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Economics Notes Class 11 All in One
Economics Notes Class 11 All in One
np Economics - XI 1
Basic concept of Economics
Definition of Economics
Economics is a social science. It studies economic activities of man, living in an
organized society. It is a dynamic science. Therefore, there is no universally acceptable
definition of economics. Some modern ecomist have said that it is not easy to define
economics definitely. According to Barbara Wotton : “Whenever Six economists are
gathered there are seven opinions.” Similarly, according to Jacob Viner, “Economics is
what economists do.” However, for systematic study of any science we need its
definition. The definition of economics can be classified into three groups i.e.
I. Wealth definition of economics (Classical)
II. Welfare definition of economics (neo – classical)
III. Scarcity definition of economics (Modern)
Wealth definition of economics :
This is the oldest definition of economics. This definition is related with classical
school of economics. Adam Smith is regarded as a leader of classical economists. He is
regarded as a leader of classical economists. He is well known as the father of economic
science because he made economics as an independent science. In 1776 AD, Adam Smith
wrote a famous book “Wealth of Nations”. In that book he defined economics as “
Economics is an enquiry into the nature and causes of wealth of Nations.” In other words,
according to Adam Smith , economics is a science of wealth.
Criticisms of wealth definition :
The wealth definition of economics has been criticized on the following grounds:
Narrow definition :
This definition has narrowed the scope of economics. According to this
definition, economics studies only those human beings who are engaged in
production and consumption of wealth. Those who are not engaged in such
activities such as retired man cannot fall within the scope of economics. But it is
quite wrong.
Emphasis on wealth :
This definition has given more emphasis on wealth and it ignores the
importance of man. But in reality wealth is only a means to satisfy human wants.
Wealth is produced for man but not man for wealth. Therefore, man is a primary
and wealth is only for secondary importance.
According to Adam Smith the ultimate objective of man is to earn wealth. But
according to critics, the ultimate objective of man is to get satisfaction rather than
to earn wealth.
Welfare definition of economics:
This definition is related with neo-classical school of economics. Dr. Alfred Marshall is
regarded as a leader of neo-classical economists. He was a professor of economics at
Cambridge University. In 1890 AD, Marshall published a book “Principles of
Economics”. In that book he defined economics as “Economics is a study of mankind in
Alternative uses :
The scarce means have alternative uses. For example : Money can be put
to several uses ether for buying food, buying books or going to cinema, etc.
Problem of choice :
Due to the scarce and alternative uses of means there arise the problems of
choice. We have to choose between most urgent want to less urgent want.
Incomplete definition :
The critics objected that the Robbins definition of economics has given
unnecessary emphasis to scarcity problem. But according to them economic
problems arise not only from scarcity but it also may arise form abundance.
For Eg : During depression of 1930s economic problems had arosed due to
over production or abundance.
Pure Science :
Robbins definition converse economics in a pure science. As a pure
science, economics is concerned with the formulation of economic laws
having nothing to do with practice. But it is quite wrong because economists
are not only tool makers but also tool users.
Social aspect :
Robbins definition of economics ignored the social aspect of human life.
But economics is a social science. It is concerned with the study of economic
activities of man living in a society.
Marshall’s Robbins
1. Classificatory: 1. Analytical:
Marshall’s definition of economics is Robbin’s definition of economics is
classificatory because it classifies goods analytical. It deals all types of goods and
into material and non – material goods and all kinds of human activities.
includes only material goods in the scope
of economics.
2. Social science: 2. Human science:
According to Marshall economics is a According to Robbins economics is a
social science. It studies only those human human science. It studies all human beings
beings who are living in an organized whether they are in society or out of
society. society.
3. Normative Science: 3. Positive Science:
Marshall’s definition is based on the Robbins definition is based on the concept
concept of Normative economics. of positive science. It explains facts as they
Normative science give value judgement. It are. It doesn’t give value judgement.
shows rightness or wrongness of things.
4. Non – neutral: 4. Neutral:
According to Marshall economics is non – According to Robbins’ economis is neutral.
neutral. It helps to solve practical It is neutral between wants and resource
problems. It is concerned for improving utilization.
human life.
5. Narrow scope: 5. Broad Scope :
Marshall’s definition of economics has Robbins’ definition of economics has
narrowed the scope of economics. broaden the scope of economics.
