Introduction To Nepal's Economy

REPORT ON ECONOMIC HISTORY OF NEPAL
Presented on: 28th January, 2021
Submitted by: Submitted to:
Silva Rambu Thapa Professor Binayak Krishna Thapa

Arpan Acharya
Umang Sitaula
Asim Kafle
BECON 1st Year, 1st Semester
Economic History of Nepal 1

Table of Contents:
 Introduction
 The Economy of Ancient and Medieval Nepal
- Context
- Findings
 Gopal Dynasty
 Kirat Dynasty
 Lichhavi Dynasty
 Malla Dynasty
 Shah Dynasty
- Conclusion
 The Economy of Nepal: Post-Unification to The End of Rana Regime
- Context
- Post-Unification Period
- Rana Regime
- Economic Activities
- Land Reform
- Conclusion
 The Economy of Nepal: 1950 – 1990 A.D.
- Context
- Autocratic Panchayat
- Reforms
- Economic Activities
- India’s Blockade
- Financial History as a Whole
 The Economy of Nepal: 1990 – Present
- Introduction
- Maoist Uprising
- Effects of Maoist Uprising
- Sectors Throughout This Time Period
- Conclusion
 Conclusion
Introduction
For an economy like Nepal, where the current socio-economic climate is still relatively largely
affected by our history, it is very imperative for us to understand how the history unfolded over
the years. While doing so it is also very crucial for us to realize that our economy was in a
primitive state for the most parts throughout our history. Due to various constraints Nepal was
not able to substantially connect with the rest of the world until the early 1950s. And since then,
the growth has been steady and positive.
This report is an attempt to unpack our history, observe it through the lenses of an economist,
and understand what led us to the point that we are now living in.

The Economy of Ancient and Medieval Nepal
Context
Most of our ancient and medieval history is still a mystery. And our history can be subjective due
to this reason. There are few clues and evidence that aid us in deciphering our history and
studying what might have happened during the time. But there are even less resources that
provide us the economic context and for the most part it is up to us to come into our own
conclusions based on whatever that has been provided. Therefore, the economic history of
Nepal of this period ties up mostly with the social and political contexts during the time and is an
extension of those same contexts.
Findings
We start off with The Gopal/Mahispal Dynasty, who are considered to be the first rulers of
Nepal and had essentially established the monarchical system. As their name suggests, they
were animal rearers (Gau = Cows, Pal = rear). It is also believed that they were nomadic
wanderers. Hence, their economy was an agriculture based self-subsistence economy that was
quite basic.
After the demise of the Gopal Dynasty, The Kirat Dynasty ruled Nepal from around 400 BC to
200 AD. They were relatively advanced in terms of having a social structure. There is a mention
of King Yalambar in the epic ‘Mahabharata’ so it is assumed that they migrated to eastern region
of Nepal from India and had some influence of Chanakya’s economics. Hence, for the first time
we can observe a caste system based on specialized roles. Along with that, they were also very
religious people and celebrated different gods and festivals. Their economy constituted of
agriculture, and animal farming much like the Gopal dynasty. Unlike the Gopals, however, they
weren’t nomadic and would settle down in valleys where they could find fertile lands and water
resources. Unfortunately, much isn’t known about their time as official record keeping only
started in Nepal after their rule during the Lichhavi Period.
Which takes us into the period of The Lichhavi Dynasty, often considered as the golden period
in our history. It might be the case because this era saw great developments in terms of
economic social, art, and literature stand-point. The oldest inscription by a Nepali ruler was
carved during the rule of Mandev. He was also the first king to establish currency in Nepal;
Manaka, coins made out of copper. Mangriha and the historic Changu Narayan Temple were,
too, built during this period.
The next influential King was Amshuverma. He is actually considered to be the first official
author of Nepal for writing a book on Sanskrit grammar titled ‘Byakaran.’ Many temples as well
as the famous Kailashkut Palace were built by him. Additionally, he had also created a tax
system that levied taxes on crops and produces. The event of his daughter’s marriage with the
Tibetan King Shrang Chang Gam-Po suggests that there had already been some kind of
relation, possibly a trade relation, between the two nations.
Furthermore, many other temples and palaces were built during this period. These
developments suggest that there had been an advanced economic structure that incorporated
citizens who specialized in multiple activities from mining, extracting, metal processing, building
architecture, painting, accounting, to administrating. The reason art, craft, literature, and
architecture flourished was not merely just a coincidence but a by-product of a planned economy
that had been able to identify skills, and utilize it properly while also allocating available
resources.
The Malla Dynasty was another period that aided in the advancement of Nepal in terms of
socio-economic context. It is well evident that art and craft had prospered massively during this
period. Many temples, durbars, and pieces of architecture were during this period. The 3 durbar
squares being the most prominent examples. It might also have to do with the fact that the Malla
kings were very fond of living a royal lifestyle with a great emphasis on arts of any kind but
whatever might have been the reason for it, the outcome was really fascinating.
Along with art, the economic landscape of Nepal, mainly the Kathmandu Valley, was
transforming gradually. Land was the most precious resource and land tax, rents, and
classification of lands based on productivity and location were developed. Specialization of
labour was done through the caste system divided by the Jayasthiti Malla. He also brought a
standardized measurement system in Nepal. Different systems for currencies were also brought
in place during multiple rulers. The trade with Tibet was increasing. Nepal used to import salt
from Tibet while exporting food grains, arts, and hand-made crafts.
Outside the valley, however, there was no such thing as food surplus. Most of the people lived in
the hilly regions where they could only farm for 3 or 4 months and had to live the rest of the year
on the same harvest. It is also another reason the Kingdom of Gorkha, ruled by the Shahs, was
not able to prosper as much as the Kathmandu Valley.
The Shahs ruled Gorkha for more than 200 hundred years until Prithvi Narayan Shah shifted the
capital to Kathmandu. Even though their social, military, and judicial aspects were relatively
better, there was very less opportunity for trade of any kinds. Hence, the economy was not as
strong as that of the Kathmandu Valley, ruled by the Mallas at the time. Even after the unification
of Nepal, there were less efforts in unifying the entire economy of Nepal. Which was one of the
reasons Nepal lagged behind in the global economic scale.

Conclusion
Ancient Nepal was in a monarchical feudal system. The economy had never really got the
chance to advance due to various reasons and for the most part Nepal was in a good place
relative to the rest of the world, as the rest of the world, too, hadn’t advanced. Furthermore, the
majority of the development and economic activities were limited to only inside the Kathmandu
valley. There were considerable growths in various social aspects but the economic growth was
gradual and slow. In retrospect, the economy of Nepal was in a decent condition and had
provided the future, which was filled with enormous possibilities, a firm base to work upon.
The Economy of Nepal: Post-Unification to The End of

Rana Regime
Context
The unification of Nepal by Prithvi Narayan Shah started the modern age in the history of Nepal.
All the scattered, individual states were now part of a one single unified nation. This process of
unification would continue until the treaty of Sugauli was signed. Soon after, the autocratic Rana
regime followed and they continued to rule the nation for the next 104 years.
Post-Unification Period
Prithvi Narayan Shah, and later on Bahadur Shah and Bhimsen Thapa, had unified the Baise
and Chaubise states geographically and had ushered a modern era in our nation’s history.
However, they were unable to unify the entire economy of the nation. The economy had not still
been formalized and many of the states were operating as separate entities which had their own
sets of governance and economic systems. Hence, a universal economic system still had not
been set in place.
Despite these obstacles, Bhimsen Thapa had a major contribution in the welfare of socio-
economic status of Nepal, specially Gorkha. He standardized customs as well as land revenues,
universalized measurement systems, defined tax and interest rates and upgraded the military.
Upgrading the military was the key element here, which was an absolute necessity for the nation
to carry on the unification movement. And money was needed in order to do so, which resulted
in a partial standardization of the economy.

The Rana Regime
Jung Bahadur Rana ascended into power after the vicious Kot massacre. This period of transfer
of power into the hands of Ranas proved to be very crucial in the overall economic history of
Nepal. The unification process had halted and wars had stopped. The nation was starting to
have stability in politics, which was lacking during the post-unification period. As the world had
just entered into the stage of industrial revolution, it was a great opportunity for Nepal to scale up
its economy and catch up to the rest of the world. All it needed was formalization of economy,
economic freedom, and a sustained period of economic revolution. But the power hungry,
autocratic Ranas presented themselves as the greatest obstacle. So, this period of Nepal’s
economic history limited itself to simply a period of ‘what could have been?’
Economic Activities
Even though Nepal couldn’t progress its economy significantly compared to the rest of the world,
there were still multiple positive economic activities during this period.
- Muluki Ain: The most remarkable development was the formulation of Muluki Ain in 1854.
It was the first constitution of Nepal and marked the official economic unification of the
nation. Administrative offices with proper accounting and a defined set of rules and
instructions were established in each of the districts and, as a result, land revenues, taxes,
customs, and trade were standardized throughout the nation.
- Infrastructures: Jung Bahadur’s trip to Europe in 1950-51 was very influential in regards
to economic development in Nepal. He was largely impressed with the European society at
the time and he tried to bring about the same changes here, administration of Muluki Ain
was one such change. Along with it, he brought European architecture to Nepal and built
multiple palaces and buildings. The trend continued till the end of Rana Regime and we
were blessed with multiple beautiful and fascinating pieces of architecture.
- Trade: There was a notable increase of trade between Nepal and multiple other countries.
The major trade partners included India, Tibet, Britain, and Japan. Nepal used to import
salt, kerosene, clothes, agricultural and industrial equipment, among many other things
from these nations. The export of Nepal largely constituted food grains to Tibet, but it was
stopped once an alternative route was established through the north-eastern Indian region
and all the trade activities of Tibet were carried out through that route. Furthermore, there
was a rise in consumption of imported luxurious items, such as jewellery, paintings, but it
was limited only to the higher ups.
- Industries: During the earlier stages there were almost no developments in the industrial
sectors. There were a few small-scale cottage industries and a number of mining industries
but it didn’t have a major impact on the economy. However, during the latter part of 1930s
Nepal saw a boost in industries. It was roughly 200 years after the industrial revolution but
progress nonetheless. Nepal Companies Act was formulated in 1936 which paved way for
the establishment of more than 60 private as well as public industries between 1935 and
1951.
- Agriculture: More than 90% of the population was involved in the agricultural sector but it
was subsistence farming. The farmers were barely able to meet their own needs and
hence, there wasn’t a significant impact of the agricultural sector in the overall economy.
The system was still a feudalistic one, until the land reforms, and any surplus would have
simply been paid to the landlords.
- Education: Durbar High School was established in 1854 and many other schools were
further established in the coming years. Even though the schools were only limited to the
Ranas and the higher ups earlier, citizens were permitted to study in these schools in the
1920s and 1930s.
- Other activities: Extension of roads, establishment of Gorkhapatra, establishment of
Pharping hydroelectricity project, supply of clean drinking water, census, establishments of
multiple hospitals, libraries, bridges
Land Reform
Arguably one of the most important events of the Rana Regime, the land reform act of the 1900
marked the beginning of the end of the Feudal system in Nepal. It was formulated to incorporate
modernization in agriculture along with the privatization of land. As a result, a large portion of
feudalistic land, also known as Birta, was converted into privately owned land, also known as
Raikar. People who owned the ‘Raikar’ land had to pay taxes to the government and were also
allowed to sell or buy land. The need to pay the profits generated from the land to the
landowners was no longer the case and hence, there was a sizeable increase in earnings
among many farmers.
Conclusion
Nepal witnessed major developments during this period which had remarkable impact in shifting
the course of economic history of Nepal. However, it was nowhere near what the nation could
have possibly achieved had there been no such shackles of oppression and exploitation.
The Economy of Nepal: 1950 to 1990 A.D.
Context
Prior to 1951 AD, the nation was ruled by the autocratic and the oppressive Ranas. The century-
long oppression instigated the armed revolution of 1951 AD and paved the way for modern
Nepal to make its first strides towards development and economic liberalization. With the
commencement of developmental plans and policies after the introduction of democracy in
1951, development activities such as formal and informal education programs, expansion of
transportation, agricultural development, expansion of modern communication, elimination of the
practice of caste hierarchy, priority on inter-caste marriage, and reproductive health with
integrative approach moved ahead gradually.
Autocratic Panchayat
Even after the introduction of democracy there was political instability in the country. On 15th
December 1960, king Mahendra claimed that the Congress government had fostered corruption,
promoted party over national interest, failed to maintain law and order and encouraged “anti-
national elements” and arrested all the prominent figures, including the then Prime minister B.P
Koirala. Political parties were outlawed and Mahendra consolidated power by institutionalizing
and invoking three pillars of national identity- Hindu religion, Nepali language and monarchy as a
foundation of everyday social and religious life. Moreover, the system propagated the idea of “Ek
Raja, Ek Bhesh, Ek Bhasa, Ek Desh”. The system was said to be a party-less guided democracy
in which people could elect their representative, while real power remained in the hands of the
monarch. It was basically a four tired structure- village, town, district and national panchayat.
The National Panchayat consisted of 90 members who couldn’t criticize the royal government,
debate the principles of party-less democracy or introduce budgetary bills without royal approval.
Mahendra was the supreme commander of the armed forces, appointed (and had power to
remove) members of supreme court, public service commission etc. He could change any
judicial decisions or amend the constitution at any time.
Reforms
There were many reforms made during this period. Land reform act was formulated which led to
the confiscation of large Rana estates. Rajya reform abolished the special privileges of some
aristocratic elites in the Western Nepal. Periodic economic plans were carried out successfully.
Distributive approach was used for the development of the country. King Mahendra divided the
country into 75 districts and 14 zones and later King Birendra divided the country into 4
development regions. East-West Highway (previously called Mahendra Highway) was
constructed.
Economic Activities
a) First Budget: The first budget in the history of Nepal (1951-1952 AD) was prepared by
Subarna Shumsher. Until then there was no system of presenting a periodic budget
because there was no separation between the funds of the state and the privy purse of the
ruling prime minister. The Estimates made on the budget were far from accurate. And this
was inevitable because the government had no statistical data and no independent agency
for the survey and collection of facts in the proper way.

b) Planning Commission: It was first created in 1956 AD. It was renamed to the National
Planning council in accordance with the Yojana Mandal Act. After the introduction of the
party less Panchayat system in 1961, it was formed under the then king and ministry of
Economic Affairs was renamed the ministry of Economic planning. Until 1968, the entire
task related to development, budgets etc. were carried out by the ministry of Economic
Planning which was assigned to ministry of finance from 1968. The National Planning
Council then morphed into the National Planning Commission (NPC) under the
chairmanship of the prime minister.
c) Economic Planning: 7 five-year plans were carried out during this time period. The
objective and strategy were similar. Increasing agricultural, industrial output and the
development of transportation, rural areas and trade diversification were the major priority.
The expenditure done from the side of government was increasing year by year. The
allocated amounts were not used properly. Spending less reduced the income of citizens
because one’s expenditure is the income of others. This happened because of the
unproductive nature of government, political arrogance and irresponsible administration
which created economic hazards, social anomalies and political chaos in the country.
d) Education: Democracy of 1951AD opened the classroom for a more diverse population.
Literacy rate started growing gradually from 5.3% in 1952-54 AD. 1971’s education plan
hastened the development in the country.
e) Agriculture: Agriculture was the major economic activity of people. More than 90% people
were engaged in agriculture. 65% of GNP was from agriculture, 12% from manufacturing
and 22% from service. Comparatively less people were involved in agriculture in the urban
areas.
f) Industry: Industrial development was very slow in Nepal. Until the 1980s, Modern
Industries were nonexistent. Henceforth, Industrial development was given emphasis in
economic planning. There were planned campaigns to reform and privatize the public
enterprises. 6th and 7th five-year plans focused on industrial development to increase
output and by the end of 7th five-year plan 16 PEs, over half industries were handed to
private owners; 4 were shut down.
g) Foreign Employment: Until the 1980s, much of the labor migration from Nepal mainly
concentrated to India. In terms of GDP, remittance inflow was just 0.70% during 1975-
1980s. Labor migration started to the middle east in the late 1970s after the intensification
of globalization and boom in the oil industry.
India’s Blockade
In 1989, The Rajiv Gandhi-led government had imposed an economic blockade against Nepal
because of transit treaties and its uneasiness over Nepal’s growing closeness with China. The
government made sure that the black market didn’t thrive. Within 45 days, Nepal drew the
attention of the international community. The government prepared to import 50% fuel from third
countries and initiated the establishment of a stock tank in Panchkhal. The World Bank and
other donor agencies agreed to provide loans at a minimal interest rate. Lower class people

faced difficulties due to the restricted supply of consumer goods and they had developed hatred
against the Panchayat system.
Financial History as a whole
The finance sector regulation and supervision started in 1956 after the establishment of Nepal
Rastra Bank. From the 1950s to 1960s, the government expanded the finance sector by
establishing new banks and financial institutions. Nepal Industrial Development Corporation
(NIDC) was established in order to expand Nepalese industries and service sectors. Rastriya
Banijya Bank and Agricultural Development Bank was also established to give banking access
to the public and to provide credit for agricultural development, small scale irrigation projects and
agriculture-based cottage and small industries respectively. Until the mid-1980s, there were only
four banks and a few insurance companies all owned by the government. The government-
imposed interest rate controls, sensitive credit policies and control of entry and exit of financial
institutions. Slow economic growth and state-led policy distortions had gradually deepened the
fiscal and economic crisis. Due to this lack of competition, Nepal’s financial system was highly
repressed. Other governmental control such as import licensing, high import tariffs, over
valuation of the domestic currency, and direct price control negatively affected the industrial
growth. Due to these governmental controls, by the mid 1980s the government faced an
unprecedented budgetary deficit. From 1980 – 1983, the government expenditure rose from
14.9% to 20.7% of GDP while revenue growth was marginal, from 8.1% to 8.4%. Then the total
outstanding public debt amounted to 40.5% of the GDP. The high public debt led to the
insufficient commercial credit availability and limited private sector growth. The fiscal problem
contributed to high inflation. This deepening economic crisis compelled the government to seek
help from international donors. So, a credit agreement was made with the IMF and the
government started reforms under the Economic stabilization program.
The Economy of Nepal: 1990 - Present
Introduction
Soon after the end of the Panchayat system in Nepal, the nation went through another period of
major upheaval. This time in the form of Maoist insurgency and the demise of Monarchy in
Nepal. The decade long civil war sure had succeeded in eliminating the Monarchical institution
but had severe implications for the economy in general. A decade later, as the nation was finally
starting to gather momentum after the establishment of Nepal’s Democratic Republic, the
devastating earthquake of 2015 shook the economy to its core and caused yet another
obstruction. Even after this Nepal had recovered and attained more than 6% economic growth
on average for 3 consecutive years for the first time in our history but a global pandemic has left
the economy in a limbo with yet more uncertainties for the future.

