakpur (NJJR), was constructed in 1935. It
is a narrow gauge line. This is the only railway line currently in operation in the country.
It is improved and extended to 51 km. A feasibility study of the East-West railway and
Janakpur- Bardiabas railway is going to be carried out. Raxaul-Birgunj broad-gauge
railway is also under construction. It will connect with dry-port in Birgunj. The main
purpose of this line is to shuttle cargo between Birgunj dry port to Calcutta port.
c) TROLLEY BUS:
Kathmandu-Bhaktapur trolley bus service is the only trolley bus service in Nepal. It is
13km long. There was a plan to extend the service in Kathmandu along ring road
during the Ninth Plan period. There is also plan to undertake a detailed study in other
parts of Nepal.
d) AIRWAYS:
The air transport started in Nepal in 1950 with a weekly Patna-Kathmandu service
operated by Indian Airlines Corporation. The Royal Nepal Airlines Corporation
(RNAC) was established to cater internal air services in Nepal from 1957. Latter, it
started air service to India, Thailand, Hong Kong, Singapore, Shanghai and to
Osaka.

Similarly, for some years RNAC operated its flights to London and

Frankfurt via Dubai. There are 44 airfields in the country. There has been a rapid
expansion of air transportation in Nepal after the adoption of open-air policy in
the country in 1990s under which private sector airlines came forward to operate
in major internal air destinations.

Currently, some nineteen private airlines are

operating in the country with small aircrafts and helicopters.

The RNAC, the national flag carrier is operating international flights. A total of
1,771,000 passengers used domestic flights in F. Y. 1999/2000. Similarly, in the
same year 721,000 passengers traveled by international flight. The Government
has also granted permission to operate ballooning in Kathmandu valley and ultra
light gliding services in Pokhara valley for sightseeing purpose.
e) Rope way:

The first rope way was constructed in 1927 A. D. It covered a distance of 14 miles
from Dhursing to Matatirtha. (Ichangu to Lainchaur, Hetauda to Teku) Now it does not
exist.

Babasab patil notes

The Cheres (Kuringhat) - Manakamana Cable car services, operated by Manakamana

Darshan Pvt.Ltd, is a recent venture started in 1998. It covers a distance of 3.1 km.
This service has made the journey to Manakamana Mai Temple comfortable, quick and
convenient for pilgrims and interested visitors.
Ropeways
Ropeways using cables to transport freight were constructed as part of an effort to
provide transport facilities for the populace and to replace human and animal power as
a means to traverse the difficult terrain. The first ropeway was initiated in 1922 and
was extended twice until reaching its forty-two-kilometer-length.
In the early 1950s, many goods were transported to Kathmandu using ropeways.
Ropeways have become less important with the development and extension of roads.
Nonetheless, the forty-two- kilometer ropeway that traverses Hetauda into the
Kathmandu Valley still was operational in 1991. The transport of food, construction
materials, and heavy goods on that ropeway could be accomplished at the rate of
twenty-two and a half tons of freight per hour. During the 1985 to 1989 period, the
ropeway carried approximately 12,000 tons of freight per year.

Data as of September 1991

3 Present Situation of Communication in Nepal:

a) Postal Communication:
Postal service, which is the oldest and foremost means of communication in Nepal, was
started in 1875. It has improved its service quality and expanded the service area. By
FY 1999/2000, postal services were provided by 4033 post offices.

There are one

general post office, 5 regional post offices, 70 district post offices and 827 area post
offices.

There are also 3130 additional post offices.

The postal saving service is

provided in 116 post offices. There is also Express mail service to about 22 countries.
b) Telecommunication:
Telephone services started during the Rana regime. After 1956, telephone services
was expanded in Nepal. Telecommunications Corporation is providing both internal
and external telephone links. As of March 2001, a total of 275,558 telephone lines are
in operation and a total of 1726 VDCs are linked with telephone service. There is also
a cellular mobile service in Kathmandu, Biratnagar, Birgunj and Pokhara. Even in
remote areas where electricity has not reached, telephone is operating with the help of
solar energy.
Babasab patil notes

c) Newspaper:
The oldest vernacular daily is Gorkhapatra. After the restoration of multiparty
democratic system in the country, there has been a considerable increase in the
number of daily newspapers, weekly and fortnightly magazines. As of mid April 2001,
the total number of newspapers registered in various districts in the country reached
2870. The government provides a subsidy on newsprint for newspaper publication.

Since 2001, the government has been providing cash subsidy based on advertisement
of public interest.
d) Radio Broadcasting Service:
The Radio Nepal was established in 1950. It is the oldest radio station, which provides
radio broadcasting services all over the country through short and medium waves. It
broadcasts news in different languages in addition to various informative, educational
and agricultural, and entertainment programmes. With the implementation of liberal
radio broadcasting policy number of FM stations came into existance in Kathmndu

valley and in other districts.

Besides above means of communications, these days internet and E-mail are fastest
and widely used means of communication.
12 FOREIGN TRADE
1

Meaning
Trade is one of the age-old occupations of the human civilization. In earlier years
of civilization, traders traveled from one place to another bearing great hardship to
trade merchandise.
Trade is of two-type (a) Domestic Trade and (b) Foreign Trade.
Trade done within the country is known as domestic trade. In villages, people

buy and sell goods at Hat Bazar which take place weekly and on special occasions
whereas in urban areas trading takes place everyday. Due to increased transportation
and communication facilities, domestic trade is also expanding very fast.
The trading with foreign countries is known as foreign trade.
2

Importance of Foreign Trade:

Foreign Trade plays an important role in the economic development of a country.

Nepal needs different types of goods such as, machinery, equipment, technology and
technical knowledge for the economic development of the country.
Nepal is
Babasab patil notes

predominantly agricultural country. Modern technology, machines and other raw

materials are very important to modernize agriculture for better yield and to develop
industries in the country. The role of foreign trade in economic development of Nepal
is briefly discussed below.
(a) Economic Cooperation:
The economic cooperation of other countries is necessary for the economic
development of any country.