Scientific definition:
Robbins’ definition of economics is regarded as more scientific and
analytical. It is not classificatory. Marshall’s definition of economics is
classificatory. Therefore, Robbins’ definition is regarded more scientific and
satisfactory.
Universal application:
Robbins’ definition of economics has universal application. It is applicable
to both planned and unplanned economy. Similarly, it is applicable to all
economic system i.e. capitalist, socialist and mixed economy.
Positive Science:
Robbins’ regarded economics as a positive science whereas Marshall
regarded economics as a normative science. Positive science describes the
things as they are and does not say what is good and what is bad. On the other
Consumption:
Consumption is one of the important branches of economics. Consumption
means to satisfy human wants through the use of goods and services.
Production:
Production is defined as the creation of utility. The goods and services are
produced form consumption.
Exchange:
It studies how goods are exchanged between different parties. Here, we
study the determination of price of goods and services under different
markets.
Distribution:
Here, we study the distribution of national product among the various
factors of production i.e. land, labour, capital and organization.
Public finance:
It studies income and expenditure aspect of the government.
But according to modern approach the whole subject matter of economics is classified
into two parts:
Micro – economics:
Macro – economics:
Normative economics:
Normative economics is an evaluation of state of things as they ought to be. It is
based on subjective value judgement. Therefore, normative economics explain rightness
or wrongness of things. According to David Begg, “Normative economics offers
prescriptions or recommendations based on personal value judgement.”
Neo – classical economists believe on normative economics.
We can make distinction between positive and normative economics by a statement,
“The poor are malnourished, and the government must provide food subsidy to the poor.”
Here the first part of the statement “The poor are malnourished” is a positive economics
and the second part of the statement “The government must provide food subsidy to the
poor” is a statement of normative economics.
Macro – economics:
The word ‘macro’ is derived from Greek word ‘makros’ meaning large.
Therefore, macro – economics is concerned with the analysis of economy as a whole or
its large aggregates such as national income, national product, total employment, total
consumption, total investment, monetary policy, fiscal policy, general price level, etc.
According to Edwin Mansfied: “Macro – economics deals with behavior of
economic aggregates such as gross national product and level of employment.”
According to K.E. Boulding: “Macro – economics is that part of economics which
studies the overall averages and aggregates of the system.”
Statistics
Definition of Statistics:
The word ‘Statistics’ has been defined in two senses i.e. singular sense and plural
sense. When the word statistics is used in singular sense, it means various methods and
techniques adopted for the collection, presentation, analysis and interpretation of data. On
the other hand, when the word statistics is used in plural sense, it refers to data
themselves or numerical facts collected systematically. For eg: Statistics of total
population, national income, export, import, etc.
Definition of statistics in singular sense:
According to Croxton & Cowden, “Statistics may be defined as the science of collection,
presentation, analysis and interpretation of numerical data.”
This definition is simple and comprehensive. It clearly indicates the following
four aspects of statistics:
Connection of data:
This is the first steps of statistical enquiry.
Representation of data:
After the data has been collected, they are presented in a systematic way.
This is the second step for statistical investigation.
Analysis of data:
After the data has been presented, the next step is to analyze them.
Intrepretation of data:
The last step of statistical enquiry is the interpretation of data. In this step,
the researcher has to draw the conclusion from the data which has been analyzed.
Functions of Statistics:
The major functions are as follows:
Statistics simplifies complexity:
Statistics helps to simplify the raw and complex information by means of
organization, presentation and analysis of data. Huge facts and figures are
difficult to remember. The complex mass of figure can be made simple and
understandable with the help of statistical methods.
Importance of statistics:
In ancient time, the importance of statistics was limited. But now, its importance
has been extended in multiple fields of human life. It is important in various sectors of
the economy. The major importance of statistics are as follows:
Limitations of Statistics:
There are some limitations of statistics which are as follows:
Types of data:
Primary data:
The data which is originally collected by an investigator or an agent for
the first time for the purpose of statistical enquiry is called primary data. This data
are original in character. This data are also called first hand data because such
data used for the first time by the investigator. For Eg: If an investigator wants to
study about the educational status of Dharan and if he or his agent collects the
necessary information then, the data is primary.
Secondary data:
The data which were already collected and used by someone else but are
also useful for other investigators are called secondary data. This types of data are
Who collected the data and what were the objectives of collecting data?
Was the investigator experience, honest, capable and unbiased or not?