Maoist Uprising
In 1995 the radical leftist group Nepal Communist Party Nepal (Maoist front) began insurrection
in rural areas with the goals of abolishing monarchy and establishing people's republic. This
conflict would drag on for over a decade at the cost of thousands of lives and unfathomable
economic after-effects.
Effects of the Maoist Uprising
When a country goes into a constant state of turmoil for over a decade, it is certain that there will
be grave consequences for the economy as a whole.
As the war escalated there was a surge in military/ security spending of the country, this was to
defend against attacks by the Maoist force from all over Nepal and also to try and defeat them of
their purpose. Military spending went up from 0.9% of GDP to nearly 3% of GDP at the peak of
the war.
Throughout the Nation, markets were shut down, police posts were bombarded and innocent
civilians were killed. Rural areas and most places outside the major cities were filled with terror
and uncertainty. This resulted in an overall emigration of the rural population to major cities and
urban areas while the youths started to look abroad for job opportunities. Thus, the war was a
major Push-factor for foreign employment during this time period.
The constant state of conflict, led people to lose confidence to invest. Thus, there was an overall
decrease in real investment. Furthermore, the already existing industries were also struggling to
operate properly. Government’s budget and plans were having no effect. Overall, this resulted in
a bad economic climate, in a bigger picture, the GDP of the country as a whole struggled to
grow and the growth rate lingered around 4% to 0% throughout this period.

Sectors throughout this time period
a) Agriculture
Nepali population is heavily dependent on agriculture, 83 percent of the population
depends on agriculture (CBS, 2011), its percentage contribution to the GDP has come
down from 31.32% in 2009 to 24.26% 2019. The total production and yield increased at a
steady rate from the 1990’s to 2010’s. This can be accounted to technological
advancement and an increase in transport infrastructure making them reachable to the
rural population.
Major irrigation projects like Sikta Irrigation project and Babai Irrigation project were set in
motion, when no major changes in policies were made.
Serfdom and bonded labor continued in some parts of the country even after abolition of
such practices as early as 1925 A.D. Liz Alden Willy, in her report, wrote that over 100,000
could still be affected by such practices in 2009 A.D.
b) Industry
The Industrial Sector contributed to 15% of GDP in 2009 and in 2019 it has come down to
13%. The total contribution to GDP has been steadily increasing throughout the years.
After the end of civil war, the increase is seen to be even steadier.
There are many constraints holding the sector from flourishing. Monopolies and Syndicates
rule most markets, new comers are not welcomed and the market is far from being an
efficient one. Unnecessary bureaucracy makes it even more difficult. Political instability
throughout the time worsened the investment environment along with the obvious effects of
the Maoist movement.
c) Service Sector
Service sector which includes Tourism, transport, construction, trade, community and
social services, financial, consultancy services contribute the most in terms of percentage
(%) to GDP. It contributed 48% of GDP in 2009 and 50% in 2019. During this time period
the service sector witnessed a boom and shows that the trend will continue. Tourism saw
the most substantial growth during this time period.
d) Tourism (Service Sector)
The tourism industry was fresh off the hippie era at the start of the 90’s. In 1998 Nepal
Tourism Board was established, and in 2011 Nepal celebrated its first tourism year. During
the war Nepal was deemed to be an unsafe location to travel, thus the arrivals were low.
However, there has been a steady rise in tourist arrivals since then. This brought along a
lot of opportunities for entrepreneurs and along with it lots of jobs.
e) Remittance
According to the Ministry of Labor and Employment-2018, 1000+ Nepalis left the country
for foreign employment in 2016/17 per day on an average. Civil war causing violence,
uncertainties, and loss of opportunities were the major factors that caused the outflux of
labor from the country. It was in this time period that Nepal became one of the three most
remittance dependent economies in the world. Just between 2001 and 2011, there was
more than a two-fold increase in the number of Nepalese living away from the country.
The personal remittance received by the country has played a major role in reducing the
rate of poverty, which was at 25% in 2012 falling down from 42% in 1996. Influx of
remittance has helped hundreds of thousands of lower income families in Nepal to increase
their living standards while also allowing them to invest more and hence, increasing the
overall spending of the economy.
Conclusion
To sum up, the country has seen major social, political, and economic changes from 1990 to
present. The Maoist insurgency and the war brought by it plagued the nation for a decade, the
nation went from Monarchy to federal democracy, and the government promulgated the first
people’s constitution just to name a few. Each of them has had a massive impact on shaping the
socio-economic situation at the time. Some hampered and prevented growth of the economy

while some boosted the growth. However, after the abolition of Monarchy, the economy seems
to have shifted gears and is on a constant and steady roll upwards.
Conclusion
As Nepal never really witnessed a drastic economic revolution of any sorts at any time period,
the economic history of Nepal is quite linear and shows a trend of gradual progression with
some periods of economic setbacks. In a sense, the reason which prevented Nepal from
transforming into an advanced economy was the fact that we had zero period of prolonged
economic revolution whereas our economy suffered gravely during more than one sustained
time-period.

References:
 J. Whelpton, 2005, “The History of Nepal”
 D.B. Shrestha and C.B. Singh, 1972, “The History of Ancient and Medieval Nepal”
 P. L. Yadav , 1983, “ Political History of Nepal”
 https://en.wikipedia.org/
 http://countrystudies.us/nepal/
 https://ourworldindata.org/life-expectancy

Population Dynamics and Demographics
(From the world history and Nepal)
Presented to:
Binayak Krishna Thapa
Prepared by:
Subin Aryal
Heykha Rai
(*Report formatted in APA Referencing style)
1
TABLE OF CONTENT:
● Introduction
o Population and Demographics
o Population Growth
● Causes of Population Growth

● World Statistics
● History of Population Growth
Pre-Agricultural Period
Agricultural Period
Industrial Period
● Thomas Malthus and co-relation of his theory