Two and more countries can form their economic

association and work for mutual benefits and for common interest. The South Asian
Free Trade Agreement (SAFTA) agreed between the seven regional countries under
South Asian Association of Regional Cooperation (SAARC), ASEAN, European Common
Market (ECM) are the examples of mutual cooperation in economic development of the
member countries. Similarly, Bangladesh, India, Myanmar, Sri Lanka and Thailand
(BIMST) economic cooperation was formed in 1997. Nepal and Bhutan were admitted in
the group in 2004. Nepal has also joined World Trade Organization (WTO) in 2004.
(b) Specialization:
Foreign Trade helps to produce goods at cheaper price. Because, when a country
enters into foreign trade she can produce only those commodities, which have
comparative advantage and import other goods at cheaper price from the foreign
countries. For instance, Nepal being agricultural country it is not economical to
produce machines, equipment, means of transportation, and electronic products
etc. These products can be imported and Nepal can concentrate in the production
of those goods like Carpet, Readymade Garments, Pashmina, handicraft and
agricultural products. Through specialization, Nepal can enjoy the economies of
large-scale production.
(c) Advantageous in Emergency:
The foreign trade is also the source of meeting the urgent need of certain
commodities. The emergency may be caused due to flood, storm, fire, famine,
earthquake, landslide, war etc. Importing goods specially foodstuff may fulfill the
requirement in the emergency situation. In old days whenever famine occurred, people
died due to starvation. Such problems can now be averted through foreign trade.
(d) Supply of Scarce Commodities:
Because of geographical diversity, all the countries are not able to produce all
the goods.

For instance, Middle East countries are rich in oil resources. These

countries export oil and import the necessary goods from other countries. Similarly,

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Nepal lacks machinery, equipment and many other commodities, which are imported
from other countries. All these activities come under the foreign trade.
(e) Exchange of Technical Know-how:
Acquiring of modern technological knowledge takes long time.

At the same

time, it is very expensive to develop all the necessary technology for rapid economic
development in the country. Therefore, the developing countries are obliged to import
suitable technology from foreign countries.
(f) International Cooperation:
The trade relationship between the countries brings the countries closer. The
economic cooperation leads to friendly relation among the countries, which help to
foster international peace and solidarity.
(g) Industrial Development:
International trade helps developing industry through the import of raw material
and capital goods.
Assembly industries basically based on electronics and electric goods such
Television, VCR, DVD, Air conditioners, Vehicles, Computers etc, assembled here for
domestic market. There are also some electronic components, which are made here
for export.
Another recent exportable commodity is computer software programmes.
3. Features of Nepali Foreign Trade:
The following are the features of Nepali foreign trade:
(a) Growth and Trend of Foreign Trade:
Trade relation of Nepal with India and Tibet is very old. Nepals major trade
partner is India. Trade with third countries started only after 1956 AD, and trade with
overseas countries started after the implementation of trade diversification policy
during third plan (1965-70 AD).
Volume of Foreign Trade

Value in 000

Rupees
Fiscal

Export

in

Import

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in

Total trade

Trade

Year

Total

1998/99

35,269,2

Total

27.7

92,003,39

72

72.3

Deficit

127,272,6

56,734,1

62

18

1999/20

49,561,0

30.4

113,687,1

69.6

163,248,1

64,126,1

00

28

31.7

49

68.3

77

21

2000/20

55,245,9

30.05

118,786,6

69.6

174,032,5

63,540,7

01

00

27.8

09

72.2

09

09

2001/20

47,386,7

108,664,8

156,021,5

61,248,0

02

88

01

89

13

2002/20

50,494,3

131,041,8

181,536,1

80,547,5

03*

22

34

56

12

Source: Trade Promotion Centre & Nepal Rastra Bank 2002/03.

*Provisional

The total volume of foreign trade in FY 1998/99 was 127,272.7 million and trade defic

56,734.1 million. Similarly, balance of trade is deficit in other years also. The volume of trade

2002/2003 was 181,536.2 million. As compared to FY 2001/2002 export has been decreased by ne

2.3 percent in 2002/2003 amounting to Rs.50,494 million while in the same period import ha
increased by 2.6 percent amounting to Rs.181,536 million.
(b) Composition of Foreign Trade:
The composition of foreign trade refers to export and import according to major
items of export and import. According to the Standard International Trade
Classification (SITC) major items of export and import are shown in the following Table.

Composition of Foreign Trade according to SITC group.

1998/99

(Rupees in million)

1999/2000

SITC Group

Export

Import

Export

Import

Food and Live Animals

3724.5

7619.5

5390.9

10,734.
7

Tobacco & Beverage

50.0

846.1

110.4

941.2

Crude Materials & Inedible

469.9

6246.7

526.8

7232.0

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Minerals Fuels & Lubricants

0.5

8737.5

2.0

9113.9

Animals & Vegetable oil & Fats

3597.2

333329.

3605.6

4445.9

0
Chemical & Drugs

2804.0

12476.4

4075.8

15464.6

Classified by Materials

13539.6

25638.0

16013.7

33408.8

18063.7

384.2

20227.4

4302.4

21513.6

5320.2

Machinery

and

Transport 97.8

Equipment
Miscellaneous

Manufactured 11392.8

Articles
Not classified

0.0

266.0

0.0

78.1

Total

35676.3

87525.3

51623.0

106966.
8

Source: HMG, Ministry of Finance, Economic Survey 2000/2001.

Note: Figure for 2000 is provisional (First Eight Months)

As shown in the above table total exports in FY 1998/99 Rs.35,676.3 and

increased to Rs.51,623.00 in FY 1999/2000. Similarly, total import is Rs.87,525.3
million in FY 1998/99 and increased to Rs.106,966.8 millions in FY 1999/2000.
Above table shows that miscellaneous finished goods constitute 41.7 percent of
total export. Woolen carpets and readymade garments are major items of export to
overseas countries while traditional export items like rice, vegetable oil, jute goods,
mustards, herb, dried ginger are the major items of export to India.
As for the items of import according to STIC grouping, finished goods, transport
and mechanical equipment, chemicals and medicines, minerals fuel, fats, food items
and livestock are major items of import.
(c) Direction of Foreign Trade:
Nepal has signed trade agreement with 17 countries. The major trading partners
are Austria, Bangladesh, Belgium, China, France, Germany, India, Italy, Japan, New
Zealand, Singapore, Switzerland, U.A.E, U.K. and the U. S. A.