Whether the appropriate techniques of collecting data were applied or not.
What degree of accuracy was maintained in the degree?
In which time period were the data collected?
Precaution in the uses of secondary data:
Secondary data are those which are collected by someone else and used by others.
Therefore, while using secondary data the following precautions should be taken:
The data should be reliable.
The data should be suitable.
The data should be adequate.
Techniques of data collection:
There are two techniques of data collection. They are:
Census method:
Sample method:
Census method:
In this method, the informations is obtained from each and every units of
population, under study. In other words, if the information is collected from the possible
units in the universe it is called census method. The census method is also called
complete enumeration method. In Nepal, population census is conducted by applying
census in Nepal every 10 years. For example: If we want to study about the smoking
habit of adults of a locality then, in census method, information are obtained from each
and every adults of that locality.
Merits of census method:
The following are the merits of census method:
It gives complete information about the population.
It gives more accurate, reliable and representative results.
The data will be adequate because no item is left in this method.
If the study area is small then this method is very useful.
Sample method:
In this method, the information is obtained only from a part of the population
assuming that it is the population assuming that it is the representative of the whole.
Methods of Sampling:
There are various methods of Sampling which are as follows:
Judgement or Deliberate Sampling:
In this method, the choice of items in the sample depends upon the
judgement of the investigator. For Eg: If there are 80 Students in a class and
teacher has to select 20 Students for survey then the selection of 20 Students
would depend upon the judgement of Investigator.
Random Sampling:
In this method, every unit of the universe has equal chance of being
selected in the sample because the selection of any unit depends on chance.
Lottery method can be used for random sampling.
Stratified Random Sampling:
In this method, the universe is divided into different groups or strata
according to some characteristics. Then sample is selected at random from each
group or strata.
Systematic Sampling
This method can be applied only if the complete list of items in the
universe is available. In this method, first the units are arranged in some
systematic order and then the sample unit is selected on the basis of sampling
interval. The sampling interval is calculated as,
K = N
n
Where, K = Sampling interval
K = N
n
= 40
8
= 5 (Sampling interval)
Types of Diagrams:
Simple bar diagram:
A simple bar diagram is used to present one variable only. For Eg:
Production, profit, sales, marks, etc. can be solved with the help of simple bar
diagram. It consists of set of equi–distance rectangle of equal width.
Sub – divided bar diagram:
A sub – divided diagram is a diagram which is used to represent the
various components of the total. Here we have to keep the index.
Multiple bar diagram:
It is used to present two or more sets related data. The different values of
each set are presented by drawing a lot of physically joined rectangles. Here the
different shades or colours are used to distinguish the bars of one type from the
other.
Pie – diagram:
A pie – diagram is a diagram in the form of a circle whose area represents
the total value. It is used to show the relation between the components with one
another to the other.
Choice:
Resources have alternative uses. For Eg: A plot of land can be used either for
producing paddy or wheat or vegetables or fruits, etc. So, choice is necessary due to
scarcity of resources. All the resources are limited compare to demand. Therefore, the
society must have to choose which commodity is to produce and which commodity is to
sacrifice. Hence, the problem of choice arises.
People have to make choice while spending their income. They have to think how
much to spend and how much to save out of their income. Similarly, it is also necessary
to decide how much to spend on food, how much on dress and how much recreation. In
this way, choice is the basic economic problem.
Allocation of resources:
Resources are scarce and have alternative uses. Therefore, allocation of resources is
the central economic problem. Here, allocation of resources means distribution of
resources in the economy. In a free market economy, the scarce economic resources are
allocated in the following ways:
Determining what will be produced:
The first resource allocation function is to decide what goods and services
will be produced. It is because resources are scarce.
8. Dualistic economy:
Most of the developing countries have dualistic economy. There is market
economy in urban areas and subsistence economy in rural areas.
I. Water resources:
Nepal is one of the richest country in water resources in the world. It stands in the
second position after Brazil in water resources. But economic development of Nepal
largely depends on the development of water resources. There are more than 6000
rivers in Nepal. The water resources can be utilized in the development of agriculture,
industry and trade.