● Population of Nepal
● Demographic Composition
● Introduction of Population Economics
● Scope and co-relation
● Economic Development and Population Growth
● Poverty and Population Change
● Population Dynamics and Income Inequality
● Population and Migration
● Population and Urbanization
● Population, Resource Consumption and Environment
● Conclusion
2
Population and Demographics:
In a general term, Population is defined as a group of individuals of the same species
living and inter-breeding within a given area. Members of a population often rely on the same
resources, are subject to similar environmental constraints, and depend on the availability of
other members to persist over time. Scientists study a population by examining how
individuals in that population interact with each-other and how the population as a whole
interacts with its environment. As a tool for objectively studying populations, population
ecologists rely on a series of statistical measures, known as demographic parameters, to
describe that population (Thapa, 2020).
The field of science interested in collecting and analysing these numbers is termed
population demographics, also known as Demography.
Broadly, Demography can also be said as study of the characteristics of populations.
It provides a mathematical description of how those characteristics change over time.
Demographics can include any statistical factors that influence population growth or decline,
but several parameters are particularly important: population size, density, age structure,
fecundity (birth rates), mortality (death rates), and sex ratio (Adhikari, 2010).
As we know, with this current world the population is on the verge of increment.
Hence, for better understanding of how does it work and how it actually happens it is quite
necessary to understand the term “Population Growth”.
Population Growth:
3
Population growth is one of the major concerns of the present world as the human
population is not a static factor. Rather, it is growing at a very alarming rate. In spite of the
increasing world population, the resources of the earth remain constant. Thus, the ability to
maintain sustainable development is becoming a major challenge to mankind today. The rate
at which the number of individuals in a population increases in a given time period as a
fraction of the initial population. Specifically, PGR ordinarily refers to the change in
population over a unit time period.Often expressed as a Percentage of the number of
individuals in the population at the beginning of that period(Chalise, 2018).
Factors that Influence Population Fluctuation/ Growth
The fluctuations in the population in a given area are influenced by four major factors,
which include the following:
Natality – It is the number of births in a given period of time in a population
Mortality – It is defined as the number of deaths that takes place in a population at a
given period of time.
Immigration – It is defined as the number of individuals which come from another
population and add to the population in consideration during a period of time.
Emigration – It is defined as the number of individuals from a population who leave
the habitat and go to a different habitat at a given period of time.
Fun facts related with population around the world:
1) Did you know that population is about to hit 10 billion mark in 2050?
2) For half a century, china has been the most populated country in the
world. But this is going to change, India is expected to overtake china by 2022. Also,
United States will lose its third place to Nigeria.
4
3) Also, 9 countries will account for half of the population growth.
With the successful technical and medical advancements throughout the world people
are receiving proper treatment and services, which has directly affected to the life expectancy
of any human being (Making decrease in death rate the obvious cause of population growth).
This can also result in the high birth rate elevation. Also, from the history, it can be clearly
observed that the doubling of the population was constricted in 1965 due to the external
factors like warfare and many other sorts of incident which caused decreasing birth rate.
Since, then the population of the world has spiked today; which is forecasted to be 11 billion
within the year 2001 A.D. (Chalise, 2018).
After the clear study of the current data, the population growth rate in 2020 is slightly
lower than the previous year. The spread of COVID-19 and other many factors can result to
this depending upon the individual countries. Similarly, population growth rate was 1.1%,
1.07% and 1.12% in 2019, 2018 and 2017 respectively with comparison to previous years.
According to the world population clock, the world population is increasing with the rate of
almost 82 million per year.
History of Population Growth:
1) Pre- Agricultural Period:
(Egalitarian) This period of time is best described as hunter-gatherer or nomadic era.
The type of society then would be recognised as egalitarian society which further on paved
the path for the development of Agrarian Society. It can be examined from a social
perspective that considers ways to reduce economic inequalities or form a political
perspective that considers ways to equal treatment and rights of diverse groups of people.
5
2) Agricultural Period:
A huge increase in agricultural productivity and output during the agricultural
revolution contributed to the population growth. The agriculture revolution created a surplus
of food, so fewer people died from starvation. Statistics show that the agricultural revolution
contributed a rapid growth in population.
3) Industrial Revolution:
By the time of the industrial Revolution, there were more people than ever before. A
main reason for this was 18th century agricultural improvements, which all but ended the
periodic famines that had kept down European populations. From 1750 to 1850, the
population was almost doubled, hitting the first billion population in 1804.
Later on, the population doubled by 1930. It doubled again in less than 50 years to 4
billion in 1974(Crenshaw et al., 1997).
Failure of Thomas Malthus’ Theory:
In 1798, Thomas Robert Malthus published his Essay on the Principle of Population.
It proved to be one of the most enduring works of the time. Malthus’s fundamental argument
was that population growth will inevitably collide with diminishing returns.
Diminishing returns imply that adding more labour to a fixed quantity of land
increases output, but by ever smaller amounts. Eventually, Malthus concluded, increases in
food production would be too small to sustain the increased number of human beings who
consume that output. As the population continued to grow unchecked, the number of people
would eventually outstrip the ability of the land to generate enough food. There would be an
inevitable Malthusian trap. A point at which the world is no longer able to meet the food
requirements of the population, and starvation becomes the primary check to population
6
growth., a point at which the world is no longer able to meet the food requirements of the
population, and starvation becomes the primary check to population growth.
A fundamental criticism of Malthus was his failure to appreciate the ongoing
British agricultural revolution, which eventually caused food production to meet or exceed
population growth and made prosperity possible for a larger number of people. Malthus also
failed to anticipate the widespread use of contraceptives, which brought about a decline in
the fertility rate.
POPULATION OF NEPAL:
Here on the given diagram of map of Nepal, it can be seen that the map of Nepal is
divided on the basis of federal state which makes the study of population changes among
these states resulting to total population change which can either be driven by birth, death,
immigration and emigration.
Population Projection:
7
Nepal is a perfect example of a developing country where fertility has been high and
morality has declined steadily resulting in population momentum.
By looking at the graph above, from the first population count in 1911A.D., the
population had doubled by the time the 1971 A.D. censes was conducted, rising from 5.6
million to 11.6 million. In last census of 2011 showed a population of 26.5 million,
presenting an average annual growth rate of 1.35 percent during the intercensal period 2001-
2011.
In the absence of any reliable records the population size of Nepal prior to 1911
census was based on the estimates of the scholars. The counting of houses was practiced
during 250AD. But the purpose of the enumeration was not to count the size of population
and did not cover the entire population of the country. Preceding to 1768, the number of
houses in Kathmandu, Lalitpur, Bhaktapur and Gorkha was estimated to be 22 thousand, 24
thousand, 12 thousand and 12 thousand respectively. From such estimates, total population of
the country could not be to estimated. Through the latter half of 19 th century, several attempts
were made to estimate the population of Nepal by British with the view to access the
8
potential market for their manufactured goods and also the availability of eligible hill men to
recruit in the British army.
In 1879, the population was estimated by British Government to be about 2 million
but it was estimated to be five million by the government of Nepal. That population censes
also did not cover all Nepalese Population. Counting the population all over the country was
started formally since 1911.The census has recorded 56,38,749 population in 1911 and which
reached 2,31,51,423 in 2001 with 1.58% growth rate and it reached 2,64,94,504 in 2011 with
the growth rate of 1.46%.
Nepal has a host of ethnicities present. East Asian mixed people as well as Indo-
Aryans live in the mountains and hilly regions of the country. Tibetans inhabit the central and
western part of Nepal. As a result, hosts different cultures that ae shared by its inhabitants.
Many religions, most significantly Hinduism and Buddhism but minorities of Muslims and
Christians are present as well.2011 Census breakdown Hindu 81.3%, Buddhists 9%, Muslim
4.4%, Kirat 3.1%, Christian 1.4% and others 0.7%.Languages used in Nepal include
Nepali(official), Maithili, Bhojpuri, Tharu, Tamang, Newar, Magar and others.
9
Nepal has been experiencing a rapid demographic changes in the last few decades as a
result of transition from a high mortality, high fertility society to low mortality, low fertility
society within a relatively short span of time. This transition in itself is extremely positive
outcome of the country’s development and something to be really celebrated- an alternative
scenario would have been that of a classical “Population Explosion”’ i.e., uncontrolled
population growth with a persistently high prevalence of poverty and underdevelopment.
Generally, speaking in common term, Nepal’s population is in transition. It is currently in
stage II (death and birth are low, but death rate remains slightly higher than birth rate), but
quickly approaching stage III (death and birth rate is low). After knowing some of the aspects
of population growth and demography, thirdly we can generally touch into the topic of
population economics.
10
INTRODUCTION TO POPULATION ECONOMICS:
Population Economics is the study of the economic aspects of demography or
demographics aspects of economics. It can be linked with some of the aspects of economy
with the terms of population. Population economics studies economic change in relation to
employment situation, resources use, economic conditions, urbanization, migration and so on
Generally, for easier understanding:
If there is increase in income, there we can see an increase in fertility as well and
vice-versa. Again, if fertility increases, the income becomes ambiguous and consumption
increases. Similarly, in population, poverty might be on the verge of increment because it
creates higher number of labours resulting in structural unemployment for some of the
population finally leading to poverty again. All of these go hand in hand. If poverty increases,
fertility is ambiguous again making population growth ambiguous too (this can be easily
determined by proper study of data and graphs related to this.) (Bloom et al., 2003).
Adam Smith and Alfred Marshall gave the importance of human capital which is
knowledge, skill, training acquired over the time which may have positive impact on future
earnings. Thus, increasing income and improving overall well-being. So, Economics has
always been related to the study of money earning and money spending activities of human
beings. The basic purpose of the introduction of population economics has been to appreciate
the economic condition of the growing population in relation to economic development and
environment. Better understanding of scope of economics in population come through two
aspects. They are:
Static Sense: Economic Demography studies the characteristics of a given population
at a time like: Economic density, Stock of human Capital, Employment situation.
11
Dynamic Sense: Economic demography encompasses of the growth of employment
rate of growth of human capital, migration, urbanization, position of poverty, the rate of
growth of resources in relation to man and so on.
Economic Development and Population Growth
In the book on inequality Thomas Piketty (2014) observes that economic growth “. . .
always includes a purely demographic component and a purely economic component…”
With the evidence presented by Piketty (2014, p. 73), we conclude that population and
economics are interrelated with each other. The simple relation between population growth
and economic growth goes two ways:
● Low population growth in high-income countries is likely to create
economic problems.
● At the same time, high population growth in low-income countries
may slow their development. International migration could help to adjust these
imbalances but it is opposed by many.
Many analysts believe that economic growth in high-income countries is likely to be
relatively slow in coming years in part because population growth in these countries is
predicted to slow considerably (Baker, Delong, & Krugman, 2005). In Nepal’s case, the
population is expected to rise till 2050 and then it is projected to decline. For a low income
country like Nepal, ceteris paribus, the decline is a favourable outcome.
Population growth changes population dynamics and distributions such as age
structure, international migration, economic inequality, and size of a country’s work force.
These variables are the forces connecting the two, which we have sought to briefly introduce
in our work.
12
Poverty and Population Change
High population growth in low-income country will have risen in poverty. For
example, extreme poverty is expected to become increasingly concentrated in Africa as their
population rise in the decades which follow. We have identified three causes for increasing
poverty:
● Rapid population growth is likely to reduce per capita income growth
and well-being which tends to increase poverty.
● In densely populated poor nations with pressure on land, rapid
population growth increases landlessness. For, economies depending on agriculture,
this will be a huge blow.
● The decline in welfare services as a consequence of population growth
will increase poverty in the next generation.
Population Dynamics and Income Inequality
Population growth affects economic inequality through the dependency ratio and
differential fertility. Rapid population growth creates higher youth dependency ratio which
leads to economic lag (Rougoor and Charles, 2014). However, low population growth rates
leads to higher old age-dependency ratio which also increases national inequality (Deaton and
Paxson, 1997). As for the relation with fertility ratio, whether change in fertility leads to
13
future inequality depends on the group of people that is adding to the net fertility. If a
substantial change in population is seen among the poor, this could lead to inequality. The
converse holds for the rich. Rapid rise in population of the poor is linked with poor child
development. This increases unskilled labour supply relative to demand thereby depressing
relative wages for the unskilled labour and creating wider gap between earning of skilled and
unskilled workers.
Therefore, higher dependency ratio and growth in fertility rate of low-income group
will increase inequality.
Gini Coefficient
With this analysis, we can infer that, population dynamics directly influence
inequality measures such as the Gini coefficient. Inequality will increase in countries with a
rapidly growing population, even if GDP per capita remains the same (Rougoor and Charles,
2014). The Gini Coefficient of Nepal is 32.8.
Distribution of Income
As discussed above, rapid rate of population growth could alter the distribution of
income in the favour of profits, rent and interest as opposed to labour earnings (Boulier,
1975).
Age Structure
14
Age Structure is the most important variable of population dynamics influencing an
economy. There will be a positive and significant effect on the growth of GDP per capita due
to the growth of the working age population. Likewise, there will be an opposite, negative
and significant effect from the growth rate of the dependant population. Aging population
tends to lower labour-force participation, savings rates, and may slow economic growth.
There is 3Ps framework of population, participation and productivity, which projects
the economy from the supply side. How much people will work or productivity is affected, in
part, by how old they are. Similarly, participation rates decline substantially after age 55. So,
an older population will work less in aggregate. Therefore, combining both population and
participation elements of the three Ps, provides a broad measure of labour utilisation.
Two-thirds of the GDP reduction is due to slower growth in the labor productivity of
workers, while one-third arises from slower labor force growth. Another effect is that the
main spending pressures continue to be in health, age pensions and aged care. Therefore,
population distribution with higher aging population will have negative effect in the
economic growth.
According to 2019 data, the working age population (15-64) of Nepal is 64.65%. The
aging population (65+ years) is 5.78%. Whereas, the total dependent population (age group
0-14 and 65+years) is 35.35%. Looking at the data solely, this is a considerably good number
for Nepal’s economy. However, the problem arises as most of the working age population
does not stay in Nepal, be it for foreign employment in gulf countries or youths leaving to 1 st
world countries for better future.
Population and Migration
15
There is a common belief that immigration leads to wage fall or the loss of job
opportunities. However, the results of economic analysis points toward the opposite direction.
Higher labour supply from immigration may initially depress wages, but over time
firms increase investment to restore the amount of capital per worker, which then restores
wages. Thus, steady growth in the capital-labour ratio prevents workers’ average wages from
declining over the long run.
To address the other concern of reduction in employment opportunities, although
immigrants increase the supply of labour, they also spend their wages for consumption and
expand domestic economic demand. This increased demand, in turn, generates more jobs.
Further, the available evidence suggests that immigration leads to more innovation, a
better educated workforce, greater occupational specialization, better matching of skills with
jobs, and higher overall economic productivity.
Therefore, Economic theory predictions and the bulk of academic research confirms
that wages are unaffected by immigration in the long-term and that the economic effects of
immigration are mostly positive for natives and for the overall economy.
Nepal and foreign employment
Nepal sees emigration in the form of foreign employment more than immigration. As
per Nepal Rastra Bank's report 'The Status of Remittance Inflow in Nepal', Nepal received a
total of NPR 879.3 billion (USD 7.8 billion) in remittance in the fiscal year (FY) 2018/19,
which is a contribution of 25.4% to the national GDP of NPR 3.4 trillion (USD 29.8 billion).
16
Population and Urbanization
Urbanization positively impacts economic growth. However, the relationship between
urbanization and economic growth is non-linear. The urbanization reaches a threshold after
which it may impede the economic growth. The estimated threshold is 69.99 percent for the
static model and 67.94 percent for the dynamic model
Overall, Urbanization has the potential to accelerate the economic growth, but this
potential will largely depend on the establishment of favourable institutions and investments
in appropriate public infrastructure.
Rural population is still higher than urban population in Nepal. Urban population has
been steadily rising. Nevertheless, the gap between Rural and Urban population is still very
high.
Labour Supply, Employment and Population
Generating a sufficient number of jobs at reasonable wages to absorb their rapidly
growing populations into productive employment will be the greatest challenge for less
developed countries. The limited availability of natural resources (and especially land) and
the widespread availability of advanced technology will pose a huge problem for
employment. Also, it is understood that rapid population growth will have a lagged effect on
labour supply.
Population distribution according to the occupation
17
The proportion of the employed population in the primary sector, mainly in
agriculture, is gradually declining. In 2019, just over 50 percent of Nepal's gross domestic
product (GDP) came from its service sector. Agriculture contributed the
second largest amount, while thirteen percent came from the industry sector.
Population, Resource Consumption and Environment
Although many economists have spoken in the favour of population growth for
economic development, others argue that population growth has been and will continue to be
problematic as more people inevitably use more of the finite resources available on earth,
thereby reducing long-term potential growth (Linden, 2017).
Another issue raised is the acceleration of environmental degradation, resource use,
and waste production as the consequence of population growth.
As the size of a population increases, so does its energy consumption. Thus, issues of
carrying capacity and scarcity are major problems of overconsumption brought by
overpopulation.
Conclusion
Through the examination of various variables, we conclude that population and
economic growth affect and are affected by each other. A low population growth rate is
considered unfavourable for high income economies. Whereas, it is preferable for low-
18
income economies as high population growth would be disastrous for developing countries.
The growth rate of Nepal as recorded by the World Bank in 2019 is 1.8%. Nepal has been
seeing a rise in population growth rate since 2013 and is expected to rise till 2050, after
which it is expected to fall. The decline is much preferable to rise in Nepal’s current state.
Rapid population growth rate and high dependency ratio are the biggest threat to the
health of an economy. Although, the total dependent population of Nepal is lower relative to
the working age population, emigration of the working age population has led to the
underutilization of the labour force. With that being said, remittance has made a significant
contribution of 25.4% to the national GDP in 2019. However, this remains a temporary
solution.
19
References:
Adhikari, R. (2010). Demographic, socio-economic, and cultural factors affecting fertility
differentials in Nepal. BMC pregnancy and childbirth, 10(1), 1-11.
Bloom, D., Canning, D., & Sevilla, J. (2003). The demographic dividend: A new perspective
on the economic consequences of population change. Rand Corporation.
Chalise, H. N. (2018). Demographic Window of Opportunity in Nepal. Nepal Population
Journal, 18(17), 133-140.
Crenshaw, E. M., Ameen, A. Z., & Christenson, M. (1997). Population dynamics and
economic development: Age-specific population growth rates and economic growth in developing
countries, 1965 to 1990. American Sociological Review, 974-984.
Thapa, K. (2020). Population Dynamics in Nepal Over 100 Years. Patan Pragya, 7(1), 303-
316.
-----------------------------------------------------------------------------------------------------------------------------------
● https://journals.sagepub.com/doi/full/10.1177/2158244017736094#:~:text=the%20ne
xt%20section.-,The%20Relationship%20Between%20Economic%20Growth%20and
%20Population%20Growth.to%20higher%20economic%20growth%20rates.
● https://data.worldbank.org/indicator/SI.POV.GINI?end=2010&locations=NP&name_
desc=false&start=1995&type=shaded&view=map
● https://www.ceda.com.au/Research-and-policy/All-CEDA-research/Research-
catalogue/The-economic-impact-of-Australia%E2%80%99s-ageing-population
● https://www.econstor.eu/bitstream/10419/106645/1/786328096.pdf
● https://ourworldindata.org/age-structure
● https://www.nber.org/system/files/working_papers/w1837/w1837.pdf
● https://nepal.unfpa.org/sites/default/files/pub-pdf/PopulationMonographVolume3.pdf
● https://budgetmodel.wharton.upenn.edu/issues/2016/1/27/the-effects-of-immigration-
on-the-united-states-economy
● https://www.macrotrends.net/countries/NPL/nepal/net-migration
20
21
Natural resources available in Nepal and their
economic significance

Ankit Pokhrel Prof. Binayak Krishna Thapa
Pratyush Khanal
Date: 17th March, 2021

Content
 Introduction
 The economic significance of Natural resources
 Geographical features of Nepal
 Forest resources of Nepal
 Importance of Forest Resources
 Deforestation
 Measures for conservation of Forests
 Water Resources of Nepal
 Importance of Water Resources
 State of Water Resources in Nepal
 Potential of Hydroelectricity
 Problems of Water Resources Development
 Water Induced Disasters
 Mineral resources and its economic importance in Nepal
 History of utilization of mineral resources in Nepal
 Mining policies and licensing system
 Current state of utilization of mineral resources in Nepal
 Problems of mineral resource development
Introduction
Natural resources are resources that exist without any actions of humankind.
This includes all valued characteristics such as commercial and industrial
use, aesthetic value, scientific interest and cultural value. On Earth, it
includes sunlight, atmosphere, water, land (includes all minerals) along with
all vegetation, and animal life. Natural resources can be part of our natural
heritage or protected in nature reserves.
Natural resources are usually either renewable or non-renewable. The
former refer to those resources that can renew themselves in time. These
include living resources like forests or non-living ones like wind, water, solar
energy. Wikipedia has more on renewable energy.
Non-renewable resources, as the name implies, are those that can no longer
be tapped once the available stock at a site is exhausted. Once we use them,
there isn't any more. Mineral resources are non-renewable. Fossil fuels,
which are formed from the fossilized remains of prehistoric organisms, are
also considered non-renewable even though they can renew themselves
given a few million years. For more on fossil fuels and why they are so-
called, try this site.
Fossil fuels currently account for about 90 percent of the world's energy
consumption. They provide around 66% of the world's electrical power, and
95% of the world's total energy demands, such as, for heating, transport,
electricity generation and so on.
Natural renewable resources, such as wind and water, have been used
throughout history, and till recently were a predominant energy source. In
many developing countries, biomass remains the primary energy source for
much of the population.
The economic significance of Natural resources
Natural resources, both renewable and non-renewable, and ecosystem

services are a part of the real wealth of nations. They are the natural
capital out of which other forms of capital are made. They contribute
towards fiscal revenue, income, and poverty reduction. Sectors related to
natural resources use provide jobs and are often the basis of livelihoods
in poorer communities. Owing to this fundamental importance of natural
resources, they must be managed sustainably. Government plays the
essential role in putting into place policies that ensure that resources
contribute to the long-term economic development of nations, and not
only to short-term revenue generation.
The economic significance of natural resources depends upon the
magnitude of two basic variables: current flows of income and potential
future flows of income. The first is largely a function of production costs
and market demand, and the second of natural resource endowments and
management planning. In order to understand the true importance of
natural resources, both current and future flows of income must be taken
into account. The former can be a deceptive indicator of how natural
resources will contribute to economic development over time if income is
derived from the depletion of the natural capital. Managing natural
resources sustainably in the case of renewable resources and as sources
of revenue for investment in future growth in the case of non-renewable
resource allows resource rich countries to establish the foundation for
long-term development and poverty alleviation.
Natural resources have the potential to provide a significant number of
jobs. Even while the number of people employed in traditional extractive
industries has declined steadily around the world due to mechanization
and economies of scale, employment in the renewable energy sector has
risen and has the potential to continue to rise over the long-term (UNEP,
2008). In Germany alone, for instance, jobs in the renewable energy
sector have risen from 66,600 in 1998 to 259,100 in 2006. In 2007
renewable energy related industries provided nearly a million jobs (UNEP,
2008).
Geographical Features of Nepal
Nepal is a relatively small country with a total area of little less than 150,000
square kilometers, and no access to the sea. China lies to the North of Nepal,
while the border with India is in the remaining directions. Notwithstanding its
small size, the territory can boast a difference in altitudes within its borders
that has no equivalent worldwide : from the southern Terai plains situated at
an altitude of 100 meters above sea level, the Nepalese geological
conformation offers an impressive vertical excursion that reaches 8,848
meters on the top of Mount Everest, the highest mountain in the World.
Fig: Geographical Diversity of Nepal

Nepal contains some of the most rugged and difficult mountain terrain in the
world as 75 percent of the country is covered by mountains. From the south
to the north, Nepal can be divided into four main physical belts, each of which
extends east to west across the country.
1.The Terai:
The Terai forms the northern extension of the Gangetic Plain and
varies in width from less than 16 to more than 20 miles, narrowing
considerably in several places. A 10-mile-wide belt of rich agricultural land
stretches along the southern part of the Terai; the northern section, adjoining
the foothills, is a marshy region in which wild animals abound and malaria
is endemic.
2. The forested Churia foothills and the Inner Terai zone:

The Churia Range, which is sparsely populated, rises in almost
perpendicular escarpments to an altitude of more than 4,000 feet. Between
the Churia Range to the south and the Mahabharat Range to the north, there
are broad basins from 2,000 to 3,000 feet high, about 10 miles wide, and 20
to 40 miles long; these basins are often referred to as the Inner Terai. In
many places they have been cleared of the forests and savanna grass to
provide timber and areas for cultivation.
3. The mid-mountain region:

A complex system of mountain ranges, some 50 miles in width
and varying in elevation from 8,000 to 14,000 feet, lie between
the Mahabharat Range and the Great Himalayas. The Kathmandu and the
Pokhara valleys lying within this mid-mountain region are flat basins,
formerly covered with lakes, that were formed by the deposition of fluvial and
fluvioglacial material brought down by rivers and glaciers.
4. The Great Himalaya Range:

The Great Himalaya Range, ranging in elevation from 14,000 to
more than 29,000 feet, contains many of the world’s highest peaks—Everest,
Kanchenjunga I, Lhotse I, Makalu I, Cho Oyu, Dhaulagiri I, Manaslu I, and
Annapurna I—all of them above 26,400 feet. Except for scattered
settlements in high mountain valleys, this entire area is uninhabited.
Types of soil
There are different types of soil in Nepal. Various factors such as geology,
climate and vegetation types have resulted in variations in soil properties.
Soils of Nepal can be divided into five broad types which are briefly
discussed below:
1. Alluvial Soil:
Alluvial soil is formed by a mixture of materials deposited by rivers and
decayed vegetation. It is very fertile to grow crops. It is especially found in
Terai and rivers basins. It is suitable for growing paddy, wheat, jute, oilseed,
tobacco, sugarcane etc.
2. Sandy and Stony Soil:

Sandy and stony soil is made up of a mixture of sand, rocks and other rough,
loose particles deposited by the river. It contains less humus in it. So, it is
not suitable for agriculture. The maximum part of these types of soil is
covered by the forest of Sal, Sisso etc.
3. Rocky Soil:
The broken rocks are mixed with decayed vegetation in hills and mountains
and form a rocky soil. The parent rock is disintegrated through continuous
weathering. This soil contains less nitrogen, phosphorous and calcium etc.
In spite of less humus, millet, tea, potato, maize, etc. are grown in it.
4. Glacial Soil:
It is formed by boulders, sand, and stone deposited by the glaciers. This type
of soil is found in the mountain region. Fertility of this soil is minimum as the
climate is too cold and the deepness of the soil is less. It is suitable for the
cultivation of specific plants such as barley, millet, potato, buckwheat etc.
5. Lacustrine Soil:
The soil is made by the drying of lakes in the basins and valleys is known as
Lacustrine soil. It is very fertile soil in black color. It contains a huge amount
of humus for cultivation. Kathmandu valley has this type of soil where
varieties of vegetables and crops can be grown easily.
Forest Resources of Nepal
Of the total land area of Nepal, forest area covers 44.7 percent of which
forests cover 40.4 percent and bushes and sapling cover 4.4 percent. In
terms of topography of Nepal, the largest forest area is in the mid-hills and
the smallest forest area is in the Terai.
Forest resource is considered as a backbone for the development of the

agriculture, tourism, environment, biodiversity and regional development. It
is estimated that the forestry sector alone has 15 percent contribution to the
GDP of Nepal (Economy Survey 2019/2020). The number of tourists visiting
the protected area was 706,111 and the revenue collected from the protected
areas was Rs. 739.9 million in the fiscal year 2018/2019. Forest Sector is
providing most of the goods of necessities for daily life such as timber,
fuelwood, animal’s fodder, herbals and other timber and non-timber forest
products.
Biodiversity
Nepal contains a disproportionately large diversity of plants and animals,
relative to its size. In its 35 forest-types and 118 ecosystems, Nepal harbors
2% of the flowering plant species, 3% of pteridophytes and 6% of bryophytes.
Nepal is a land of geographical extremes, ranging from near sea level
elevations in the southern Terai to the world’s highest mountains. The
country contains a variety of ecosystems; treeless sub-alpine pastures and
dense fir forests of the high valleys, oak and rhododendron woods of the
middle hills, and tall sal forests of the south. The southern borders of Nepal
are preserved much of the lowland jungles and grasslands that once covered
this part of the sub-continent. Here one can see birds and mammals found
nowhere else. Although animal habitat has been somewhat depleted as a
result of agriculture, deforestation and other causes, through Nepal’s
extensive and effective park and reserve system, the country still has more
varied flora and fauna than any other area in Asia.
Based on the climate and geography there are different types of vegetations
and, flora and fauna that are found on various parts of the country which are
as follows:
1. Tropical Deciduous Monsoon Forest (- 1800):
This includes the Terai plains and the broad flat valleys or Duns found
between hill ranges.
The dominant tree species of this area are Sal, sometimes associated with
Semal, Asna, Dalbergia spp. and other species, and Pinus roxburghi
occuring on the higher ridges of the Churia hills, which in places reach an
altitude of 1,800 meters. Tall coarse two-meters high elephant grass
originally covered much of the Dun valleys but has now been largely replaced
by agricultural settlement. This tropical zone is Nepal’s richest area for
wildlife, with gaurs, wild buffalo, four species of deer, tiger, leopard and other
animals, Rhinoceros, swamp deer and hog deer are found on the grasslands
and two species of crocodile and the Gangetic dolphin inhabit the rivers.
2. Subtropical Mixed Evergreen Forest (1800-2400):

This includes the Mahabharat Lekh which rises to a height of about 2,400
meters and comprises the outer wall of the Himalayan range. Great rivers
such as the Karnali, Narayani, and Sapta Koshi flow through this area into
the plains of the Terai. This zone also includes the so called "middle hills",
which extend northward in a somewhat confused maze of ridges and valleys
to the foot of the great Himalaya.
Among the tree species characteristic of this region are Castenopsis indicia
(Katus) in association with Schima wallichi, various species of oak and
rhododendron, which cover the higher slopes where deforestation has not
yet taken place. This zone is generally poor in wildlife. The only mammals
which are at all widely distributed are wild boar, barking deer, serow, ghoral
and bear. Different birds are also found in this zone.
3. Temperate Evergreen Forest (2400- 3500):
Northward on the lower slopes and spurs of the Great Himalaya, oaks and
pines are the dominant species up to an altitude of about 2,400 meters.
At about 3,600 meters rhododendron, bamboo and maples commonly mingle
with the conifers. The wildlife of this region includes the Himalayan bear,
serow, ghoral, barking deer and wild boar, with the Himalayan tahr
sometimes being seen on steep rocky faces above 2,400 meters. The red
panda is among the more interesting of the smaller mammals found in this
zone; it appears to be fairly well distributed in suitable areas of the forest
above 1,800 meters. The rich and varied avifauna of this region includes
several spectacular and beautiful pheasants, including the Damphe
pheasant, Nepal’s national bird.
4. Subalpine and Alpine Zone (3500 and above):

Above the tree line, rhododendron, juniper scrub and other procumbent
woody vegetation may extend to about 4,200 meters where they are then
succeeded by a tundra like association of short grasses, sedge mosses and
alpine plants wherever there is sufficient soil. This continues up to the lower
limit of perpetual snow and ice at about 5,100 meters.
The mammalian fauna is sparse and unlikely to include any species other
than the Himalayan marmot, mouse hare, tahr, musk deer, snow leopard and
occasionally blue sheep. In former times, the wild yak and great Tibetan
sheep could also be sighted in this region and it is possible that a few may
still be surviving in areas such as Dolpa and Humla. The bird life at these
altitudes includes several interesting species such as the lammergeyer,
snowcock, snowpartridge, chough and bunting, with redstarts and dippers
often seen along the streams and rivulet.
Protected Forest Areas
23.4 percent of the land has been managed under the protected area
system. Likewise, 190,809 hectares of forest area has been managed
through 10 forest conservation areas. With the objective of conserving the
biodiversity and ecosystem and promoting nature-based tourism, 20
protected areas including 12 national parks, 1 wildlife reserve, 1 hunting
reserve and 6 conservation areas covering an area of 34,420 sq. km are
established.
Internal and external tourists visiting the protected area and revenue
mobilization has gradually increased over the last decade. In the first eight
months of the fiscal year 2019/20, total number of tourists that visited the
protected sites are 510,278 whereas the number of tourists visiting the sites
during fiscal year 2018/19 were 706,111.
Revenue collected from protected areas was increased by 4.8 percent to
Rs.739.9 million in fiscal year 2018/19 compared to that of the fiscal year
2017/18. Such revenue in the first eight months of current fiscal year 2019/20
is Rs.346.5 million.
Home to Endangered Species
Nepal contains 107 IUCN-designated threatened species, 88 of them animal

species, 18 plant species and one species of “fungi or protist” group. These
include the endangered Bengal tiger, the Red panda, the Asiatic elephant,
the Himalayan musk deer, the Wild water buffalo and the South Asian river
dolphin, as well as the critically endangered Gharial, the Bengal florican and
the White-rumped Vulture.
According to the latest wildlife census, there are currently 235 tigers, 441
wild buffaloes (Arna), 645 rhinos, 326 black bucks and 198 crocodiles in
Nepal. Similarly, there are 478 Gauri cow (gaurigai), 350 to 400 snow
leopards and 2325 buck dear (barasigha).
Importance of forest resource
Forest resources have an important contribution in the economic and social

development. Forest resource is the renewable natural resource. Therefore,
appropriate scientific management and utilization of this resource can
accelerate the pace of economic development of the country.
In 2018, agriculture and forestry contributed 27.1% of GDP with direct
products, and environmental services 27.5% of GDP. Forests supply 78.14%
of rural energy needs in the form of fuelwood.
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.
2. Source of raw materials: It provides raw materials for forest-based
industries like paper, medicines, plastics, matches, furniture, etc. Therefore,
forest resource is the source of raw materials required for various industries
in Nepal. Similarly, there are about 700 species of medicinal herbs in the
forest of Nepal.
3. Source of fodder and animal habitat: Forest supplies fodder grasses
to the cattle. It also provides grazing ground to the cattle. Thus, it helps in
livestock development. Similarly, it is the habitat of wild animal live tiger, lion,
bear, elephant, rhinoceros, rare birds and insects.
4. 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.
5. Tourism development: Forest enhances the natural beauty. The rare
wild animals and birds get shelter in the forest. It also provides hunting spot.
Therefore, forest helps to develop tourism sector.
6. Source of public revenue: It is the main source of public revenue in
Nepal. The government exports various herbs and timber to foreign countries
to earn foreign currency.
7. Ecological balance: Forest resource helps in environment protection
and ecological balance. The environmental degradation has serious effects
on human beings, animals and birds, agriculture and industries. According
to forest sector expert at least 43% of the total area should be forest area for
ecological balance.
Deforestation
Although the forest sector has a significant role in the economic development
of the country, it has not got priority and has a low policy profile in Nepal.
The common pressures from various sectors of the economy on forest
resources have caused its degradation and deforestation.
Forest areas have been encroached for expanding farmland, settlement,
infrastructure development, urbanization, over grazing, invasive species,
forest fire, and mining of sand and boulders. Forests in the middle-mountain
are strongly impacted by infrastructure development, particularly rural roads.
The rate of loss of forest is alarming; it has affected natural habitats,
biodiversity, and ecosystems. The deforestation in Nepal is increasing day
by day due to the following reasons:
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.
II. Supply of construction materials: The wood and timber is essential for
the construction of house, bridge, industries and furniture industry. In rural
areas, forest areas are destroyed to meet the need of agricultural tools and
use as a fodder for cattle this has increase deforestation.
III. Lack of employment opportunities: The problem of unemployment and
underemployment can be found in rural areas. Generally, the farmers are
unemployed during the winter season. There are no alternative employment
opportunities outside agriculture. Therefore, rural people illegally sale wood
and fuelwood for extra income. This has also increased deforestation.
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.
V. Demand for raw materials: The forest-based industries are increasing in
Nepal. Thus, there is increase in demand for raw materials for forest-based
industries like matches, paper, furniture, etc. As a result, deforestation is
increasing in Nepal.
VI. High population growth rate: The population growth rate is high in the
country. There is high pressure of population on agriculture. There is little
development of non-agricultural sector. Therefore, people are compelled to
cultivate even in forest land. It also has increase deforestation.
VII. Uneducated people: The rural people are mostly uneducated. They are
not aware of the future problem of deforestation like landslide, soil erosion,
lack of rainfall, etc. They are only worried about the present need. So, they
carelessly cut the trees. As a result, deforestation is increase in Nepal.
VIII. Defective government policy: The government policy regarding
preservation and development of forest is defective because it changes
frequently, and it is less effective in nature.
IX. Lack of participation of people: Government cannot do everything on
its own. There is lack of people’s participation in afforestation and
preservation of forest resource. Due to which the afforestation programs are
not being as effective.
Consequences of Deforestation
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.
ii. Shortage of forest-based products:
Deforestation brings the shortage of supply of raw materials for forest-based
industries. As a result, various forest-based industries will be closed down.
Deforestation directly affects herbal industry, paper industry, furniture
industry, etc. Therefore, deforestation results in the shortage of forest-based
products.
iii. Decrease in livestock rearing:
Livestock is also based on forest resource. Deforestation directly effects the
livestock rearing because there will be lack of food required for livestock due
to deforestation. As a result, there will be decrease in livestock rearing.
iv. Effects on Agriculture:
The deforestation causes soil erosion and soil erosion adversely effects on
agricultural productivity. Due to soil erosion the agriculture manure become
deficient. As a result, the agricultural productivity and production decline.
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.
vi. Brings natural disaster:
The flood, landslide, soil erosion, deficiency of rainfall frequently occurs due
to deforestation. This effects the wealth and life of people.
vii. Shortage of construction materials:
Various construction materials in Nepal are based on the timber obtained
from the forest. Due to deforestation people are facing the problem of
construction houses, bridges, factories, etc. Therefore, deforestation results
in the shortage of construction materials.
Measures for Conservation of Forests
• Regulated and Planned Cutting of Trees

• Control over Forest Fire
• Reforestation and Afforestation
• Check over Forest Clearance for Agricultural Purposes
• Protection of Forest
• Proper Utilization of Forest Products and Forests
• Strict Implementation of Government policies related to forests
Water Resources of Nepal
97.5% of all the water on Earth is saltwater, leaving only the remaining 2.5%
as freshwater. Approximately 70% of the freshwater available on the planet
is frozen in the icecaps of Antarctica and Greenland. This leaves only the
remaining 0.7% of the total water resources worldwide accessible for direct
human uses.
Nepal is rich in availability of water resources. Nepal has a total drainage
area of 194,471 square kilometers comprising more than 6,000 rivers. The
rivers flow from mountains in the north to hills and plains in the south, and
finally discharges in the Ganges in India—contributing 47% of its monsoon
flow. The rivers are of three types:
(i) Large snow fed rivers that originate from Himalayas and maintain
reliable dry season flows,
(ii) Medium size rivers originating from the high hills (Mahabharat
range), and
(iii) Small seasonal rivers originating from Chure, which dries in winter
and brings devastating flash flood during monsoon
Total Actual Renewable Water Resources

Renewable internal freshwater resources flows refer to internal renewable
resources (internal river flows and groundwater from rainfall) in the country.
The breakdown of total actual renewable water resources in terms of Nepal
is done as follows:
 Surface water: 94 %
 Ground water: 10 %
 Overlap of water shared by both surface water and groundwater
systems: 10 %
 Incoming Waters: 6 %
 Total Use of Total Actual Renewable Water Resources: 5 %
The per capita water availability for 2001 was 9600m3/capita/year in Nepal.
The value for Renewable internal freshwater resources per capita (cubic
meters) in Nepal was 7,366 as of 2014.
As the graph shows, over the past 52 years this indicator reached a maximum
value of 18,997 in 1962 and a minimum value of 7,343 in 2012.
Importance of Water Resources in Nepal
Water resources are one of the important natural resources of Nepal. The
economic development of Nepal largely depends upon the development of
these resources. Nepal has not been able to utilize its water resource
properly. The importance of water resources are:
 Development of transport and communication: These fields run
with the aid of electricity. Hydroelectricity or energy generated from the
water resources help in the process.
 Development of Agriculture: Irrigation helps in crop diversification,

increases production, smoothen marketing, storage and modernize
agriculture.
 Basis of industrialization: Hydroelectricity can help to run industries

as large scale and small-scale industries both require adequate
electricity supply.
 Protection of forest resource: The development of hydroelectricity

substitutes the use of fuelwood for energy.
 Development of human resource: Clean drinking water helps

provide healthy and strong manpower.
 Saving of foreign exchange: Nepal has to spend a lot to import

products such as coal, diesel, petrol and others but hydroelectricity
reduces their imports.
 Employment Opportunities: Hydroelectricity helps to develop
agriculture, industry and other sectors which then create more job
opportunities.
 Use of modern amenities: Electricity facilitates the use of many

modern devices such as television, refrigerator, washing machine and
others.
State of Water Resources in Nepal
Fig: Topography and Four Major Rivers of Nepal

Snow cover:
Snow cover in Himalayas provides huge natural storage of freshwater.
Glaciers, permafrost, and glacial lakes are main forms of water storage.
There are about 3,252 glaciers with total coverage of 5,323 km2 in Nepal.
Similarly, there are about 2323 glacial lakes located in this region with total
coverage area of 75.70 km2.
Ground Water:
Nepal also has abundant groundwater resources. The estimated renewable
groundwater potential of the country is estimated to be 12 km3. They are
major source of domestic uses and irrigated agriculture in Terai regions.
River Basins:
Whole Nepal is a part of the Ganga Basin and it is estimated that
approximately 70% of dry season flow. And 40% of annual flow of the Ganga
River comes through Nepal. Rivers in Nepal can be classified into three
broad groups on the basis of their origin.
The first group of rivers is snow fed types such as the major rivers systems:
the Koshi, Gandaki, Karnali, and Mahakali. They originate from snow and
glaciated regions in Himalayas and their flow regimes are mostly governed
by the melting of snows and glaciers.
The second group of rivers originates in the middle mountains and hilly
regions. Their flow regimes are affected by both monsoon precipitation and
groundwater. Contribution from groundwater yield maintains the minimum
flow level and prevents from drying during non-monsoon periods. The
Bagmati, Kamala, Rapti, Mechi, Kankai, and Babai rivers fall into this group.
The third group of rivers originates in Siwalik zone. Tinau, Banganga, Tilawe,
Sirsia, Manusmara, Hardinath, Sunsari and other smaller rivers are
examples of rivers falling in this group. The flow in these rivers is mostly
dependent on monsoon precipitation and their flow level could deplete
significantly low during the non-monsoon period. Summer monsoon is
important period when about 60-85% of annual runoff of all river systems in
Nepal occurs during July to September.
Enclosed Water:
There are numerous enclosed water bodies all over Nepal and those
includes lakes, ponds, dams, and other small wetlands. Report of the
National Lakes Conservation Development Committee has identified total
5,358 lakes in Nepal (including 2323 glacial lakes). Lakes are spread at
different elevation as well as along entire east-west longitudinal range. There
are nine wetland identified as Ramsar sites in Nepal.
State of Water Resources: Irrigation