Nepal has trade with

about 50 countries of the world.

Major Trading Partners of Nepal.

Rupees

Babasab patil notes

Value in 000

Countries

Export

Countries

Import

FY

FY2002/03

FY

FY

2001/02

2001/02

2002/03*

27,956,20

26,913,20

56,622,10

73,737,90

USA

9,377,832

12,686,53

Singapore

7,346,919

9,039,197

Germany

4,043,218

China

4,315,803

4,760,342

India

India

3,555,327
UK

808,751

1,070,737

Malaysia

4,818,356

4,009,640

Italy

566,557

530,869

Indonesia

2,877,654

3,976,734

Japan

492,833

474,247

Korea R

2,500,974

3,380,348

France

473,472

453,961

Thailand

3,278,165

2,988,929

Portugal

NR

414,680

Saudi Arabia

3,654,905

2,363,956

Banglades

NR

411,335

Germany

NR

2,278,356

Canada

305,978

383,651

Hong Kong

2,461,194

2,276,995

Switzerlan

382,823

NR

U.S.A.

2,525,603

NR

Belgium

295,140

NR

U.K

NR

NR

Sub Total

44,702,80

46,984.54

Sub Total

90,401,67

10,881,23

97

2,683,984

3,599,778

Other

18,233,12

22,229,43

Countries

Grand Total

108,634,8

131,041,8

01

34

Other
Countries
Grand

47,386,78

59,494,32

Total

Source: Nepal Rastra Bank & Trade Promotional Centre, 2002/03.

* provisional
As shown in the above Table India is still major trading partner. Of the total,
export to India amounting to Rs.26,913 million (52.2%) in FY 2002/2003 which was
Rs.27,956 million in FY 2001/02. This shows export to India has been decreased by
Rs.1,043 million. In third countries export has been increased by 13,150 million.
Similarly,
import from India recorded to Rs.56,622 million in FY 2001/02 which increased to
Rs.73,737 million in FY 2002/03. In third countries import in FY 2001/02 was 45,758
million and in FY 2002/03 it was Rs.60,633 million an increment of Rs.14,875million.
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Nepal continues to face trade deficit. The major reasons of trade deficit with
India are as follows;
- Tariff preference to Indian commodities.
- Unlimited exchange facilities of Indian currency.
- The production cost of exportable industrial products in Nepal is high and of low
quality than in India.
- Lack of storage facility for agro products.
- Lack of adequate transit.
- Illegal/unauthorized trades in the border areas.
Similarly growing trade deficit with other countries is due to the following
reasons:
- Increase demand of foreign goods in the market
- Tariff and non-tariff barriers like volume control against Nepali products.
- Failure to find new products and market.
4. Problems of Foreign Trade:
(a) Land Locked:
Being landlocked country, Nepal needs unrestricted and free transit facilities
with India, especially its nearest seaport is in Calcutta.

According to international

conventions, Nepal is entitled to get free transit facility like any other land locked
countries getting in the world.

However, experience is not always positive.

Many

times, Nepal had bitter experience in respect of transit facility.

(b) Limited Items of Export and High Import:
Nepal exports limited items like woolen carpet, readymade garments, Pashmina and
handi crafts, whereas, it imports almost everything including luxurious goods. Traders
import luxurious goods because of high profit margin.
(c) Export of Primary Products:
Nepali exporters get low price because most of the products are of primary nature.
The same products are imported after processing at high price. This has created a
huge deficit in balance of payment.
(d) Different Tariff and Non-tariff Barriers:
The trading partners have adopted protective policy exercising tariff and no-tariff
barriers, from time to time. For instance, introduction of quota in the U.S.A. market

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has reduced export of readymade garments. Similarly, involvement of child labour has
reduced the export of carpet to European market.
The quota imposed on Vegetable Ghee has again limited its export to India.
(e) Illegal Border Trade:
The unauthorized trade takes place through out the borders between India and
Nepal.

Smuggling of goods is done both in export and import of goods. Persons

involved in the illegal business enjoy high profit. This is a serious problem for both the
countries.
(f) Lack of Market Information:
Businessmen lack adequate information about the requirement of foreign market.
The problem further increased by failure to find out new line of exportable products
and new market.
(g) Lack of marketing images:
Another problem is lack of qualitative products.

This has hindered the

continuous export of quality of products.

(h) Lack of suitable policy:
Liberal trade policy has increased the imports of goods tremendously, but
export has not improved. As the result trade deficiant is widening every year

13 BANKING
1. Meaning of Bank.
The term "bank" referres to an organization, which exchanges one currency into
another. The modern days banks are those institutions, which receive deposits from
people and give loans and advances to its clients.
Bank can be classified into different kinds on the basis of work they perform.
Mainly, there are three types of banks. They are Central Bank, Commercial Bank and
Development Bank.
Banks are important institutions for the economic development of any country.
The banks help people to earn interest out of their savings and also provide loans and
advances to the people who want to undertake investment and operate their own
business. The history of banking in Nepal commenced only after the establishment of
Nepal Bank Limited in 1937 AD as a commercial bank. The Central Bank of the country
- Nepal Rastra Bank was established in 1956 AD.

The second commercial bank,

Rastriya Banijya Bank was established in 1956 AD in the public sector. After that many
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other developmental banks were established.

The Nepal Industrial Development

Corporation (NIDC) was established in 1959 AD to provide finance to industries in the

country.