Importance of water resource in economic development:
Water resource is very important in the overall development of Nepal. Water
resource can be used for electricity generation, irrigation purposes and drinking purposes
as well. It is regarded as the basic source of energy. The importance of water resources
are as follows:
I. Development of Agriculture:
Nepal is an agricultural country. Agriculture is the backbone of Nepalese
economy. The agriculture sector can be developed only with the adequate
provision of irrigation. Irrigation helps in crop diversification, increase in
production and modernize agriculture.
c) Drinking Water:
The pure drinking water is the basic need of the people. Nepal is rich in
water resources but the majority of people do not get pure drinking water. By the
end of 10th plan about 75% of the population has got drinking water facility in
Nepal.
e. Lack of market:
The domestic market of the country is very limited. The purchasing power
of the people is very low. The only exportable market is India. But the Indian
attitude is not favourable. Thus, lack of market is another problem for the
development of hydroelectricity in Nepal.
1. Source of energy:
Forest is the main source of energy in Nepal. It provides fuel, wood to
meet the daily necessity of people. About 86% of the total energy consumption is
supplied by the forest resource.
5. Source of water:
Forest helps to maintain constant flow of water in rivers, canals and taps.
Forest is the main source of drinking water. Larger the forest area larger is the
rainfall.
6. Tourism development:
Forest enhances the natural beauty. The rare wild animals and birds get
shelter in the forest. It also provide hunting spot. Therefore, forest helps to
develop tourism sector.
8. Ecological balance:
Causes of Deforestation:
At present Nepal is facing the problem of deforestation. There are various causes
of deforestation which are as follows:
I. Source of energy:
The alternative source of energy hasn’t been developed in Nepal. Fuel
wood is the main source of energy in rural Nepal. About 75% of the energy
consumption is supplied by wood and fuel wood in Nepal. Due to this reason
deforestation is increasing in Nepal.
IV. Migration:
Deforestation is also caused by internal and international migration.
Migration from hills to Terai and from India is also responsible for deforestation
because they use forest land for settlement and construction of houses. This also
has increase deforestation.
Consequences of deforestation:
Among various natural resources forest is the main natural resource. But at
present, Nepal is facing the problem of deforestation. Deforestation influences people
directly or indirectly. It has serious consequences on economic and ecological condition
of the country. The major consequences of deforestation are as follows:
i. Environmental deterioration:
Deforestation brings environmental degradation which has serious effects
on plants and all living beings. It brings ecological imbalance, soil erosion, flood,
drought and landslide. It created desertification in the country.
v. Effects on tourism:
Deforestation destroys the natural beauty and climate of the country.
Similarly, it destroys rare wild animals and birds. As a result, the tourism industry
will be adversely affected.
Mineral resources:
Importance of mineral resources in economic development:
The mineral resource plays an important role in the economic development of a
country. The mineral resource helps in the development of agriculture, industry and trade.
In the absence of mineral resource the country will have to depend on import. The Arab
countries are economically strong due to large quantity of oil reserve. The importance of
mineral resource in economic development are as follows:
a. Development of industries:
Mineral resources have important role in the development of industries in
the country. The heavy machinery and equipments needed for industries are made
from mineral resource. Similarly, energy needed for industries are supplied by
mineral resource such as petrol, diesel, coal, etc. Therefore, mineral resource is
important for industrial development.
b. Source of employment:
At present, Nepal is facing the problem of unemployment due to high
population growth. The existence of mineral resources and their proper utilization
provides employment opportunities to the people. The mineral resource provides
direct as well as indirect employment opportunities.
c. Source of energy:
The mineral resource is the major source of energy. It provides energy like
coal, petrol, diesel, etc. which are essential for industrial development. The
existence of this energy in the country saves foreign currency.
b. Copper:
Nepal has great prospect of copper mines as well. The large cooper mine
has been identified in Bhutkhola. The other copper mines identified are Gyaji,
Baglung, Barabise, Kulekhani, etc.
c. Mica:
The mica is used in electrical works. It is estimated that mica is also found
in large quantity in Nepal. The mica mines have been identified in Bhojpur,
Chainpur, Sundarijal, etc.
d. Limestone:
Limestone is essential for cement products. The high grade limestone has
been found in Godawari, Markhu, Chovar, Bhaise, etc.
e. Slatestone:
Slate mines have been identified in Bandipur, Trisuli, Dolakha, etc.
f. Coal:
It is estimated that coal mines can be found in the areas such as Sibaling of
Dang, Kathmandu Valley, Kagbeni and Thimika village of Mustang district.
a. Lack of capital:
The exploration and exploitation of mineral resources need large amount
of capital. But Nepal is a poor country. Therefore, there is lack of capital for the
development of mineral resources. Similarly, Nepal has not been able to receive
foreign assistance for mineral exploration and exploitation.
c. Insufficient infrastructures:
The mineral resources of Nepal are largely located in remote hilly areas.