Since time immemorial, farmer-managed irrigation systems have played a
major role in the irrigated agriculture of Nepal. Before 1951, there were only
three state-run or agency-managed irrigation systems in the country. The
planned irrigation development in the country, with the establishment of a
state agency (the present Department of Irrigation), began only after 1951.
The mode of intervention was to take over the selected irrigation systems
from farmers' management and treat them as new schemes, thus keeping
farmers completely aloof. All of the capital cost was borne by the agency and
segregation occurred between the farmers and the agency. Original farmer-
managed irrigation systems became the agency-managed irrigation
systems.
Even after the planned involvement of the state in irrigation development,
the irrigation development status is still led by farmer-managed irrigation
systems. The farmer-managed irrigation systems were built, operated and
maintained by the farmers themselves with little or no help from state or
outside agencies. They contribute substantially to the agricultural production
of the country, have been managed well and, in general, give better yields.
By the mid-1980s the government became aware of the importance and

strengths of the farmer-managed irrigation systems for the country's
agriculture. There was also recognition of the scope for improving the
systems through their rehabilitation and the extension of irrigated area, which
would be possible by minimizing water losses and improving management
efficiency.
Potential of Hydroelectricity
Nepal has huge potential for hydropower development. The rough estimate
of the potential is more than 80,000 MW. However, the installed hydro
capacity in 2018 was less than 1,000 MW. Nepal’s huge hydropower
potential is due to many perennial rivers. They start from the high Himalayan
Mountains rising above 8,000 m in the north, flowing through the mountains
toward low-lying plains in the south, and continuing on to India.The basin-
wide hydropower potential of the country is as follows:
 Karnali and Mahakali river basins have a catchment area of 48,811
km2 and 16,097 km2, with approximate hydropower potential of 36,180
MW (the watershed area of the Mahakali River lies in India and Nepal)
 Gandaki river basin has a catchment area of 36,607 km2 and
approximate hydro potential of 20,650 MW
 Koshi river basin has a catchment area of 57,700 km2 and hydro
potential of 22,350 MW (the watershed area lies in Tibet/China and
Nepal)
 Other river basins (i.e., southern rivers) have a catchment area of
3,070 km2 and hydro potential of 4,110 MW
Nepal Electricity Authority

NEA, Nepal’s energy agency, is a vertically integrated, state-owned utility
responsible for electricity generation, transmission, and distribution. There
has been significant progress in NEA’s performance in recent years;
however, two major issues have a direct bearing:
 Inadequate planning, policy, and regulation
 Inadequate capacity and poor governance leading to underinvestment
and difficulty in sustaining the growth of the power sector (ADB 2018)
Problems of Water Resources Development
1.Inadequacy of capital: The water resource development requires large

amount of capital for running the project. The expensive capital goods need
to be imported.
2.Lack of technicians: Nepal extremely lacks the high-level manpower
needed for the building of complex machinery needed in the development of
water resources.
3.Political instability: The frequent change of the government is the burning
example of political instability in Nepal. Along with the change in government
brings about the change in plans and policies which stops the ongoing
development of the water resources.
4.Lack of Market: Since Nepal is situated between two giant nations. The
market of our country is very limited.
5.Defective government policy: There is defect in formulation and design
of water resource projects.
Water Induced Disasters
 Continuous Rainfall and Cloudburst

 Floods are common throughout the country in the latter stages of the
monsoon when the land is saturated, and the surface runoff increases.
Extremely high intensity precipitations in mountain areas cause
landslides on mountain slopes and debris flows and floods along the
river valleys.
 Landslide dams and outburst floods
 The formation of temporary lakes due to landslide damming is a
common phenomenon in the high mountainous areas where there are
very narrow river channels and steep mountain slopes. Eleven
disastrous floods caused by the breaching of landslide dams have
been reported in Nepal between 1967 and 1989.
 Glacial lake outburst floods
 Glacial lakes are common in the high mountain areas in Nepal. A
glacial lake outburst flood damaged a hydropower plant and many
houses in 1981. Nearly 26 glacial lakes have been identified as
potentially dangerous. This renders much of the infrastructure along
the rivers originating from these lakes at immediate risk.
 Sheet flooding
 Sheet flooding or inundations are common during the monsoon in
lowland areas in the Terai. Moreover, the unilateral construction of
roads perpendicular to the natural flow of rivers near the border
between India and Nepal without sufficient drainage and construction
oof barrages and dams have increased flooding in Nepal.
Mineral resources and its economic importance in
Nepal
Mineral resources can be divided into two major categories - Metallic

and Nonmetallic. Metallic resources are things like Gold, Silver, Tin,
Copper, Lead, Zinc, Iron, Nickel, Chromium, and Aluminum.
Nonmetallic resources are things like sand, gravel, gypsum, halite,
Uranium, dimension stone.
Mineral resources are the key material basis for socio-economic

development. Statistical results show that more than 95% of energy
used by mankind, 80% industrial raw materials and 70% raw materials
for agricultural production are from mineral resources.
Mineral resources play an important role in the economic development

of the country. Nepal is rich in mineral resources, but poor in an inability
to extract them. If mineral resources can be developed and utilized,
different benefits can be achieved.
Some of the benefits are:
I. Industrial development
II. Agricultural development
III. Sources of energy
IV. Faster accumulation of capital
History of utilization of mineral resources in Nepal
 Nepal has over 200 years long history of indigenous mining activities.
 Small scale historical iron, copper, lead, zinc, cobalt, nickel mines and
placer gold panning in the major rivers and many slate, quartzite,
dolomite and limestone quarries were operational in many districts.
 Before 1951(2007BS) Nepal was one of the exporter of iron and

copper to Tibet and cobalt to India.
 But after the change in the government in 1951 such mining activities
were gradually closed because of change in the policy of new
government, unavailability of charcoal for smelting, technical
difficulties in mining at depth etc.
 One of the examples is Thoshe iron deposit (old working mine) which
was reassessed by DMG and later explored in detail by N & C Minerals
Pvt. Ltd. It has prepared a mining plan and obtained the mining license
from DMG but it is still unable to develop mine and exploit the iron ore
due to many complexities in getting permission from Department of
Forest, lack of infrastructures, support from central and local
government, huge amount of investment required to purchase mining
equipment, hire well trained technical manpower.
Mining policies and licensing system
 Department of mining and geology (DMG) is the responsible

governmental body that issues licenses and formulates policies for
mining activities in Nepal.
 DMG under the Ministry of Industry (MOI) is the responsible

government organization which not only conducts systematic
geological mapping, mineral exploration activities throughout of the
country but also administrates and fully exercises the Mines and
Mineral Act 2042BS (amended in 2050BS) and Regulation 2056BS.
 DMG had issued about 121 and 142 mining licenses for 16 and 18
mineral commodities and about 365 and 388 prospecting licenses in
FY 2074/75BS and 2075/76BS respectively. But only slightly more
than half of them is in mine operations/ production and the rest still in
mine development stage.
 Under the existing Rules and Regulations DMG issue both Prospecting
and Mining Licenses and sign petroleum agreements with the
interested national and international investors/ companies and
regularly inspects and monitors the prospecting and mining activities
carried out by the lease holders.
Current state of utilization of mineral resources in
Nepal
 Construction aggregates, sand, gravel, dimension stone, decorative

stones, paving stones and roofing slates are the other important
mineral resources which have high demand for infrastructural
development works are locally mined.
 Metallic ore minerals of iron, copper, lead, zinc, cobalt, nickel, tin,
tungsten, molybdenum, and placer/ primary gold are also known from
different parts of Nepal but they are not yet mined systematically.
 At present minerals and mine contribute only about 0.6% and mineral
industries sector contribute just around 2.5% to national GDP, which is
not encouraging at all. It is envisaged that if the government provides
high priority to focus to exploit mineral resources, in next few years,
minerals will be one of the major factors for economic development of
Nepal.
 There are over 48 limestone quarries/ mines from which limestone are
supplied to different cement industries. 7 gemstones (tourmaline,
kyanite, quartz crystals), 1 iron, and few talc, coal, marble, red clay,
calcite, quartzite, dolomite mines are in production.
 Few gem industries which do only cutting and polishing of

semiprecious and precious stones from Nepal and abroad are
established.
 Construction aggregates, sand, gravel, dimension stone, decorative

stones, paving stones and roofing slates are the other important
mineral resources which have high demand for infrastructural
development works are locally mined.
 And, many petroleum exploration projects are currently in process

which are in regulated by DMG with international corporations.
Problems of mineral resource development
There is no doubt that we have a large variety of minerals and some of

them are available in large quantity. But minerals development in
Nepal in handicapped by various problems. Minerals deposits that
have been identified are remaining unextracted. Some major problems
of mineral resource development in Nepal can be explained as follows:
 Lack of capital
 Lack of infrastructures and advanced technology
 Lack of research
 Shortage of energy
 Defective government policy

INTRODUCTION TO NEPAL’S ECONOMY
Report on Sectors of Nepal
In this report, we have discussed about the four sectors of the Nepalese economy, in brief: the
current situation, progress in different sectors, their effect on other areas and finally their
significance on the economic growth of the nation.
Mohit Khatri
03/18/21
Prof. Binayak Krishna Thapa
i. Primary sector of the Economy
1. Agriculture
Findings
- Agriculture value per worker of Nepal is $530.71(Agriculture value added per worker is
calculated as the total agricultural value added divided by the number of people
employed in agriculture.)
- The agriculture sector has been growing at fast pace.
- The GPD share of economy from Nepal has gone to around 25% from more than 60% in
recent years.
- The number of employed in agriculture for commercialized purposed has been decreasing
from around 80% to 70%.
- The agriculture sector has been more commercialized then before and use of insecticides,
pesticides and manure have been increasing resulting in increased output from
Agriculture field.
- The livestock, fish farming, horticulture, beekeeping, cash crops have a trend of being
more focused.
- The farmers involved in grain cultivation have moved towards cash crop cultivation
along with many doing cross cultivation and livestock farming.
- National Agriculture Research Center and Nepal Agriculture Bank have played a
vital role in the development of the agriculture sector.
Conclusion
In the agricultural field, Nepali workforce has a negative impact due to the low income it
provides for their work. This has caused to decrease the number of people who are active in
agricultural sector. The recent development activities for agriculture field may be cause of
commercialization of agricultural field. However other indirect There are many factors that are
responsible for the decrease in agricultural sector such as the rising number of people for foreign
employment. Due to increasing population and consumer needs, it has been a challenge to fulfill
the demands of the consumers which is fulfilled with the imports. Despite of the challenges there
are still numerous opportunities for its growth to meet the demands of the consumers, However,
because the farmers are still not getting a good share amount of profit from the output, it is still
difficult to use the opportunities efficiently for the growth of the agriculture sector. Instead of the
farmers, the businessmen, political unions, and those who own agriculture related infrastructures
are being benefited from the hard work of the farmers. This is why despite of the opportunities
for growth and development of the agricultural sector, it is unable to use the resources efficiently
and meet the demands of the people.
2. Mining
Finding
Minerals and their license count.

- Nepal tried to mine petrol many times in the past but failed.
- The metal related mineral mining are not successful.
- The limestone mining is one of the most influential areas of mining.
- A lot of companies operated mining in gold, copper, cobalt, etc. but many of them
stopped.
- Lots of sand mining are is done without permission and black market of sand is thriving.
Conclusion
Though Limestone mining is one of the non-metallic minerals having highest number of
operation license area, the demand for limestone is not self-sufficient and majority of limestone
in market are from import. Nepal has many areas for mining but majority of them are not
economically beneficial. The areas may only be economically beneficial if the cost of importing
minerals skyrocket enough. Also, these untouched areas may provide as a reserve in the future
where there is scarcity of minerals, as global demand for these resource has large scale mining of
these minerals.
3. Energy
Finding
- Nepal has a huge hydropower potential. In fact, the perennial rivers of Nepal and the
steep gradient of the country's topography provide ideal conditions for the development
of some of the world's largest hydroelectric projects in Nepal. Current estimates are that
Nepal has approximately 40,000 MW of economically feasible hydropower potential.
However, the present situation is that Nepal has developed only approximately 600 MW
of hydropower. Therefore, bulk of the economically feasible generation has not been
realized yet. Besides, the multipurpose, secondary and tertiary benefits have not been
realized from the development of its rivers.
- Nepal has no oil refinery and produces no oil. Thus it relies heavily in import from India.
- Nepal Oil Corporation handles importing the oil and distributing the oil to petrol pumps
and others firms.
- Biomass is by far the most important primary energy source in Nepal. Biomass comprises
wood, agricultural residues and dung. 95 % of the biomass is predominantly and
traditionally used for cooking and heating purposes in households. It has cause from 2000
to 2005 the deforestation rate of 2.1%.
- In 2019, Nepal's Department of Electricity Development approved survey licenses for 21
locations to prepare for the possible installation of 56 solar plants, which could have a
combined solar capacity of 317.14 MW. The largest planned solar energy project is a 120
MW solar PV station in Dhalkebar in Mahottari district.
- The country also has a large market for solar water heaters, with 185,000 units installed
and operating as of 2009.
- Nepal launched its largest wind-solar power system in December 2017 to serve rural
households in the Hariharpurgadi village, Sindhuli district, under the South Asia Sub
regional Economic Cooperation Power System Expansion Project. The system has the
capacity to produce 110 kilowatt-hours of energy per day.
- Coal makes up only about 4.4% of total final energy consumption, most of it consumed
by the industry sector and in 2014, more than 97% of coal demand in Nepal was met by
imports.
Conclusion
Nepal has huge potential in energy sector especially in hydroelectricity. The recent global
climate change needs to be considered which may cause our potentiality in Hydropower to
change. We can also realize that not too much development in wind sector thought investigations
are done for potential projects. Biomass is causing deforestation which is degrading the nature.
Problems faced during collecting data
- Conflict in data/information given by different agency.

- The records of fishing done in non-commercialized/non reared areas such as rivers,
seems to be missing.
- Source of information
 Ministry of Agriculture and Livestock Development
 Ministry of Mines and Geology
 Federation of Nepalese Chambers of Commerce and Industry [FNCCI]
 ASIAN DEVELOPMENT BANK
Prem Sitaula
03/ 17/ 21
ii. Secondary sector of the Economy
Context
This section of the report is an attempt to analyze the development of secondary sectors in
Nepal’s modern era. Furthermore, it makes an effort to learn present status of secondary sectors
and stretches to projections of Nepal’s Economy at the end of this decade.
Findings
Secondary sectors describe the role of manufacturing. It takes output of the primary sectors and
creates finished goods. It contributes to the economy by generating large number of employment
and improving the living standard and per capita. Its major task is value addition.
Let’s take a bird’s eye view of the status and development of secondary sectors using three
different time period: 1951-1990AD, 1991-2010AD, and 2011-2020AD.
1) 1951-1990AD:
After the 104 years of undemocratic and tyrannical Rana regime, Nepal took its first steps to
democracy in the spring of 1951AD. Like other parts of economy, development of secondary
sectors was also stagnant. When Nepal launched its first five-year plan in 1956AD, there were no
modern infrastructures. There was very limited availability of public education and health
services, and an economy dependent almost exclusively on subsistence agriculture. The major
aim of the plan was to industrialize the country by reviving cottage and small scale industry
through the process of extending loan, opening training center, and providing technical
assistance. When Nepal reached to its third five-year plan in 1965-1970AD, industries were
classified to aid them based on their needs. In the seventh five-year plan of 1985-1990AD, the
major focus was on full-fledged development of private sectors. In 1990AD, Nepal’s total GDP
was $3,894 million of which industries contributed 14% and manufacturing 6%.
2) 1991-2010
In 1990AD, Nepal couldn’t remain untouched with the resolute winds of privatization. The
sluggish and fragile performance of public enterprises had drained national treasury via loan and
high subsidy. The public enterprises which were audited in F.Y1989/90 showed a loss of Rs.240
million which increased up to Rs.1870 Million in F.Y 1990/91. From this data, it has been
evident that Public enterprises have become perpetual financial burden to government. Despite
that, administrative burden propelled government to privatize the public enterprises. The result
was seen in growth of Gross Domestic Product. For example, in 1994 the GDP growth rate was
8.21%. However, within six years, this nascent transformative process was cut short with the
advent of civil conflict beginning 1996AD to 2006AD. For example, in 2002 the GDP growth
rate was shrunk to 0.1%. The most affected sector was the industry. In between 2000 and 2010
there were similar periodic plans but they couldn’t achieve the target due to the frequent change
in government which directly or indirectly disturbed the investment in industry and its growth. In
2010, a new industrial policy came which promised easy exist to investors, recognized
subcontract manufacturing, incorporated intellectual property protection provision, and
emphasized progressive taxation policy.
3) 2011-2020AD
This decade saw mixed report in the development of secondary sectors. Compared to the past
decade, there were very less conflict which favored in investment of secondary sectors leading in
job creation and output growth. But 2015 earthquake and 2020 lockdown had direct negative
effects on industry and its contribution to GDP growth. The graph presented below clearly shows
the contribution of secondary sectors in GDP growth.
Conclusion
The major hindrances in the development of secondary sectors are as follows:
a. Poor Infrastructure development.
b. Availability of limited capital.
c. Difficulty for Foreign Direct Investment and Repatriation.
d. Lack of skilled human power.
e. Unstable government and frequent change in the policy.
Nepal will be officially graduated to developing country in 2026. In the fifteenth plan, Nepal
government aims to increase the contribution of industrial sectors in GDP to 18.8% in FY
2023/24 and 23.7% in FY 2029/30.
Aroja Masal Shrestha
03/15/2021
iii. Tertiary sector of the Economy
Purpose: This report presents an overview of the situation of the tertiary sector in Nepal, its
significance on different areas of the economy and major role on the economic shift.
Introduction
Having discussed on the two most important sectors of the economy, this report will be further
discussing on the third sector of the Nepalese economy which is also the largest and the fastest
growing sector among the other two, “The tertiary (service) sector of economy“. While Primary
sector deals with the extraction of raw materials and secondary with the manufacturing of final
goods, the tertiary sector focuses on the people. It is about “serving” the customers rather than
transforming the physical goods and providing satisfaction through the service. Selling services
is often challenging compared to selling a specific product since services are intangible. So, this
report will talk about the impact this particular sector has created on the Nepalese economy and
why it is important for young economists, like us, to know about it.
- Interrelatedness
The Nepalese service sector has gone through a tremendous progress in the past years;
most of the reasons are unseen due to the indirect effect between various domains in the
economy. The service sector has been increasing because of the increase in production
(one of the many reasons). More production indirectly indicates the progress in an
economy as services are required during this process. The production, in turn, is
increased due to the better technology (service). This higher productivity leads to the
increased income of the workers which is ultimately spent on the services again.
We can analyze from this interrelatedness that the unending desire/ drive for more
pleasure has led to innovation and that “Innovation and creativity” is a key factor on the
growth of this sector of the economy.
- Shift of an economy
More development means, the shift of the economy’s focus from primary to secondary
and to tertiary. Examining Nepal’s trend, we can still see agriculture sector vividly
contributing to the economy but not as much as it used to, two decades ago. The The
industrial sector seems to be prominent in contributing immensely to the Nepalese
economy till 2008. Further on, the service sector has taken over and is on the rise since
then.
“In 2019, just over 50 percent of Nepal’s gross domestic product (GDP) came from its
service sector. Agriculture contributed the second largest amount, while thirteen percent
came from the industry sector. The majorities of the Nepalese population live in rural
areas, and are depended on agriculture for their livelihood.”
- Contribution to various areas of the Nepalese Economy