Similarly, a cooperative bank was established in 1963 AD which was

converted into Nepal Agricultural Development Bank (ADB/N) in 1968 AD to finance

agricultural sector.
The first joint venture bank, Nepal Arab Bank was established in 2041 BS, Nepal
Indosuez Bank in 2042 BS, change the name after owning it by Nepalis as Nepal
Investment Bank in , Nepal Grindlays Bank Limited 2043 BS, now Standard Chartered
Bank and Himalayan Bank Limited in 2049 BS.
After that number of other joint venture, banks came into existence. After the
restoration of multiparty system and introduction of financial liberalization policy, the
financial institutions and financial activities expanded in the country in the form of
commercial banks, finance companies and cooperative societies.
There are 142 financial institutions, which have been granted permission from Nepal
Rastra Bank to operate banking services in 2059 BS. In the same year there were 16
commercial banks, 16 Development Banks, 5 Rural Development Banks, 53 Finance
Companies, 18 NGOs and 34 cooperative societies including one women cooperative
bank managed and run by women.
2. Nepal Rastra Bank (NRB).
The Nepal Rastra Bank is the central bank of the country.
manages it.

A Board of Directors

The Chief or Head of the bank is called Governor.

The Government

appoints the Governor and other members of the Board of Directors. The Nepal Rastra
Bank is responsible for implementation of the government policy relating to financial
matter. It was established in 1956 AD. The main functions of Nepal Rastra Bank are as
follows;
(a) Issuing of Nepali Currency Note:
The Nepal Rastra Bank has monopoly of issuing currency notes. It started to issue
notes from 2016 BS. The bank also issues coins, which is minted in the Department of
Mint. It has guaranteed to make payment of amount stipulated in the currency notes.
The Bank has to keep security in the form of gold and foreign currencies against the
issuance of currency note. The Bank has adopted proportionate reserve system for
issuing the currency notes under which 50 percent of the reserve should be kept in
domestic and 50 percent in foreign currencies, securities and gold. The Nepal Rastra
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Bank has issued currency notes of different denominations - Rs.1000 being the
highest and Rs.1 is the lowest.
(b) Bankers to the Government:
All the offices of His Majesty's Government make financial transactions through Nepal
Rastra Bank. The Bank keeps the cash balances of the government as it plays the role
of the banker to His Majesty's Government. It gives and receives payments on behalf
of the government. Whenever the government needs large amount of money, it floats
loan to the public. The Treasury Bill and Development Bonds are a few of the examples
of the medium of government loan.

The bank manages the public debt, paying

interest on the government securities and returns the amount when the loan gets
mature.
(c) Bankers' Bank:
Nepal Rastra Bank also acts as the banker to all banks in the country.

All the

commercial banks of the country have to keep deposit with Nepal Rastra Bank as
prescribed by it. The Bank fixes the interest rates for deposits with commercial banks
in the country. As a lender of the last resort, it also provides refinance facility to other
banks.
(d) Commercial Bank:
All the commercial banks and finance companies are required to observe rules and
regulations enforced by the Nepal Rastra Bank. It makes supervision of commercial
banks and finance companies and makes necessary recommendations for better
operation of these institutions.
(e) Control of Credit:
Nepal Rastra Bank controls credit by exercising various monetary measures in
order to maintain stability of internal price level and to promote economic growth
in the country. In order to control excess credit supply, Nepal Rastra Bank
exercises Bank rate policy, variable reserve ratio, open market operation and other
indirect methods.
(f) Controller of Foreign Exchange:
The Nepal Rastra Bank keeps reserve of foreign currencies. Transactions of foreign
currency have to be approved by Nepal Rastra Bank. Most of the commercial banks are
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authorized by the Central bank to deal with foreign currencies. The Nepal Rastra Bank
fixes day to day exchange rates of foreign currencies in the country.

Accordingly,

commercial banks base their buying and selling rates of foreign currencies.
Development Functions:
In addition to the conventional functions, Nepal Rastra Bank performs following
developmental functions also.
(a) Development of Banks and Financial Institutions:
The Nepal Rastra Bank has established Banking Promotion Committee to develop
banking facilities in the remote areas of the country. It provides compensation and
interest free loan to the branches of commercial banks operating in rural and remote
areas. It also provides training to the banking personnel to develop manpower for
banking development.

For this, it has established banking training centers. It has

established Rastriya Banijya Bank and provided financial assistance to establish Nepal
Industrial Development Corporation, Agricultural Development Bank, Nepal Stock
Exchange and Credit Guarantee Corporation.
(b) Priority Sector Credit:
Nepal Rastra bank has assisted to implement different credit programmes such as
priority sector credit and micro credit programme for women to develop cottage and
small scale industries, to fulfill credit need of the women and poor people in the
country. The programmes are implemented through branches of commercial banks
and other institutions.
(c) Economic Study and Publication:
Nepal Rastra Bank conducts research on various important issues in the country. The
outcomes of such researches help to provide government and other concerned
organizations with the information to formulate economic policies in the country.
Family Budget Survey, Agricultural Credit Survey, Industrial Survey and many other
studies have been conducted by Nepal Rastra Bank. It publishes Economic Reviews,
Economic Reports, Bulletin etc, which provide information on various aspects of Nepali
economy.
(3) Commercial Banks:

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Nepal Bank Limited is the first bank in Nepal. It was established in 1937 AD
under Nepal Bank Act. It has authorized capital of Rs.10 million and subscribed capital
of Rs.2.5 million.

The government has invested fifty one percent of the capital.