These areas do not have access to transport, communication and electricity
facilities. This is also one of the obstacles for mineral resource development.
f. Inadequate research:
There is inadequate research in the field of mineral resource in Nepal
because there is lack of experienced human resource modern technology and
equipments.
b. Wide-spread poverty:
The wide-spread poverty leads to the overuse of natural resources because the
poor people use natural resources to fulfill their basic needs.
a. Air pollution:
Air pollution is mostly urban areas of Nepal. Air pollution from Vehicles and
industries have resulted air-borne diseases. It adversely affects the working
capacity of people and reduces the average life expectancy as well.
b. Soil pollution:
Soil pollution has been growing rapidly in Nepal due to the unscientific use of
chemical fertilizers in agriculture. It has increased acidity in soil, reduce fertility
of soil and accelerate the process of desertification in the country.
c. Water pollution:
Water resources are being polluted due to the mix up of industrial wastes and
drainage with drinking water pipes which is responsible for many water-borne
diseases.
d. Noise pollution:
Growing noise pollution from the means of transport in urban areas is one of the
major problems of Nepal. Particularly, noise pollution has adversely affected the
lives of the people of Kathmandu, Pokhara, Birgung and Biratnagar.
e. Atmospheric change:
The unscientific use of natural resources like water, forest and mineral has
resulted many problems in the earth surface. The atmosphere is being polluted
due to the global warming, green house effect, increase in the quantity of carbon
monoxide and decrease of ozone layer in the atmosphere.
f. Natural calamities:
The rapid deforestation has resulted uneven, unnatural irregular and scarcity of
rainfall. As a result, floods, landslides and storms have become very common in
the country like Nepal.
g. Labour Productivity:
Growing environmental pollution directly affect the life of human beings. Weak
and unhealthy human resource cannot produce more goods and services as a result
there will be low production and productivity.
d. Increase production:
Human resource is one of the active factors of Production. It is the
only factor that can capitalize land capital and organization for the
production of economic goods & services. Therefore, human resource
helps to increase production.
f. Development of Industries:
a. Size of population:
The size of population of Nepal according to population census 2001 is
2,31,51,423 out of which the no. of male population is 1,15,62,921 and female
population is 1,15,87,502. Similarly, according to this census the annual growth
rate of population of 2.24%.
b. Distribution of population:
Geographically, Nepal is divided into three ecological regions i.e.
Mountain, Hill and Terai. According to population census 2001, the distribution
of population by geographical reasons is as follows:
d. Lack of education:
Majority of people of Nepal are uneducated. Due to illiteracy people are
not aware of the evil consequences of high population.
e. Early marriage:
Due to religious and social customs, early marriage is still prevalent in
rural areas of Nepal. This practice is also responsible for high population growth
in Nepal.
2) Increase in unemployment:
If economic development cannot be accelerated along with the population
growth the unemployment and underemployment increases. The unemployment
creates social instability in the country.
3) Environmental degradation:
The high population growth creates environmental degradation. At
present, Nepal is facing the problem of deforestation due to high population
growth. The deforestation causes natural disaster like soil erosion, landslide,
flood, drought, etc.
4) Food shortage:
The high population growth causes flood shortage. Due to food shortage
people suffer form malnutrition. People don’ get enough food to maintain good
5) Poverty:
The poverty of Nepal is not declining due to high population growth.
About 30% of the population live below poverty line in Nepal. Majority of poor
people live in rural areas.
d. Publicity:
The government should educate the people regarding the benefit of small
family, increase in age at marriage and birth spacing through publicity.
g. Economic development:
Economic development itself can control the population growth. This is
the evidence from the experience of developed countries.
a. Economic indicators:
The most important indicator of human development is per capita income
of the people living in a country. It also includes employment opportunity,
dependency ratio, purchasing power, saving investment ratio, etc.
b. Educational indicators:
The educational indicator includes total literacy rate, male – female
literacy rate, adult literacy rate, no. of schools, colleges and universities
established by the government and private sectors.
c. Demographic indicators:
Some demographic indicators are also used while measuring human
development. It includes population growth rate, total fertility rate, crude death
rate, crude birth rate, infant mortality rate, etc.
d. Health indicators:
Health indicators of human life are life expectancy at birth, population
with excess to safe drinking water, no. of hospitals, no. of doctors, no. of nurses,
etc. available in the country.