When service sector started covering major part of the economy in Nepal, urbanization
occurred. Migration of people to the places with higher availability of the services
increased. Consequently, job opportunities were expanded and many more economic
terms were introduced single-handedly with the rise of this sector of economy. Among
which some are discussed below:
1. Increment in Employment opportunities

2. Major share in terms of output and income.
3. Provision of services to people and assistance in meeting their real needs.
(E.g.: Finance institutions providing funds to various groups of people for variety of
activities. In this process the service sector activities provide income and employment
to the people of the economy.)
4. Important contribution to GDP improving economic performance (providing a wide
range of traditional and new export opportunities). “The services sector is the largest
contributor to Nepal’s GDP with 49 percent, followed by agriculture and mining (36
percent) and industry (15 percent).”
All of these have contributed to the economic shift of Nepal from years of progress in
various areas. Since the service sector works both ways, more and more people are
investing on this sector, in context of Nepal.
Conclusion
We can conclude that the service sector has been the engine of growth in the Nepalese economy.
It includes activities where people offer their knowledge and time to improve the productivity
and performance of various sectors. In addition, we can see how the service sector has also been
essential in analyzing the other sectors as it acts as an indicator in the economy. In case of the
Nepalese economy, it showcased the progress in the service sector of Nepal by indicating the
increased living standards of the people as it enabled the consumers to enjoy more leisure based
service activities, such as tourism, sport, restaurants etc. Since this sector has proved to be
beneficial to households, firms and the economy as a whole, investment in this sector has been
highly considered.
References
- https://www.statista.com/statistics/425750/nepal-gdp-distribution-across-economic-
sectors/
- https://ourworldindata.org/
- Report on the Nepal Labor Force Survey, 2017/18/ Central Bureau of Statistics Published
by Central Bureau of Statistics
- Nepal’s Investment Climate Leveraging the Private Sector for Job Creation and Growth
Gabi G. Afram Angelica Salvi Del Pero
- Nepal Critical Development Constraints, Rameshore P. Khanal, Secretary Ministry of
Finance.
Appendices:
- Within the services sector, wholesale and retail trade, and transportation services have
been the key contributors to GDP growth.
- The transport, storage, and communications sub-sector (9 percent of GDP) was the
second largest contributor to real GDP growth.
- Tourism firms are more productive and perform better than the private sector firms
overall. Nepal has abundant tourism potential owing to its natural beauty; biodiversity;
ethnic, linguistic, and social diversity; and historical and cultural wealth. For Nepal’s
tourism sector to reach its full potential, it must address infrastructure constraints in the
medium and long term.
- Despite the importance of tourism for Nepal’s economy, the direct contribution of the
hotels and restaurants sub-sector to Nepal’s GDP is only 2 percent, and its contribution to
GDP growth was 0.08 percent in FY2008/09 (NRB 2009, 2010).
- The two key service sub-sectors that benefited from the influx of remittances are
financial intermediation and real estate activities.
- Nepal’s financial sector is broad and expanding. The depth of Nepal’s financial sector has
overtaken the South Asia average over the past few years. Despite the increase in the
number of financial institutions and the increase in credit flowing into the economy, the
provision of banking facilities has not improved significantly over time.
- The banking sector in Nepal is both concentrated and overly diffuse. The financial sector
in Nepal has grown at a much faster pace than the real sector in the past few years.
- Financial intermediation constitutes 4 percent of GDP and has grown rapidly over the
past five years. Real estate renting and business activities constitute 8 percent of GDP
and have been growing over time.
- On the social service delivery front, education activities constituted 6 percent of GDP and
have been a significant contributor to GDP growth with an average of 0.5 percent over
the last decade. The education sector will continue to be an important sector for real GDP
growth especially given the demand for private education services supported by
remittance inflows (NRB 2009, 2010).
Supriya Dhakal
03/17/21
iv. Quaternary sector of the Economy
Quaternary sector is the classification associated with extensions to the three-sector model in
which the primary, secondary and tertiary sectors combine to produce goods from raw materials
and distribute them to final consumers. It is sometimes called the knowledge economy. It
describes the knowledge-based part of the economy, including: information and communication
technology, research and development, knowledge-based services such as consultation, financial
planning, blogging, and designing. Quaternary sector is plays an important role in an economy.
Importance
- It allows for a specialized space where entrepreneurial thinking becomes the key.
-The jobs are highly skilled, highly paid.
-This sector provides opportunities to countries to focus on finding new ways to support the
other sectors.
- The Quaternary Industry allocates significant time to enhance existing knowledge systems
within the information technology environment.
-Large-scale companies generally invest significant funds to ensure the development of the
Quaternary Industry, which may lead to the growth of quaternary sector and hence, this would
further mean increase in growth and development of various roots of this sector.
Over the time, there has been a significant growth of quaternary activities in the economy as a
whole. The growth is because the investment firms are investing at a greater level for research
facilities and to develop and keep up with the rapidly moving industries. There has been a very
high growth in demand for and consumption of information-based services. In Nepal too, people
always seek for better technology, better services due to which research and development plays a
huge role for innovations. To increase economic growth and productivity, countries often invest
in research and development (R&D). This is often an indicative of a country’s dedication to
science and technology. The broader literature suggests that research and development
expenditure positively impacts total factor productivity (TFP) by increasing output per worker.
Also, a few studies that look at the impact of research and development on gross domestic
product (GDP) per capita. Nepal’s spending on research and development as share of GDP, 2008
to 2010: (2008 – 0.05%), (2009 – 0.26%), (2010 – 0.30%) suggests that Nepal's contribution on
R&D is increasing; however, it is not increasing much. With the data above, it seems like Nepal
still is not aware about the importance of research and development projects for an economic
growth.
Despite of how important quaternary sector's growth is, there are some aspects of this sector that
could be challenging for a country like Nepal. Quaternary industry remains in an exceptionally
specialized environment and tends to decline during poor economic circumstances .This sector
comprises highly skilled people and requires significant investment to compensate these
specialized individuals. The quaternary industry requires high specialization and for that,
resources are required, due to which it might be hard for developing countries like Nepal to fund
for it. However, the growth and importance of quaternary sector in countries with a good
economy shows that it would also immensely benefit the economy of Nepal and lead it to a
better path.
Black Market sector of the economy:
A black market is an economic activity that takes place outside government sanctioned channels.
Black market transactions usually occur “under the table” to let participants avoid government
price controls or taxes. This is one sector that seems to have hindered the economic growth.
Reasons behind black market affecting Nepal's economy:
-More transactions on the black market means less revenue to the Government. The black market
transactions are off-the-record. Thus, it is very easy for these transactions to evade the taxes,
which would otherwise be paid to the government.
-Bigger the black market, the fewer opportunities for legitimate industries to function and meet
people’s demand for fuel.
-It may have led to deliberate creation of shortages in the country. Black markets leads to great
monetary gains for its stakeholders, and thus, deliberate shortages are created because the
stakeholders are aware of the fact that even though prices are hiked by linking it to the shortage
of goods, the demand for these goods is not diminished.
qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuio
pasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjkl
zxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiop
asdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklz
xcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwerty
uiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyu
iopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqw
TRADE
ertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnm
qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwe
rtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyu
iopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdFfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklPIOPzxcPvbnmqwertyuiopasdfghjkl
zxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvb
nmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwerty
Presented by:- SONIYA SHERPA
uiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklz
Presented on:- 25th Feb, 2021
xcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiop
asdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklz
xcvbnmqwertyuiopasdfghjklzxcvbnmqwwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnm
qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnm
Introduction
Nepal’s Second Trade Policy Review (TPR) at the World Trade Organization (WTO)
covers the period between 2012 and 2018/19. Nepal joined the WTO on 23 April
2004 as the first least-developed country (LDC) through the full working party
negotiation. Since 2012, Nepal has undergone significant transformation, which
includes changes in the political system following the promulgation of the
Constitution of Nepal in 2015. The review is being carried out at a time when
Nepal has entered a new era of stability concluding its long political transition
after a decade-long conflict. In this process, Nepal has set an exemplary model of
conflict resolution through a unique home-grown and inclusive peace process.
Bilateral - Trade with India, china, Bangladesh

Nepal and India share open borders and have a multi-dimensional friendly
relationship in various economic spheres, with trade and transit being core
elements. India is not only Nepal’s largest trading partner with almost two-thirds
of share in Nepal’s total trade but also the largest market for Nepali goods
consisting of almost 57% of its total export. Total trade volume with India in FY
2018/19 was NRs 687.52 billion out of which Nepal’s exports to India was worth
NRs 41.5 billion whereas imports were NRs 646.02 billion. Major products
exported to India are coffee, vegetables, cardamom, juices & iron and steel
whereas major imports are fuel (petroleum, diesel, and kerosene), vehicles &
cement clinkers, etc. Nepal’s trade deficit with India has been an increasing
challenge, a fact that is recognized by both governments. Therefore, efforts are
underway to revise the terms of various bilateral co-operations to make bilateral
relations more equal and respectful and undertake various reforms to modernize
and align trade relations with current requirements of international trade.
Trade and investment relations with China has significantly grown in recent years.
In fact, in the first eight months of FY 2018/19, Chinese investors constituted 28.7
percent of the total number of industries that got approval for foreign
investment. China is Nepal’s second largest trading partner. Total trade volume
with China in FY 2018/19was NRs 135.23 billion out of which total exports to
China was worth NRs 2.04 billion and imports were NRs 135.23 billion. Major
products exported to China are essential oils, base metals, carpets, sugar etc. and
major products imported are electrical equipment and machinery, nuclear
reactors, boiler, fertilizers, telephone, etc. The Government expects new avenues
of bilateral collaboration following the signing of the MoU on Co-operation under
BRI 2017 and further bilateral understandings agreed this year. In particular, areas
such as infrastructure and cross-border connectivity are expected to be enhanced
through the co-operation.
Bilateral trade relations with Bangladesh gained momentum after the

operationalization of Kankadbhitta-Phulbari-Banglabandh transit route, and over
the years Bangladesh has increasingly been an important trade partner of Nepal.
In FY 2018/19, trade volume with Bangladesh stood at NRs 5.28 billion out of
which exports comprised NRs 1.05 billion and imports comprised NRs 4.23 billion.
Major products exported to Bangladesh are lentils, vegetables and major
products imported are juice, jute, medicaments etc. Nepal is working together
with Bangladesh to enhance trade cooperation, including power trade and to
narrow down trade imbalance.
Regional - SAFTA and BIMSTEC

Nepal has joined two regional agreements -South Asian Free Trade Area (SAFTA)
and Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic
Cooperation (BIMSTEC). While SAFTA focuses on the South Asian region, BIMSTEC
connects South Asia with South East Asia. The SAFTA Agreement, which
succeeded South Asian Preferential Trade Agreement (SAPTA), was signed in 2004
and came into force from 2006. It aims to deepen trade and economic
cooperation among member countries by promoting fair competition through
removal of barriers to facilitate cross-border movements of goods. During the last
review period, SAFTA members had gradually been reducing tariff to 0-5% on all
tariff lines except the sensitive lists as per trade liberalization program of the
Agreement. The sixth meeting of the SAFTA Council in 2012 took the initiative to
reduce the number of products on the sensitive lists by 20%; Nepal has already
achieved the relevant target by 2014. Similarly, during the 16th Summit in 2010,
the SAARC Agreement on Trade in Services (SATIS) was signed which came into
force with effect from 2012. SATIS recognises the regional growth potential of
trade in services and is focused on expanding intraregional investment and trade
liberalization. BIMSTEC was founded in 1997 for accelerated growth through
cooperation in various areas of shared interest. Nepal joined BIMSTEC in 2004,
the year in which a framework agreement with provisions of liberalizing trade in
goods and services and negotiating agreement related to cross-border investment
facilitation was also signed. In 2016, BIMSTEC came up with the Outcome
Document and 16-point Agenda of Action highlighting priority actions to be
implemented. Recent meetings have seen members re-affirm their commitments
to finalize agreements in various sectors. Energy co-operation has been a key
feature of BIMSTEC agenda. The process of negotiations for reducing and
eliminating tariff is underway. Nepal has been playing a significant role in giving
momentum to BIMSTEC and is hosting BIMSTEC Summit, the highest policymaking
body in BIMSTEC, in August 2018.
Multilateral Trading Arrangements

Nepal is a strong supporter of Multilateral Trading System (MTS) and believes in
rule-based, transparent, and predictable MTS. Despite various constraints, Nepal
has been engaging actively in the WTO and continuously fulfilling its obligations
since its accession to the WTO in 2004. Nepal is also resolutely representing LDCs
group at the WTO. Currently, it is working as a focal point on Trade Facilitation
within LDCs group. Similarly, it is taking part in various development activities for
the LDCs, including Aid for Trade (AfT) initiatives. Nepal is also in the process of
implementing the various measures from TFA Section 1 as mandated by the
agreement. Nepal has already notified Categories A, B, C as per the agreement to
the WTO for the implementation of TFA. The Government perceives TFA as an
opportunity to reduce costs and time related to trade and transit. Nepal has been
adopting open and liberal economic policies and is committed to world trading
system. However, Nepal’s export performance could not be improved as per the
expected level. The country’s export import ratio 1:2 in 2004 (while accessing to
the WTO) increased to 1:14 in 2019.
TRADE IN GOODS
1 Industry – manufacturing
Nepal’s industrial policy aims to enhance export of industrial goods by producing
quality and competitive products, increase industrial sector’s contribution by
effectively utilizing local resources, raw materials, and skills, and make Nepal an
attractive destination for investment. Although the contribution of industrial
production as a percentage of GDP has declined in the last two decades, growth
rate in industrial production has picked up in recent years, reaching 9.7% in FY
2018/19 and expected to be at around 8.0% in FY 2018/19.
To further boost industrial production, ensure a competitive and