Second commercial bank is Rastriya Banijya Bank, which was established in 1965 AD.
The government owns it. Adoption of liberal economic policies allowed the entry of
many new banks in Nepal with foreign collaboration. Nabil Bank (originally Nepal Arab
Bank), Nepal Investment Bank (originally Nepal Indosuez Bank), Standard Chartered
Bank (originally Nepal Grindlays Bank), Nepal Bangladesh Bank, Nepal Bank of Ceylon,
SBI Bank, Himalayan Bank Limited, Bank of Kathmandu are few examples of foreign
collaboration commercial banks.
Functions of Commercial Banks.
Borrowing from people and lending to the people are the primary functions of the
commercial banks.
1. Borrowing/Accepting deposits:
Commercial Banks accept three types of deposits. They are (a) Fixed Deposit (b)
Current Deposit and (c) Saving Deposit.
(a) Fixed/Time Deposit:
Fixed deposits are those deposits, which are kept in bank's account for a specific
period of time. Such deposits can only be withdrawn after a specific time period.
The depositors get higher rate of interest in this kind of deposits. People deposit
money in fixed deposit for interest as well as safety. The fixed deposits in Nepali
commercial banks can be for 3 months, 6 months, 1 year, 2 years and above. The
commercial banks provide 7.25 - 8.50 percent of interest for 1-year time deposit
and 7.50 - 9 percent for two years and above deposit. The rate of interest is not
same in all commercial banks.
(b) Saving Deposits:
Saving deposits are made by the people whose main motive is to save money. Bank
pays interest on deposits to its depositers. They can withdraw money according to
their needs keeping minimum balance with the bank. The minimum balance differs
from bank to bank.

The range of minimum deposits goes between Rs.5000 to

Rs.20,000. The banks pay 2 - 5 percent of interest on saving deposits.

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There is also facility of home saving account especially for children and
uneducated people. The operating banks provide a box to the depositor and they
drop money whenever they have money.

Banks open the box and deposit the

amount in the bank on depositor's saving account.

(c) Current Deposit:
The businessmen need money constantly.
amount of money with them.

But, it is risky to keep large

So they deposit their money in current deposit

account with bank and withdraw according to their requirement.

The amount

deposited in this account can be withdrawn any time by drawing cheque without
giving any prior notice to the bank. Depositors do not get interest on this account,
instead they require to pay some service charge to the banks. A minimum balance
has to be maintained to operate current account in the banks.

The minimum

balance is different from bank to bank and ranges from Rs.10,000 to 25,000.
Recently, people are not so much interested to save money in the banks due to
the negative interest on their deposits.

Upper and middle-class people are

attracted to buy shares.

2. Providing Loan:
The second major function of commercial banks is to provide loans to the
needy borrowers against the security of gold, silver, stocks of goods and other
assets.

Before, commercial banks used to provide only short-term loans.

As

commercial banks take deposits on one-hand and advances loans from the other, it
would not engage its fund in risky loans. While providing a loan, commercial banks
should adhere to the principles of banking. That is to say, it should keep sufficient
liquid assets to meet the demand of depositors and provide loan to reliable
borrowers to make profit. The banks deal with other people's money that means
depositors' money. Thus, it will survive as long as it can obtain trust and good will
of the depositors. Any small rumour of bank's financial problem spoils the bank's
business and credibility. Thus, banks must be very careful while providing loans to
borrowers.
Types of Loan:
(a) Loan and advances:
The banks give loans and advances to individual, business firms, and
institutions for various purposes.

The banks provide loan against sufficient

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securities of gold, silver, government and non-government first class securities,

which are easily saleable without losing value. Banks sometimes provide loan on a
personal basis without security. Banks also provide loan against export bill. Such
loan is known as advances.
(b) Overdraft:
The banks provide overdraft facilities to known customers which are usually
business and trading houses. Overdraft means the facility of drawing more money
than what is deposited in the current account. Borrower needs to pay interest to
the bank only on the amount of over draft. For example, a depositor has only
Rs.50,000 in the account, but requires Rs.1,00,000/- to conclude a business deal.
When a depositor gets the overdraft facility, s/he is allowed to withdraw
Rs.1,00,000/- from the bank.

This facility depends on the discretion of

commercial bank's policy of lending.

(c) Cash Credit:
Cash credit is given against collateral of gold, silver and goods, shares, debentures
etc
(d) Discounting Bills:
Commercial banks also provide loans by discounting bills. The banks discount Bill
of Exchange. It purchases bills at market price, which is generally lower than the
written price. Upon maturity, the bank gets the amount written in the bills and the
rate of interest. In this way, bank makes profit by discounting bills. Banks also
purchase Treasury Bills, which is a short-term loan to the government. Usually, the
maturity date of a Treasury bill is 3 months.
(e) Investment:
Banks also invest on government securities, in shares and stock of other
banks and financial institutions as well as purchase property. For instance, Nepal
Bank Limited has invested on Nepal Insurance Company Limited, Standard Charter
Bank, Nepal Grameen Bank of all five development regions, Rastriya Bima Sansthan,
etc. Commercial banks generally do not undertake long term investments.
3 Agency Functions:

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These functions are known as secondary or agency functions. Banks collect

cheques, bills of exchange, promissory notes of customers on behalf of its clients
and make payment of insurance premium, rent, income tax etc. The banks also
purchase and sell shares and debentures in the stock exchange. The banks remit
the money of clients within the country as well as throughout the world through
demand draft, fax messages, telex messages, mail payment services and SWIFT
service.
4 Contingent functions:
Apart from the above mentioned functions, commercial banks perform many
useful functions to the community. It provides safety vaults or lockers in which
clients can keep their valuable documents and expensive jewelry in safe custody.
Commercial Banks deal with foreign exchange.

It issues letter of credit, credit

cards, and travelers' cheques with the approval of Nepal Rastra Bank. They publish
annual bulletins to provide information on the economic situation of the country.
Banks also issue references to person/s or institutions about their economic
conditions, which is required by other institutions to know about the individuals or
company's financial status. Usually, students aspiring to study in a foreign country
get certification of finances verifying their economic condition from the banks.
These banks also do government transactions with the permission of Nepal Rastra
Bank.
According to the directives of Nepal Rastra Bank; Nepal Bank Ltd. and Rastriya
Banijya Bank provide production credit for rural women (PCRW) and Micro Credit for
Women (MCPW). Under this programme designated commercial banks provide loan to
women for income generating activities against group liability. PCRW programme is
operating in 67 out of 75 districts. Similarly, micro-credit project for women is
operating in 12 districts and 5 municipalities. In MCPW; for the first time, 95 NGOs
have been involved in group formation, training and delivery of bank credit as social
intermediation. Both PCRW and MCPW have been successful in meeting the need of
poor women.
intensive

Besides group loan, commercial banks also make investment on

banking

programmes

such

as

Gobar

Gas

Programmes,

Livestock

Development Programme, Community Irrigation Programme and other women

development programmes.