Agriculture
Characteristics of Nepalese Agriculture:
Nepal is an agricultural country. Nepalese agriculture has its own characteristics
which are as follows:
a. Subsistence farming:
One of the major characteristics of Nepalese agriculture is its subsistence
farming. Majority of Nepalese people follow agricultural occupation. But there
production is just enough for their own consumption. Commercial farming system
is very limited in Nepal.
b. Monsoon based agriculture:
Nepal is rich in water resources but agriculture sector has to depend on
monsoon rainfall. About 40% of the total cultivated land has irrigation facility and
the rest of the land has to depend on monsoon rainfall.
e. Low productivity:
Nepalese agriculture is characterized by low production and productivity
in terms of output of per hector. Agriculture productivity in Nepal is very low as
compare to developed countries. This is due to the use of inferior seeds,
traditional methods of farming, lack of irrigation facilities, uneducated farmers,
etc.
Importance of Agriculture:
Nepal is an agricultural country. About 76% of the total population are engaged in
agricultural occupation. Thus, agriculture is the backbone of Nepalese economy. The
importance of agriculture in economic development are as follows:
a. Source of livelihood:
Agriculture is the main source of livelihood of Nepalese people. About
76% of the population is depended on agriculture. It has provided employment to
more than 65% of the labour force.
g. Supports development:
Agriculture development stimulates and supports the development of other
sectors. The growth of agriculture increases capital formation. The increased
saving and investment can be invested in health, education, public welfare, etc.
This helps to develop the non-agricultural sector.
Problems of Nepalese Agriculture:
Agriculture is the backbone of Nepalese economy. Therefore, this sector has
given topmost priority in all economic plans of Nepal. But the development of these
sectors is not satisfactory. There are various problems in agricultural sector which are as
follows:
a. Traditional/Informal sources:
From ancient times, Nepalese farmers are dependent on traditional sources of
finance. Due to non-availability of other sources they have to bear high rate of
interest on this source. This source includes the following sources.
a. Friends and Relatives:
Farmers also take loan from their friends and relatives. Generally,
they get such loans with or without interest.
b. Institutional/Formal sources:
Institutional sources are legally established for the development of
agricultural sector under the policy of the government. This source includes the
following sources:
a. Agriculture Development Bank(ADB):
It is regarded as the most important institution for agricultural
credit. It provides short-term, medium-term and long-term credit to
farmers. It provides about 80% of the total agriculture credit. It charges
low rate of interest.
b. Commercial Banks:
It is another source of institutional agriculture credit. This banks
provide loan to agricultural sector under the “priority sector credit”
programmed. This banks also charges low rate of interest on loans.
c. Co-operative society:
Co-operatives are also providing loan to the farmers at low rate of
interest. Its main objective is to make available cheap credit and
agricultural inputs to farmers.
Types of Poverty:
Poverty can be classified into two groups:
a. Absolute Poverty:
The situation in which individuals are unable to attain the basic needs of
life such as food, cloth, shelter, safe drinking water, health facilities, primary
education, etc. is called absolute poverty. In other words, absolute poverty
means inadequate income to sustain life.
b. Relative Poverty:
The situation in which a person has enough income to sustain life but
which is lower compared to rest of the community is called relative poverty.
In other words, relative poverty is the condition of having less income that
others within a society or a country.
Characteristics of Poor: Rural and urban
Occupation:
The rural poor are engaged in agriculture occupation and urban poor are
engaged in different activities as a labour.
Lack of assets:
There is lack of assets with poor both in rural as well as urban. In rural
areas, they have small size of unproductive land without irrigation facilities. Due
to this, they have low level of income.
Education:
Majority of poor both in rural and urban areas are illiterate. More than
70% of the total poor population are illiterate.
Housing condition:
The housing condition of majority of Nepalese poor is very bad. Due to
large family size there is always overcrowding in household. All family members
have to live in a small and hut with limited space and without electricity and other
facilities.
II. Inequality:
The unequal distribution of income and wealth is another cause of poverty
in Nepal. The gap between rich and poor is very high. The distribution of national
income isn’t in favour of poor people. As a result, poverty is increasing in Nepal.