investmentfriendly environment, and simplify administrative procedures, the
Government has created industrial estates and Special Economic Zones (SEZs). It
is carrying out efforts related to infrastructure development to establish at least
one industrial zone, and special economic zone in each province in coordination
with provinces and in partnership with private sectors. There are 10 industrial
estates at present and the Government intends to add further nine estates.
Similarly, while one SEZ is already operational, feasibility studies are being carried
out to establish further eight SEZs. Product-specific zones for footwear, carpet,
leather goods, handicrafts, and readymade garments are also being planned. The
Government has plans to set up industrial villages in all local levels. Importantly, it
is also planning to establish cross-border economic zones.
2 Energy
Nepal aims to sustainably utilize its rich energy potential by building on its success
in solving the energy crisis during the review period. In the recent past, Nepal had
experienced power shortage which slowed development activities. However, at
present, the end to load shedding has been officially declared. The Government is
focusing its efforts on developing and expanding hydroelectricity and all types of
renewable energy to provide clean energy to all households within the next three
years and avail smooth electricity supply across Nepal within the next five years.
Accordingly, the Government has set forward a target to increase per capita
electricity consumption up to 1500 kilowatt hour (kWh) within the next 10 years
by transforming consumption and distribution pattern so as to minimize the need
for fossil fuels. To achieve these ambitions, it plans to produce 3000 megawatt
(MW), 5000 MW and 15000 MW hydroelectricity within the next 3, 5 and 10
years, respectively, out of the economically feasible 43,130 MW, through public
and private investment in small, medium and large hydroelectricity projects.
Ministry of Energy, Water Resources and Irrigation launched a white paper in May
2018 with an aim to attain self-sufficiency in electricity through overall
development of electricity sector, reduce trade deficit through the replacement
of other sources of energy by electricity, expand internal and external market for
electricity, and deliver sustainable, reliable and clean energy to people. The white
paper has stated Government’s plan to amend Electricity Act and Nepal Electricity
Authority Act and formulate the Renewable Energy Development Act. Immediate
set up of Electricity Regulation Commission under the Electricity Regulation
Commission Act, 2017 is planned. The white paper also incorporates ‘One
Province, One Mega Project’ strategy with an aim to build a mega hydro or solar
project in each of the seven provinces.
3 Mines and mineral resources
Nepal’s Mineral Policy seeks to sustainably utilize its immense potential in mineral
resources and contribute to making the economy more competitive, dynamic and
prosperous. Government aims to collaborate with the private sector in exploring,
excavating and processing potential minerals and precious metals. Nepal lies in
the centre of the 2,500 km Himalayan belt, which has favourable geography for
various mines and minerals and hence offers a plethora of unparalleled
opportunities for investors in the mining and mineral sectors. With 83% of the
region being mountainous and hilly territory, Nepal is abundant in iron, limestone,
talc, red clay, granite, marble, gold, precious and semi-precious stones
(tourmaline, aquamarine, ruby and sapphire) and other construction minerals.
The cement industry has considerably expanded to a point where it has been able
to fulfil a significant proportion of the domestic consumption and is expected to
start exporting in a few years. Recently, significant FDI related to the cement
industry has been approved and invested in Nepal. The IBN signed a Project
Investment Agreement (PIA) worth USD 359.2 million with Hongshi-Shivam
Cement, a Nepal-China joint venture company, to set up a mega cement factory in
Nepal. The company has already started trial production. Similarly, during Prime
Minister KP Sharma Oli’s visit to China, IBN also signed PIA with Huaxin Cement
Narayani to establish a USD 140 million cement plant. Moreover, the Government
has identified exploration for many fuel minerals, including petroleum, natural
gas, and methane gas. Various developments and reforms initiatives taken by the
Government shows its commitment to promote higher trade and investment in
the mines and minerals sector.
4 Agriculture
During the review period, the Agriculture Development Strategy (ADS) was
brought with a vision for a self-reliant, sustainable, competitive, and inclusive
agricultural sector that drives economic growth and contributes to improved
livelihoods and food and nutrition security. Nepal’s geography, topography, water
resources and ample supply of labour give a comparative advantage in
agricultural production. Nepal’s economy is mostly dependent on agriculture, but
the sector’s contribution to GDP has been decreasing and is estimated to be at
around 27.6% for 2018/19. Nevertheless, the sector absorbs about two-thirds of
employment. The Government has put forward plans to double agricultural
production in the next 5 years and shift a large population employed in the sector
to non-agricultural sectors through modernization, diversification,
commercialization, and restructuring of this sector. The Government also has
plans to work with private sector to establish organic fertilizer, chemical fertilizer,
pesticides and agriculture equipment factories to facilitate supply of agricultural
inputs as well as industries based on herbal and forest materials. Building on
Trade Policy, 2015, National Trade Integration Strategy, 2016 has identified
agricultural products such as large cardamom, ginger, tea, and medicinal and
aromatic plants (MAPs) together with other products and services as having high
export potential. Development of these products along with other potential
products such as coffee, fruits and vegetable juice, honey, and so on has been
prioritized.
TRADE IN SERVICES
1 Tourism
Nepal offers world class destination due to its outstanding natural beauty,
biodiversity, and rich cultural heritage. Lumbini, for example was rated by Lonely
Planet as one of the top ten destinations in Asia to visit in 2018. The Travel and
Tourism Competitiveness Report 2017 ranks Nepal high in terms of price
competitiveness (19th), international openness/ visa requirements (8th) and
abundance of natural resources (27th). Nepal offers majestic mountains (8 out 14
highest peaks), socio-cultural diversity, World Heritage sites, religious sites
(including Lumbini, Pashupatinath, Janakpur, Muktinath, etc.), natural heritage
(including various national parks and wildlife sanctuaries) and adventure tourism
opportunities, among others. The National Tourism Strategy, 2016-2025,
launched in November 2016, seeks to tap into this potential by mobilizing
domestic investment, promoting FDI in the sector, and implementing strategies
such as branding, marketing, infrastructure development and improvement of
quality of tourism. Some primary targets include increasing arrivals to 2.5 million
per year after 5 years, average length of stay to 15 days, average spending per
tourist per day to 90 USD, jobs in the tourism sector to 898,000, foreign exchange
earnings from the sector to NRs 340 billion, and the sector’s contribution to
Nepal’s GDP to 9.3%, by 2025.
2 Transport
The transport sector has grown substantially and is expected to transform
significantly given Government’s priority in expanding transport infrastructure.
Transport sector contributes about 7.97% of GDP and grew at a rate of 5.41% in
FY 2018/19. Average growth rate of the sector in the past five years has been
6.32%. By FY 2018/19, length of strategic roads has increased to 29,639 km which
includes 13,149 km black topped roads, 6,956 km gravelled roads, and 9,534 km
earthen roads. Nepal also has 35 domestic airports in operation and an
international airport in Kathmandu.
The Government has put forward plans to develop important national highways
as express highways and East-West and North-South roads of national importance
as national strategic road network. There are plans to connect the centres of all
local levels with black-topped roads in the next five years. To cater to the needs of
growing population, development of mass public transportation systems –
busrapid transit (BRT), monorails, airports, and railways, including Mechi-
Mahakali Railway, Kathmandu-Birgunj Railway, and Rasuwagadhi-Kathmandu-
PokharaLumbini Railway, has been prioritised. Transport sector is open to
domestic as well as foreign investment and is key in achieving infrastructure
development goals.
3 Financial services, banking and insurance
The Bank and Financial Institutions (BFI) sector has been a key driver of growth of
Nepal’s service sector. The Government aims to use BFI sector to support
infrastructure and industrial development in Nepal. The BFI sector continued to
grow during the review period. There are 28 commercial banks out of which
seven are joint venture banks with foreign companies. The success of joint
venture banks is evident from their relatively better performance in the Nepali
market and consistently high and growing profits compared to BFIs in South Asia,
collectively totaling NRs 13.41 billion in FY 2018/19.There are also 36
development banks, 25 finance companies, and 63 micro-credit institutions. As of
March 2018, the number of insurance companies has reached 39, including 18 life
insurance, 20 non-life insurance and 1 re-insurance company. Out of the 39
companies, three are branches of foreign insurance companies, three have been
established with joint investment with foreign insurance companies, 30 are
private, while three are Governmentowned. Foreign investors have been able to
make use of “Policy Provision for Opening Branch Offices by Foreign Bank or
Financial Institutions in Nepal 2010” and continuously increasing their presence in
Nepal’s financial sector.
POLICY FOR AN EFFECTIVE TRADE REGIME

1 Trade Policy
Nepal has updated the trade policy to harmonize with other sectoral policies,
create alignment between trade policy and NTIS, address increasing trade deficit,
and promote exports by enhancing the supply-side capacities. Nepal’s first
comprehensive trade policy after joining the WTO was Trade Policy, 2009 which
replaced Trade Policy, 1992. Trade Policy, 2009 embraced the principles of liberal,
open and transparent economic system and had primary objectives to increase
trade sector’s contribution to the national economy and help reduce poverty and
accelerate economic growth. However, results of the Policy remained mixed and
hence have been replaced by Trade Policy, 2015.
2 Nepal Trade Integration Strategy (NTIS)

Nepal has introduced its third-generation trade integration strategy to strengthen
trade and export enabling environment, focus on product development and
strengthen supply capacity of priority products, strengthen institutional capacity,
trade negotiation and inter-agency coordination, and build and enhance trade
related infrastructures. Previously, Nepal had launched the Diagnostic Trade
Integration Study (DTIS) in 2004 that could not be appropriately implemented due
to various reasons. Later, DTIS was revised as NTIS and released in 2010 to
complement the Trade Policy, 2009. This was further updated in 2016 in line with
the updated Trade Policy, 2015.
3 Industrial Policy
Continuing its efforts to make industrial policy relevant and supportive of
industrial development, Nepal introduced Industrial Enterprises Act, 2016 to
further simplify and clarify procedures for entry, operation and exit of industrial
enterprises as well as introduce much-needed reforms. Nepal’s first industrial
policy was released in 1957 and later updated and replaced in 1960, 1974, 1981,
1987, 1992 and 2010, respectively. Industrial Policy, 2010 guides Nepal’s overall
policy related to the industrial sector. Its objectives are to enhance export of
industrial goods, improve industrial sector’s contribution to the economy by using
local resources, make industrial enterprises sustainable and dependable through
application of innovative and environment-friendly technology, make Nepal an
attractive destination in South Asia for investment, and protect intellectual
property rights of industries. Industrial Policy, 2010 is supported by the Industrial
Enterprises Act, 2016 which replaced Industrial Enterprises Act, 1992. Some
salient features of the Act are: tax incentives, concession and benefits of VAT and
custom duties, facilities to acquire land, provisions ensuring no nationalisation of
industries, and creation of a single window service for foreign investors. The Act
has provided various fiscal incentives to industries, including, an effective tax rate
of 16% for almost all manufacturing industries and 25% discount on export
income from export of goods.
4 Intellectual property rights

Nepal has achieved significant success at policy domain of intellectual property
(IP) rights regime. Nepal’s Constitution guarantees intellectual property rights by
including IP within the fundamental rights chapter. Article 25 of the Constitution
ensures rights of all Nepali citizens to “acquire, own, sell, dispose, acquire
business profits from, and otherwise deal with property,” where property means
any form of property including movable and immovable property and intellectual
property. Moreover, Nepal released its first National Intellectual Property Policy
in 2017. The Policy aims to create a balanced IP system in Nepal and has a vision
of a creative nation through preservation and provision of intellectual property
protection. The Policy’s objectives are to: encourage protection, promotion, and
development of IP, develop a balanced IP system, create awareness about social,
economic and cultural aspects of IP, encourage commercialization of IP, and
strengthen legal, administrative and human resources to ensure protection and
enforcement of IP. The Policy revises existing legal framework, recognizes for an
enactment of law related to patent, industrial design, trademark, utility model,
geographical indications, traditional and indigenous knowledge, folklore,
traditional knowledge, integrated circuit, plant variety protection, trade secrets
and biodiversity. It aims to create awareness and promote intellectual property
rights. It also addresses the need to curb IP infringement and recommends
revising penal provisions under existing legal framework.
5 Foreign Investment Policy
Nepal has taken significant strides in reforming its investment regime to support
trade. Foreign Investment and One Window Policy, 1992 was replaced with
Foreign Investment Policy, 2015. The Policy’s objectives are to: mobilize foreign
capital, technology, skill and knowledge in priority sectors for broad-based
economic growth, employment creation, and utilisation of local resources,
allowing entry of modern technologies, managerial and technical skills along with
foreign capital for increasing domestic production and productivity, and establish
Nepal as an attractive investment destination.
The Policy seeks to achieve these objectives through 19 policy instruments and 36
working policies. Some significant provisions for foreign investors are: repatriation
of dividend, profits and salary of employees, national treatment in respect of
incentives and facilities, facilities in terms of deductible income in income taxes,
accelerated depreciation, options to raise financial resources within and outside
the country, visa facilitation, additional security measures and facilitation in land
acquisition, among others.
Trade facilitation and infrastructure

Significant developments have taken place in the areas of trade facilitation. Nepal
has signed trade and transit agreements with its neighbouring countries. Nepal
has also ratified the WTO TFA. Nepal’s participation in such initiatives helps
facilitate trade and investment. The improvements in trade related infrastructure
provide Nepal opportunities to charter a path of high economic growth through
trade and investment in the coming years. As a landlocked developing country
(LLDC), geographical constraints have significantly contributed to Nepal’s under
performance in trade, depriving Nepal from its rightful share in the global trading
system. The Vienna Programe of Action would be instrumental in addressing this
fundamental problem with a focus particularly on trade and transit facilitation,
once implemented effectively. Similarly, it is very pertinent to intensify the
implementation of the TFA agreement.
Nepal’s balance of payment
- The Bop is a statement of all transactions made between entities in one
country and the rest of the world over a defined period of time.
- Nepal’s BOP surplus reached Rs 282billion in the last FY due to the decline
imports while the remittance did not decrease as estimated.
- Nepal’s exports improved by 0.6% during the review period.
- Nepal exported goods worth Rs 97.71billion in the last FY.
- The country’s BOP remained at a surplus of Rs179.37 billion in the review
period against a deficit of Rs90.83 billion in the same period of the previous
year.
Nepal’s balance of trade

- Nepal’s lack infrastructure and geographic constraints has led to chronic
trade deficits.
- Nepal mainly exports iron and steel, knotted carpets, textiles, plastics,
hollow tubes, beverages and vegetables.
- Nepal mainly imports oil, gold, iron and steel, clothes, pharmaceutical
products cements electronic appliances, food and vehicles.
Aid for trade

AfT is complementary initiatives that can help Nepal achieve its SDG goals by
2030. Nepal can only be benefited by AfT through a very effective and sustainable
mechanism with an improved donors’ coordination and national ownership. It is
crucial that the support provided by AfT is harmonized along with the
Government’s vision and priorities. AfT needs to focus on development of trade
related infrastructure. Nepal has been benefiting from the WTO/ Enhance
Integrated Framework (EIF) and it expects continuous support for trade capacity
building of the country.
OPPORTUNITIES AND WAY FORWARD
1) Enhance supply side capacity:
- Develop the products and services that are of comparative advantage to
higher value chain. Do not limit only to products and services of NTIS
recommendations.
- Mainstream trade in national development agenda, particularly focusing on
development of export potential items.
- Focus on pocket area development on the modality of OVOP.
- Develop quality infrastructures and get international accreditation for test

and certifications institutions of major export destinations
2) Continue to engage in expanding market access opportunities:

- Engage in constructive dialogue with potential countries bilaterally or regionally
in order to expand the market access.
- Initiate FTA with other neighboring countries.
- Review the provisions of Nepal -India treaty of trade in the changing context of
international trade.
3) Addressing the systemic issues/capacity development:

- Persuade measures in improving the business climate and reducing the cost
of doing business.
- Implement capacity building measures on trade negotiations based on

need assessment.
- Prepare a master plan for service development.

- Develop institutional and HR capacity for updated in formation and
dynamism of international trade, market intelligence and promotion of
Nepalese goods and services.
- Establish strong institutional mechanism to oversee the trade related issue

at higher level.
4) Increasing visibility in the international trade forums:

- Engage with and encourage various development partners for maximizing
the resources allocations under aid for trade initiatives.
- Work together with the LDCs and developing countries in finding a common
acceptable solutions to the problems of LCDs and LLDCs.
- Strive for meeting the obligations of various agreements of which Nepal is a

party too, in a timely manner.
CONCLUSION
Nepal has continuously fulfilled its international obligations and has been
engaging actively in the WTO. It is committed to utilizing international trade
to meet its sustainable development objectives. Since the last TPR in 2012,
Nepali economy has undergone many challenges, not least the earthquakes
in 2015 and the subsequent trade disruption. Nepal was heavily impacted
in the immediate aftermath but has already shown significant recovery.
With the promulgation of the Constitution in 2015 and the election of
stable governments at all three levels: federal, provincial and local, Nepal
has committed to structurally transforming its economy to make it
production-focused, employment-generating, self-sufficient, and export-
oriented. The various initiatives and reforms carried out during the review
period add further avenues for achieving socio-economic development.
REPORT ON THE CONCEPT AND NEED OF POLICIES AND
THE POLICIES UNDERTAKEN IN NEPAL
Presented on: 25th February, 2021

Nistha Shrestha
Pragyee Bhatta
Ramkrishna Neupane Professor Binayak Krishna Thapa
BECON 1st Year, 1st Semester
Policies: Concept, formulation and implementation 0

INDEX:
● Introduction
● Market Failure and its causes
● Microeconomic forms of Government intervention
● Types of policies ( Demand and Supply Side Policies )
● Tools of Fiscal and Monetary Policy
● Tools of Supply side policies
● Sectoral Policies
● Major Sectors of Economy
● Sectoral Policies
● Implementation Status
● Budgets 2077/87:
● Source of budgets
● Objectives of the Budget
● Sectoral Priorities of the Budget,
● Major highlights of budget
● Major policies formulated to tackle the COVID-19 crisis

Introduction:
Policies that are intended to influence or control the behavior of an economy are termed as
economic policies. Our world today is faced by a number of problems from inequality to poverty
to climate change. Economic policies provide us with guidelines to tackle these problems and
foster growth. Through their goals of economic growth, full employment, and price stability, they
promote development and help to build a sustainable future for all.
Policies affect both the demand and supply side of the economy and are often prone to policy
conflict. The report explores why policies are needed, what policies are at our disposal and
which policy is best implemented when. We will also dive more to where the Nepalese
Government's policy formulation is centered and analyse their effectiveness. Also, we will know
more about the policies formulated during the testing times of COVID-19.