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14 PUBLIC FINANCE
1

Definition:
The word "Public" refers to public authorities, which are both local and central

authorities while the word "Finance" refers to money. Thus, public finance deals with
income, expenditure, public debt and debt management. From the study of public
finance, we understand why government imposes tax and how and where it spends
money. It is a branch of economics dealing with the identification and appraisal of the
effects of the government's financial policies. It analyzes the effects of government
taxation and expenditure on the economic situation of individuals, institutions and
also on the economy as a whole.
Every government is required to maintain internal law and order and protect the
country from foreign aggression. Besides these essential functions, the government
also requires to provide public utilities and social services to the people. Classical
economists believed that the government should not interfere in the economic
activities of the people. But, after the Second World War the importance of government
activities has increased. Especially in developing countries, the government has to play
a crucial role in providing social services such as education, health, sanitation and
economic services like transport, communication, electricity and drinking water. The
enormous financial resources required to perform all these functions are obtained from
tax and other sources.
2

Sources of Government Revenue:

The income of His Majesty's Government of Nepal (HMG/Nepal) can be divided

into tax revenue and non tax revenue which are given below:
Tax Revenue:
Tax is the most important source of income for the government. Tax can be
divided into direct tax and indirect tax.
Sources of HMG/Nepal Revenue

Rupees in

million
Heading

1999/2000 %

Tax Revenue

33152.2(100.00)

Customs

10813.3(32.6)

Tax on consumption and product of goods and services

13387.4(40.4)

Revenue from Land ownership Registration

1015.9(3.1)

Tax on property, profit and income

7935.6(23.9)

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Non Tax Revenue

9741.6(100.00)

Charges, fees, fine and forfeiture

386.3(4.00)

Receipt from sale of commodities and services

2428.9(24.9)

Dividend

2507.5(25.7)

Royalty and sale of fixed assets

563.3(5.8)

Principal and interest payment

3751.0(38.5)

Miscellaneous items

104.6(1.1)

Source: Economic Survey 2000/2001.

Note: The figures in parenthesis indicate percentage of total tax and non-tax revenue.
Tax Revenue:
The major sources of income of HMG/N are tax revenue. During the FY
1999/2000, 77 percent of income was obtained from tax revenue. The main sources of
tax revenue are as follows:
a.

Customs: The main sources of customs income are import tax, export tax and

Indian excise refund and others. During the FY 1999/2000, 32 percent of tax income
was from custom duties.
b.

Tax on consumption and product of goods and services:

This includes entertainment tax, value-added tax, hotel tax, air flight tax, road
and bridge maintenance tax. etc. These taxes constitute the highest revenue at
40.4 percent of the total tax revenue to the government.

c.

Revenue from Land Ownership Registration:

House and land ownership registration and land revenue tax constituted 3.1
percent of the total tax revenue of HMG/N in FY 1999/2000.

d.

Tax on property, profit and income:

It constitutes of income tax from public enterprises, semi-public enterprises,
private corporate bodies, individuals, remuneration, urban house and land tax,
vehicle tax, tax on interest, etc. Nearly 24 percent of the income to HMG/N
comes from these taxes.

Non Tax revenue:

The main non-tax income of the HMG/N is as follows:
a. Charges, Fees, Fines and Forfeiture:
Under this heading, the main sources of revenue of HMG/Nepal are firm
registration, arms registration, vehicle license, judiciary, administration, penalty and
forfeiture. Nearly 4 percent of non-tax revenue of HMG/N comes from these sources.
Babasab patil notes

b. Receipt from the sale of commodities and services:

The government also earns income from services and sale of various goods and
services like education, electricity, postal services, forest, transport, drinking water,
irrigation, etc. Nearly 25 percent of non-tax revenue is obtained from the sale of
commodities and services.
c. Dividend:
The HMG/N also earns revenue through dividend. The main sources of dividend
are financial institutions, trading companies, industrial undertakings, service sectors
etc. The income of about 26 percent of non-tax revenue comes from dividends.
d. Royalty and sale of fixed assets:
The HMG/N earns royalty from mining, minting and others. Out of the total
non-tax revenue about 6 percent revenue, comes from royalty and sale of fixed assets.
e. Principal and Interest payment:
Of the total non-tax revenue the highest percentage of 38.5 came from
principal and interest payment.
f. Foreign aid:
Foreign aid consists of grants and loans. Grant is free of cost while loan has to
be repaid with interest. Thus, loan is a burden not only for the present generation but
also for future generations if it is not utilized properly and productively.
Foreign aid is not included in the government revenue. HMG/Nepal has been
receiving foreign aid from different countries. The total foreign aid received both from
multinational and bilateral sources in the FY 1999/2000 stands at Rs.20,448.0 million
out of which Rs.12,860.2 million was in grants and Rs.7,587.8 million is in the form of
loan. Foreign aid in the form of grant is gradually decreasing.
3. Government Expenditure:
Since the great depression of 1930s, public expenditure in the countries all over
of the world have increased tremendously.

The main causes of growth in public

expenditure are the growth of public enterprises, increased expenditures in social

security, increased urbanization, increase in price level, war, growth of population, etc.
Nepal is not an exception to these causes.
The public expenditure can be classified into two groups, i.e. Regular
Expenditure and Development Expenditure.
(a) Regular Expenditure:
The total regular expenditure in FY 2000/2001 is Rs.34036.0 million. Regular
expenditure consists of social services, economic services, loans and investment,
Babasab patil notes

loan repayment and interest, etc. The amount of regular expenditure made in
different areas is given in the following table.

Regular and Developmental Expenditure of HMG/N, 2000/2001.