• Women empowerment:
Women empowerment is necessary for poverty reduction in Nepal.
Therefore, special emphasis should be given for women education, health and
employment. Economic and social transformation will be possible through
women empowerment.
• Modernization in agriculture:
Nepal is an agricultural country. About 76% of population are engaged in
agriculture occupation. Thus, modernization in agriculture is required for the
reduction of poverty in Nepal. Modernization in agriculture will increase
productivity.
• Targeted programs:
Different targeted programs should be implemented for the marginalized
classes of people which have not been able to enter into the main stream of
development. This also helps to reduce poverty.
• Easy to establish:
Cottage and small-scale industries are easy to establish. In the sense that these
industries don’t require more capital and technical knowledge. Such industries
can be established and run by a single households by utilizing their own capital,
raw materials and skills.
I. Lack of Capital:
Development of medium and large-scale industry needs large amount of capital
investment. But there is lack of capital in Nepal because Nepal is a poor country.
The per capita income of Nepalese people is very low.
II. Lack of infrastructures:
Infrastructures like transport, communication and electricity are the most
important factor of the development of large scale industries but there is lack of
such infrastructures in Nepal.
III. Scarcity of raw materials:
Nepal has to depend on foreign capital, imported raw materials, chemicals and
intermediate products for most of the industries. Thus, there is shortage of raw
materials for the development of large-scale industries.
IV. Limited Market:
I. Natural beauty:
Nepal is a beautiful country. It has inherent features like geographical diversity,
unique nature of beauty, etc. It has pleasant rivers, water falls and lakes. It has a
rare wild animals and birds. It has variety of flora and fauna. Therefore, Nepal is a
beautiful country.
Foreign Trade
Meaning:
The transaction of goods and services between the people of different countries is
called foreign trade. It is also called international trade. According to G.L. Luckeet, “The
purchase of goods and services by the citizens of one country from the citizens of another
country is called international trade.”
Importance of foreign trade:
Foreign trade plays an important role in economic development of a country
because all countries cannot produce all goods efficiently. The role of foreign trade in
economic development are as follows:
a. Benefit of technological progress:
There should be foreign trade in order to take the benefit of specialization. The
specialization depends on availability of raw materials, geographical situation and
availability of factors of production. The specialization leads to large scale
production.
b. Availability of raw materials:
All countries don’t have all kinds of raw materials. The raw materials can be
imported from other countries through foreign trade.
c. Expansion of market:
The foreign trade integrates a country with other countries. Therefore, it widens
the market for goods which is produced in a country.
d. Increase in employment opportunities:
The development of foreign trade leads to the development of export oriented
industries in the country. This increases employment opportunities.
e. Increase in fair competition:
The foreign trade destroys monopoly and it increases competition. The
competition reduces the cost of production and increases the quality of the
products. Thus, the people can get high quality goods at lower prices.
Growth and trends of foreign trade of Nepal:
Exports and Imports are the two components of foreign trade. The difference
between the value of export and value of import is called trade balance. The foreign trade
of Nepal is increasing over the years. The trend shows that there is increasing in the value
of exports, imports as well as total volume of trade. The following table shows the
growth and trends of foreign trade of Nepal.
This table shows that the total export and import is increasing over the years but it also
shows that there is continuously large amount of trade deficit in Nepalese foreign trade.
Composition of foreign trade of Nepal:
The composition of foreign trade means the items of export and import between
countries. Nepal’s major import items are finished goods, machinery, equipments,
chemicals, mineral fuels, crude materials, drugs, etc. Similarly, Nepal’s major export
a. Land-locked position:
Nepal is a land-locked country. It is surrounded by India from 3 sides and by
China from 1 side. The nearest point to reach sea from Nepal 2900 Km. It is the
major obstacle to take independent trade policy. Thus, it is difficult to freely trade
with overseas countries.
b. Concentrated on limited goods and countries:
Nepal’s foreign trade is concentrated on few goods and few countries. Nepal’s
major export items are woolen carpet and ready made garments. They together
contribute more than 80 % of Nepal’s export.
c. Low production:
Due to slow development of industries, production level is very low in Nepal.
Similarly, the agricultural production is also declining due to traditional method
of farming. Thus, the export of Nepal is declining and import is increasing. As a
result, Nepal is facing the problem of trade deficit.
d. Lack of Capital:
Sufficient capital investment is essential to develop foreign trade of the country.