Rupees in
million.
Heading

Regular

Development

expenditure

expenditure

Constitutional Bodies

431.5

26.6

General Administration

4070.4

108.1

Revenue Administration

339.2

---

Economic

Administration

and 130.7

28.6

Planning
Judicial Administration

276.0

---

Foreign Service

672.6

---

Defense

2994.8

---

Social Service

8327.9

12406.2

Economic Service

2224.8

18648.6

Loan and Investment

39.2

---

Loan Repayment and Interest

10032.8

---

Miscellaneous

4496.1

531.1

Total

34036.0

31749.2

Source: Economic Survey, 2000/2001.

The main heading of regular expenditure are as follows:
1

Constitutional Organs: Consists of constitutional organs of the country which

includes His Majesty and the Royal Family, the State Council, the Parliament
Secretariat, the Supreme Court, the Office of Commission for Prevention of
Abuse of Authority, the Office of Auditor General, the Public Service Commission,
the Election Commission, the Office of Attorney General, the Office of Judicial
Council, etc.

Babasab patil notes

General Administration: includes expenditure of the Council of Ministers, HMG

Secretariat, District Administration, Police, Jail Administration Office, etc.

Revenue administration: includes land revenue, customs, excise, tax, and

revenue tribunal.

Economic Administration and Planning: includes planning, statistics, Controller

General's office, and metric measurement.

Judicial Administration: includes court and court for prevention of misuse of

authority.

Foreign Service: includes all the services relating to Foreign Service.

Defense: includes expenditure on defense.

Social Service: expenditure includes expenditure on education, health, drinking

water, local development and other social services.

Economic Service: includes expenditure on agriculture, irrigation, land reform,

survey, forestry, industry and mining, transport and communication, electricity
and other economic services.

10

Loan and Investment: includes expenditure on loan and investment.

11

Loan Repayment and Interest: It includes expenditure on payment of loan and

interest.

12

Miscellaneous expenditure: includes travelling expenditure of dignitaries and

government delegations, hospitality, pension, allowances, gratuity, emergency
help, etc.

(b) Development Expenditure:

The total development expenditure in FY 2000/2001 was Rs.31749.2 million.
The main areas of development expenditure are as follows:
1

Constitutional Organs: It includes the Commission for Abuse of Authority, the

Office of Auditor General and the Public Service Commission. In Fiscal Year
2000/2001 Rs.26.6 million has been spent for constitutional organs.

General Administration: it includes expenditure on administrative reform.

Rs.108.1 million was set aside for this in the Fiscal Year 2000/2001.

Economic Administration and Planning: Expenditure on planning and statistics

include Rs.28.6 million in FY 2000/2001.

Social Services: expenditure on education, health, drinking water, local

development and other social services constituted of Rs.12406.2 million in the
Fiscal Year 2000/2001.

Babasab patil notes

Economic Services: It includes expenditure on agriculture, irrigation, land reform,

survey, forestry, industry, mining, transport and communication, electricity, etc.
About 58 per cent of the total development expenditure was made on economic
services in Fiscal Year 2000/2001.

Miscellaneous: Rs.531.1 million was spent on miscellaneous activities.

15: ECONOMIC PLANNING

1.Meaning of Planning:

"Strictly speaking all economic life involves planning... to plan is to act with a
purpose to choose and choice is the essence of economic activity"
-Lionel Robbins.
According to Dickinson's definition "Economic planning is making of major

economic decision of what and how much is to be produced and to whom it is to be

allocated by the conscious decision of the determinate authority on the basis of
comprehensive survey of the economy as a whole."
Economic planning is necessary for various reasons.

Some reasons are

equitable distribution of wealth, elimination of class conflict, elimination of economic

instability, to avoid wasteful competition, to achieve optimum allocation of resources
and prevent artificial shortage of goods.
2.Planning in Nepal:
In Nepal planned approach of economic development started only after 1951 AD.
In 1952 AD, a separate Ministry of Planning and Development was formed for planned
economic development in Nepal. However, planning in the real sense started after the
implementation of the First Five Year Plan in 1956 AD under Planning Commission
which was also established in 1956 AD. A brief description of economic planning in
Nepal is given below.
1

First Five Year Plan (1956-61 AD):

The First Five Year Plan of Nepal was iniated in 1956 AD. The objectives of the

plan were to increase production, employment and living standards of the majority of
the people.

The targeted amount of expenditure was Rs.33 Crore.

Babasab patil notes

But only

Rs.21,44,00,000 was spent during the plan period. The plan had given top priority to
the development of transportation. Apart from some progress in social services and
rural development, nothing remarkable was achieved during the plan period.
2 Three Years Plan (1962-65 AD).
After the first plan, there was no plan for a period of one year. A plan holiday
was observed. This period was devoted to review the first plan. The objectives of the
second plan were to increase national income, to stabilize the economy, to increase
employment opportunities and to ensure social justice. This plan was also termed as
preparatory plan because this plan was devoted to developing infrastructure needed
for the formulation and implementation of planning in future.
2

Third Five Year Plan (1965 70 AD).

The objectives of the plan were to increase the GDP by 19 per cent, to increase

agricultural production by 15 per cent, to develop transportation, generate hydro

electricity in public as well as private sectors, to increase foreign trade and diversify it.
The estimated total outlay of plan was Rs.250 Crore of which Rs.174 Crore was set
aside for the public sector, Rs.52 Crore for the private sector and remaining Rs.24
Crore for the Panchayat sector. About 91 per cent of the financial target was fulfilled
during the plan period. However, physical target was not met. The plan's target was to
raise national income by 19 per cent. However, achievement showed only 2.2 per cent
growth of the GDP.
3

Fourth Five Year Plan (1970-75 AD).

The objectives of the Fourth Plan were to increase agricultural as well as

industrial production, to develop transport, communication and hydro electricity, to

maximize the use of manpower resources, to control population growth and to
establish a society free of exploitation.

The total estimated outlay of the plan was

Rs.354 Crore of which Rs.225 Crore was allocated for the public sector, Rs.87 Crore for
the private sector and Rs.12 Crore for the Panchayat sector. About 41 per cent of the
total outlay was set aside for transport and communication development, 26 per cent
for agricultural development, 18.4 per cent for industry, commerce, electricity and
mining. The GDP growth during the plan period was 2.65 per cent.
4

Fifth Five Year Plan (1975 80 AD).

The main objectives of the Fifth Plan were:

Babasab patil notes

to increase the production of basic commodities;

to maximize the use of the labour force; and

to establish regional balance in the economic development.

The main policies adopted to fulfill the set objectives were reducing excessive
dependency on foreign aid by mobilizing internal resources, investing in less
developed areas and increasing the production of basic goods, using labour intensive
production process in agricultural production, controlling the general price level,
encourage private sector participation in industrial production, increasing foreign trade
and diversify it, provide agricultural credit and inputs through institutional sources.
Out of the total outlay, the outlay for the public sector was Rs.617 Crore, Rs.209 Crore
for the private sector and Rs.93.1 Crore was allocated for the Panchayat sector. Of the
total public sector outlay 29.8 per cent was allocated for agricultural development,
23.2 per cent for transport and communication development and 22.4 per cent was
allocated for industry, commerce, electricity and mining. The growth of GDP was 2.2
per cent during the plan period.
6.

Sixth Five Year Plan (1980 85 AD).

The main objectives of the Sixth Plan were to attain a higher rate of growth,

increase employment opportunities and meet the minimum basic needs of the people.
In order to achieve these objectives, the main policies adopted during the plan period
were to give priority in the development of cottage and small-scale industries, to
develop the agricultural sector and to encourage development of export trade and
tourism.

The total outlay of the plan was Rs.3394 Crore. 60 per cent of the

development expenditure was to be met from foreign assistance mainly in the form of
grants. Out of the total development expenditure, 31 per cent of the expenditure was
set aside for agriculture, irrigation and forest. Another 26 per cent went to industry
and mining and 17 per cent expenditure for the development of transport and
communication.
7

Seventh Plan (1985 90 AD).

The objectives of the plan were similar to the Sixth Plan. They were to increase

production at a faster rate, increase productive employment opportunities and meet

basic minimum needs of the people. The policies adopted to achieve the objectives
were to accord highest priority to agriculture sector, forest development, soil
conservation, water resource development and the development of industry, tourism
Babasab patil notes

and trade. Another important policy was to control population. The estimated total
expenditure was Rs.5041 Crore. Out of the total Rs.2700 Crore was allocated to the
public sector and Rs.2141 Crore to the private sector. Of the total expenditure; 34.3
per cent was set aside for agriculture, irrigation and forest; 14.4 per cent for transport
and communication, 29.8 per cent for social services and 21.5 per cent to industry,
mining and social services.

Out of the total public expenditure, 70 per cent of

expenditure were met from external sources and remaining 30 per cent from domestic
sources. This plan had targeted to increase national production by 4.5 per cent per
annum.
8

Eight Five Year Plan (1992 97 AD).

After the restoration of multi party system, there was no economic planning for

two years.

Many remarkable changes took place.

The private sector was given

importance through liberalization and privatization policies by the government. The

main objectives of the plan were to achieve sustainable economic growth, reduce
poverty and reduce regional imbalance in economic development.

The main

programmes during this plan period were intensive development in agricultural sector,
development of rural infrastructure, development of energy, human resource
development, creation of employment opportunities, population control, export
promotion and diversification, industrial development and tourism promotion.
The total fixed capital investment was Rs.17033.2 Crore; out of which
Rs.10919.3 Crore was to be made from the private sector and Rs.6113.9 Crore from
the public sector.
9. Ninth Five Year Plan (1997 2002 AD).
The only objective of the Ninth plan was to alleviate poverty consistent with 20
years long term development prospective plan.
Agriculture and forest have been given first priority followed by water resources,
human resources and human development, industrialization, tourism development,
international trade and physical infrastructure development.
The total development expenditure of the plan was Rs.18,958.0 Crore. Of the
total expenditure; 33.30 per cent has been allocated to social service, 27.0 per cent to
agriculture, irrigation and forest, 18.70 per cent to electricity and 17.54 per cent on
transport and communication. Similarly, 1.54 per cent has been allocated to trade and
tourism, 0.84 per cent to industry and 0.85 per cent to miscellaneous activities.
Babasab patil notes

Evaluation of Ninth Plan:

During the plan period people below poverty line is reduced to 38 per cent as
against target of 32 per cent. Forty nine per cent of the people aged over 15 became
literate as against 70 per cent target. Similarly, primary level school admission reached
to 80.4 per cent against the target of 90 per cent. Infant mortality rate per 1000 is
64.2 as against target of 61.5. Likewise maternal mortality rate reached to 415 per
100,000 as compared to target of 400. A little more than 71 per cent of the population
has got the access of drinking water. The target was to provide drinking water facility
to 100 per cent people. These are some of the achievement in terms of human
development.
Current Tenth Plan (2002-2007)
Poverty is wide spread in the country. Rural people are poorer than urban people.
People are more affected by poverty in remote areas. The Tenth Plans sole objective is
to reduce poverty from 38 per cent to 30 per cent at the end of plan. In order to
achieve it, His Majestys Government has formulated a four-pillar poverty reduction
strategy. They are economic growth and its equitable distribution, human development,
social justice and good governance.
The main targets for human development are to raise literacy rate to 63 per cent,
reduce infant mortality rate to 45 per thousand, raise life expectancy to 65 years,
increase drinking water facility to 85 per cent of the population, electricity to 55 per
cent and telephone facility to almost to all village development committee. To reduce
overall poverty employment opportunity will be generated in key sectors.
In order to achieve target main priorities areas are
(a) high, broad and sustained economic growth;
(b) development of social and rural infrastructure;
(c) targeted programme;
(d) good governance.
The total outlay of the current plan is Rs.60,982.3 Crore. Out of which
Rs.16,973.6 Crore will borne by public sector and Rs.44,008.7 Crore in private sector.
Out of total outlay 13.84 per cent has been set aside for agriculture, 86.16 per cent for
non-agriculture sector. In non-agriculture sector, highest percentage of 21.53 per cent
has been set aside for social service followed by 20.05 per cent for the development of
transport and communication.

Babasab patil notes

Babasab patil notes