Well developed capital market is necessary to provide sufficient amount of credit
for the export oriented industries but the capital market of Nepal is still unable to
supply sufficient amount of credit.
e. Defective Government Policy:
The Government Policy regarding foreign trade is defective. The Government
hasn’t been able to provide adequate export incentives.
f. Low quality goods:
The goods produced in Nepal are of inferior quality. Therefore, these goods
cannot complete in international market.
g. Lack of studies and research:
There is lack of studies and research regarding foreign trade of Nepal. But
research is necessary for the exploration and expansion of market in foreign
countries.
a. Tax revenue:
Tax is a measure source of government revenue of Nepal. Taxes are
compulsory payment to the government without the expectation of direct
benefit to the tax payer. It contributes about 80 % of the total revenue
collected in Nepal. The tax revenue inputs the following sources:
a. Custom:
It is collected at custom point located at the border of the nation. It
includes export tax & import tax. It contributes about 35 % of the total tax
revenue of Nepal.
b. Non-tax revenue:
The Non-tax revenue contributes about 20 % of the total revenue of Nepal.
The non – tax revenue includes the following sources:
Government expenditure:
The expenditure made by the government for the welfare of the people is called
government expenditure. In other words, government expenditure of public authorities
i.e. central, state and local government. These expenditures are made to protect the
citizen and to promote economic development.
Regular expenditure:
The expenditure made on general government services is called regular
expenditure. These expenditures are also called administrative expenditures.
These expenditures are recurring in nature. These expenditures include the
following heading:
o Constitutional organs:
It includes expenditure made on Supreme Court, election
commission, public service commission, etc.
o General administration:
It includes expenditure made on council of ministries, various
ministries, various departments, police, jail, etc.
o Revenue administration:
It includes expenditure made on the collection of land revenue,
custom office, excise department office, VAT department, etc.
o Economic administration:
It includes expenditure made on planning commission, department
of statistics, etc.
o Judicial administraton:
It includes expenditure made on courts.
o Defence:
It includes expenditure made on defence i.e. army.
o Social service:
It includes expenditure made on education, health, drinking water,
etc.
o Economic services:
It includes expenditure made on agriculture, irrigation, transport,
communication, electricity, etc.
Development expenditure:
The expenditure which promote economic development is called
development expenditure. This expenditure is also called capital expenditure.
This expenditure is productive in nature. It includes the following headings:
o Constitutional organs:
It includes expenditure made on infrastructure development of
Supreme court.
o General administration:
It includes the expenditure made on administrative reform of the
government organization.
o Social service:
It includes expenditure made on infrastructure development of
education, health, drinking water, etc.
o Economic services:
It includes expenditure made on infrastructure development of
agriculture, industry, transport, communication, electricity, etc.
Development Planning
Meaning of economic planning:
Planning is a target to accomplish anywhere in definite period of time. Some
specific objectives are included in the planning. Therefore, economic planning implies
deliberate control and direction of economy by a central authority for the purpose of
achieving definite targets and objectives within a specified period of time.
Current Eleventh plan (2065 – 2068)
The current economic plan of Nepal is eleventh plan. The main objective of this
plan is to realize the change in the life of the people by reducing poverty and existing
unemployment and establishing sustainable peace.
Strategies of Eleventh Plan:
The 11th plan has set the following strategies:
To give special emphasis, to relief reconstruction and re-integration.
Creation and expansion of employment opportunities.
To increase broad – based economic growth.
Promotion of Good – Governance and effective service delivery.
Give emphasis to social development.
Increase investment in physical infrastructure.
Adopt an inclusive development process.
To carry out targeted programmers’.
Setting objectives:
The first step of plan formulation is setting the objectives for the
plan. First, the objectives for overall economy are and then the objectives
for different sectors are saved.
Setting targets:
This is the second step of plan formulation. The targets means the
targets stated in quantity. While fixing targets, the appropriate policy
should be adopted. The target expresses the determination to reach the
destination.
Macro-economic projections:
This is the fourth step of plan formulation. The macro-economic
projections of national income, investment and employment are made on
the basis of available data.
Statement of policies:
In general, the different sector policies are stated in the plan. The
policies work as the guideline in preparing programmes for different
sectors.
Sectoral planning:
The detailed programmes of different sectors are also stated in the
plan. Similarly, the sectoral allocation of resources is also made in the
plan.