MARKET FAILURE AND THE NEED OF GOVERNMENT INTERVENTION
A market best operates when there is economic efficiency. Economic efficiency is when
resources are allocated efficiently and with their optimum use, the most possible output is
attained. When there is efficiency, a market succeeds. But when there is inefficiency/ inefficient
allocation of resources and haphazard use of resources, the market fails. There are various
causes leading to market failure:
1) Externalities
2) Public goods
3) Information failure
EXTERNALITIES:
An externality arises when a person engages in an activity that influences the well-being of a
bystander and yet neither pays nor receives any compensation for that effect. If the impact on
the bystander is adverse, it is called a negative externality and if it is beneficial, it is called a
positive externality. As buyers and sellers neglect the external impact of their actions when
deciding how much to demand or supply, the market equilibrium fails to maximize the total
benefit to society as a whole. Some examples are:
i) The exhaust from automobiles is a negative externality of production as it creates smog that
affects other people's breathing.
ii) Research into new technologies provides a positive externality of production because it
creates knowledge that other people can use and learn from.
iii) When people take all of their necessary vaccines, it aids in the prevention of the spread of
diseases, this is a positive externality of consumption.
iv) The disturbances in society due to overconsumption of alcohol is the negative externality of
consumption.
Below is the graphical representation of the two types of externality on a supply and demand
curve and Cost-Benefit analysis:

1) Positive Externality:
2) Negative Externality:
These goods can be characterized as merit and demerit goods as well. The merit goods have
positive externalities, but since these are not realized by private firms and consumers, these
tend to be under produced and under consumed- that is not at the socially optimal level. The
demerit goods however have negative externalities but as these are not realized, they tend to
be overproduced and over consumed.
GOVERNMENT INTERVENTION:
As these lead to market failure, the government attempts to solve these problems by either
regulating the behavior of firms or by incentivizing decision makers.

The government forms command and control policies by forbidding or putting a limit on these
activities in order to reduce their impact on third-party. For example: The Environmental
Protection Agency of the USA is responsible for forming and implementing regulations to protect
the environment.
Following this, the government also uses market based policies to correct these externalities.
For this, high tax levied on demerit goods to induce private decision makers to take account of
the social cost of the negative externalities. Subsidies are provided by the government to
incentivize decision makers to produce and consume more of merit goods. So accordingly, the
government also imposes tradable permits to limit activities such as pollution.
PUBLIC GOODS:
These are goods available to all for free and whose availability will never diminish irrespective of
the rise in the number of consumers. Some examples of public goods are: National defense,
uncongested non toll roads, lighthouses and so on. With public goods, the free rider problem
tends to be a big issue. It is when many consumers tend to consume these resources without
paying the required amount. As a result, there tends to be less profit in the production of these
goods leading to private firms being unwilling to supply these goods. Hence, the problem of
underproduction of these resources is common. In order to aid this issue, the government tends
to subsidize the production of these goods or produce it themselves by making use of tax
revenue.
INFORMATION FAILURE:
A lack of information resulting in consumers and producers making decisions that do not
maximize welfare is a case of information failure. When information is not equally shared
between two parties it is called asymmetric information failure.
Some examples of Information Failure:
• When consumers are not aware of the benefits or the harmful effects of consuming a
particular product
• When advertising over stimulates demand, it leads to overconsumption
• Inaccurate or misleading claims on product packaging
Some examples of Asymmetric Failure Information Failure:
• Environment – We know less about our negative effects on the environment than
environmental experts.
• Consumer Purchases – Example includes: Mobile phones – The seller is likely on commission
and has more knowledge than the buyer leading them to make a bad choice potentially.
(Adverse selection)
• Insurance – You know more about your circumstances than the company selling you a policy.
They are relying on your honesty and integrity. (Moral hazard)

Here as well, the government aims to correct these causes of market failures though taxes or
subsidies.
All of the aforementioned policies are examples of microeconomic forms of government

intervention. Following this the government also intervenes on the macroeconomic level, that
is-as a whole of the economy.
MACROECONOMIC POLICY:
The government's macroeconomic policies are aimed towards:
a) Full employment
b) Low and stable inflation
c) Balance of Payment equilibrium
d) Steady and sustained economic growth
e) Avoidance of exchange rate fluctuations and
f) Sustainable economic development
These policies are first of all categorized into two types: Demand-side and Supply-side policies.
The demand side policies are further divided into two types:
1) Fiscal Policy
2) Monetary Policy
FISCAL POLICY:
Fiscal policy uses government spending and revenues from taxation to influence AD. This is
conducted by the government.
i)Government spending and taxation:
Governments can change the amount of spending and taxation to stimulate the economy. The
government could influence the size of the circular flow by changing the government budget,
and spending and taxes can be targeted in areas which need stimulating.
Fiscal policy aims to stimulate economic growth and stabilize the economy. In the UK, the
government spends most of their budget on pensions and welfare benefits, followed by health
and education. Income tax is the biggest source of tax revenue in the UK.
a) Expansionary fiscal policy:
This aims to increase AD. Governments increase spending or reduce taxes to do this. This
results in goods being cheaper and citizens having a higher amount of disposable income. It
leads to a worsening of the government budget deficit, and it may mean governments have to
borrow more to finance this.

b) Deflationary fiscal policy:
This aims to decrease AD. Governments cut spending or raise taxes, which reduces consumer
spending. This leads to goods becoming more expensive and a fall in the disposable income of
the citizens. It leads to an improvement of the government budget deficit.

Monetary policy:
Monetary policy is used by the government to control the money flow of the economy. This is
done with interest rates and quantitative easing.
Interest rates:
Let us take the UK as an example to better understand this concept. In the UK, the Monetary
Policy Committee (MPC) alters interest rates to control the supply of money. They are
independent from the government, and the nine members meet each month to discuss what the
rate of interest should be. Interest rates are used to help meet the government target of price
stability, since it alters the cost of borrowing and reward for saving.
The bank controls the base rate, which ultimately controls the interest rates across the
economy.
When interest rates are high, the reward for saving is high and the cost of borrowing is higher.
This encourages consumers to save more and spend less, and is used during periods of high
inflation.
When interest rates are low, the reward for saving is low and the cost of borrowing is low. This
means consumers and firms can access credit cheaply, which encourages spending and
investment in the economy. This is usually used during periods of low inflation. However, during
the financial crisis, the UK interest rate fell to a historic low of 0.5%, and has been at this rate
since March 2009. Despite high inflation, the interest rate was set at a low rate to stimulate AD
and boost economic growth.
Asset purchases to increase the money supply: Quantitative Easing (QE):
This is used by banks to help to stimulate the economy when standard monetary policy is no
longer effective. This has inflationary effects since it increases the money supply, and it can
reduce the value of the currency.
QE is usually used where inflation is low and it is not possible to lower interest rates further.
QE is a method to pump money directly into the economy. It has been used by the European
Central Bank to help stimulate the economy. Since the interest rates are already very low, it is
not possible to lower them much more. The bank bought assets in the form of government
bonds using the money they have created. This is then used to buy bonds from investors, which
increases the amount of cash flowing in the financial system. This encourages more lending to
firms and individuals, since it makes the cost of borrowing lower. The theory is that this
encourages more investment, more spending, and hopefully higher growth. A possible effect of
this is that there could be higher inflation.

If inflation gets high, the Bank of England can reduce the supply of money in the economy by
selling their assets. This reduces the amount of spending in the economy.
Then there are the supply side policies.
Supply-side policies aim to improve the long run productive potential of the economy.
i) To increase incentives:
Governments could reduce income and corporation tax to encourage spending and investment.
ii) To promote competition:
By deregulating or privatising the public sector, firms can compete in a competitive market,
which should also help improve economic efficiency. A stricter government competition policy
could help reduce the monopoly power of some firms and ensure smaller firms can compete,
too.
iii) To reform the labour market:
Reducing the NMW (or abolishing it altogether) will allow free market forces to allocate wages
and the labour market should clears. Reducing trade union power makes employing workers
less restrictive and it increases the mobility of labour. This makes the labour market more

efficient. Governments could try and improve the geographical mobility of labour by subsidising
the relocation of workers and improving the availability of job vacancy information.
iv) To improve skills and quality of the labour force:
The government could subsidise training or spend more on education. This also lowers costs
for firms, since they will have to train fewer workers. Spending more on healthcare helps
improve the quality of the labour force, and contributes towards higher productivity.
v) To improve infrastructure:
Governments could spend more on infrastructure, such as improving roads and schools.
The effect of employing a supply-side policy is shown on the diagram. The LRAS curve shifts to
the right, to show the increase in the productive potential of the economy. In other words, the
maximum output of the economy at full employment has increased. This leads to a fall in the
average price level, from P1 to P2, and an increase in national output, from Y1 to Y2.

After understanding the concept of market failures, macro and microeconomic forms of
government interventions and what tools come to play, it is important that we understand what
are the major sectors being focused on in terms of policy formulation in Nepal and what poses
as hindrances in their implementation.
SECTORAL POLICIES
Policies that are targeted towards the development of certain sectors are called sectoral
policies. In Nepal, The National Planning Commission makes it a priority to include sectoral
policies in their five year plans. The latest five year plan is the fifteenth plan of Nepal which has
been made for the fiscal year 2019/20 – 2023/24. In the plan, there are policies for dozens of
sectors. The focus of our presentation has been on the following sectors:
· AGRICULTURE
· EDUCATION
· HEALTH AND NUTRITION
· MONETARY AND FINANCIAL SECTOR
· TOURISM
· REMITTANCE
· FOREIGN TRADE, BALANCE OF PAYMENT, AND FOREIGN EXCHANGE
· PRIVATE SECTOR
· FOREIGN INVESTMENT
· INDUSTRY
· POPULATION AND MIGRATION
· TRANSPORT INFRASTRUCTURE:
Ø ROAD
Ø AIR TRANSPORT
Ø RAIL TRANSPORT
Ø WATER TRANSPORT
· COMMUNICATION AND INFORMATION TECHNOLOGY INFRASTRUCTURE
· ENERGY
· SCIENCE AND TECHNOLOGY
· LABOR AND EMPLOYMENT
· POVERTY ALLEVIATION
· ENVIRONMENT

Agriculture:
For the agricultural sector, major focus has been on improving research and development.
Policies such as establishing a university under the leadership of Nepal Agricultural Research
Council and to include agricultural research in the school curriculum can help to bring about
innovation in the agricultural sector.
Education:
For the education sector, policies such as creating an attractive and student friendly classroom,
managing a proper library and laboratory in schools, and developing digital learning materials
have prioritized on enhancing the teaching-learning process.
Health and Nutrition:
For the health and nutrition sector, policy measures such as expanding telemedicine services,
providing vaccinations in time, and making health services senior citizen, gender, and disability
friendly have been opted to improve the quality of healthcare.
Monetary and Financial Sector:
For the Monetary and Financial Sector, there are policies such as increasing financial literacy in
cooperation with financial institutions, shifting financial transactions to an electronic system, and

minimizing financial crimes by encouraging cashless transactions. These can help to develop
our institutions and modernize our economy.
Tourism:
For the tourism sector, some policies are: to repeatedly honor tourists coming to Nepal as brand
ambassadors of the country, to carry out promotional programs, and to protect sensitive tourist
destinations and cultural heritages. These will preserve our heritages and attract tourists.
Remittance:
For the Remittance sector, policies such as identifying areas for investment and partnership and
to utilize remittance in productive sectors will help to transform income earned from remittance
into saving and investment.
Foreign Trade, Balance of Payments, and Foreign Exchange:
For the Foreign Trade, Balance of Payment, and Foreign Exchange sectors, policy measures
have aimed at promoting export, maintaining balanced foreign trade, and a surplus in the
balance of payments. Some of those policies are: to increase exports by developing industrial
zones, specific economic zones, export processing zones, and quarantine services. Similarly, to
promote the production of agricultural and industrial goods, pulses, oil seeds, fruits, etc. and to
reduce the import of petroleum products like gas and coal.
Private Sector:
For the private sector, policies have oriented towards developing our infrastructures. There are
policies such as making the industrial sector competitive, emphasizing on the exploration,
processing, and production of minerals, and incentivizing the private sector to provide quality
services.
Foreign Investment:
For the Foreign Investment sector, there are policies that are aimed at creating an investment
friendly environment. They include conducting interactions and discussions with investors in
source countries for FDI and establishing an investment facilitation center.
Industry:
For the Industrial sector, there are policies such as; to protect and promote micro, small, and
cottage industries, to deliver services through an electronic medium, and to encourage people
to use domestic products. These contribute towards employment creation and poverty
alleviation.

Population and Migration:
For the Population and Migration sector, one important policy measure is to encourage human
resources returning from foreign employment to invest skills, knowledge, capacity, culture, and
resources in the productive sector. There are also policies like addressing the needs of senior
citizens and encouraging the registration of personal events like birth, death, and migration.
These contribute towards addressing the needs of the population.
Transport Infrastructure:
For the transport sector, there are various policies for road transport, air transport, rail transport,
and water transport. These include; to develop modern road infrastructures like fly-overs,
underpasses, tunnel roads, and viaducts, to complete the construction of Gautam Buddha
International Airport and Pokhara International Airport on time, and to enhance the capacity of
human resources in the construction and operation of railways and waterways.
Communication and Information Technology Infrastructure:
Policies in the Communication and Information Technology Infrastructure include; to make mass
media autonomous and professional, to prioritize ICT infrastructure, and to conduct digital
literacy awareness programs.These can improve economic growth and help to achieve
sustainable development.
Energy:
Policies for the energy sector include; to substitute fossil fuels with hydropower, to expand
alternative energy sources like micro and small hydropower, solar energy, bio-energy, and wind
energy, and mobilize resources from the Green Climate Fund. These can help to promote a
green economy.
Science and Technology:
Policies in the Science and Technology sector are dedicated towards using available technology
and innovation to achieve economic goals such as poverty reduction, environmental protection,
social security, and food security.
Labor and Employment:
Policies for the labor and employment sector include developing a positive attitude towards
labor, ending all forms of labor exploitation, and fixing the minimum wage required for
subsistence.

Poverty Alleviation:
Policies for Poverty Alleviation include implementing programs like capacity development and
income generation for poor households, ensuring easy access to basic needs for the poor, and
improving the living standard of the poor through the promotion of businesses. They also
highlight the need to use scattered labor, capital, technologies, and skills in an integrated
manner to uplift the poor.
Environment:
Policies for the environment sector include preparing national standards in accordance with
international standards related to the prevention of water, land, noise, visual, and air pollution,
installing pollution control systems in industrial establishments, and mobilizing stakeholders for
the development of a green economy.
A major hindrance to our economic development is the lack of implementation of policies. In our
institutions, there seems to be a huge gap between policy formulation and implementation. The
major reasons behind such policy deviations are:
Political Instability:
Our unending political instability has always been a huge obstacle to our development. Such
instability has severely affected our bureaucratic system. It shows when political affiliation is
given much more importance than qualification when assigning candidates for higher level
positions.
Low Investment:
Gross Fixed Capital Formation which reflects investment is 30% of our GDP whereas Final
Consumption Expenditure as percentage of GDP is 90%.
Weak Implementation of Projects:
In the six months of this fiscal year, capital expenditure has only been 15% of the allocated
amount in the budget. This provokes a doubt whether the allocated amount will ever be fully
used by the end of this fiscal year.
Corruption:
Our country’s ranking for Corruption Perception Index is 117/180. This is higher than that of
other South Asian countries like Bhutan, India, and Sri Lanka. Corruption here is one of the key
reasons behind inefficiency at work, lack of institutional development, and of course inequality.

Corruption also is a huge discouragement for people who work honestly and desire to build up
our institutions and foster our growth.
Year Targeted GDP Growth Actual GDP Growth
2009/10 5.50 4.82
2010/11 5.50 3.42
2011/12 5.00 4.78
2012/13 5.50 4.13
2013/14 5.50 5.99
2014/15 6.00 3.32
2015/16 6.00 0.59
2016/17 6.50 8.22
2017/18 7.20 6.70
2018/19 8.00 6.99
2019/20 8.5 2.28
Now to delve deeper into the recent policy formulations of the Government of Nepal and some
of the highlights of the sectoral budgets will be the topics under discussion.
Budgets 2077/2078B.S
The government on May 28th presented a NPR 1,474.64 billion budget for the fiscal year
2020/21, where NPR 948 billion has been allocated for recurrent expenditure, NPR 352 billion
has been allocated for capital expenditure, and NPR 172 billion has been allocated as financing.
The budget for the upcoming year is 4 percent less compared to the FY 2019/20’s budget NPR

1,532.9 billion.
SOURCE OF BUDGET:
The government has also set a revenue collection target of NPR 889.62 billion through tax and
non-tax receipts. The government seeks to receive foreign grants and loans amounting to NPR
60.52 billion and NPR 299.5 billion, respectively; while the resulting deficit of NPR 524.50 billion
is expected to be financed through domestic loans of NPR 225 billion.
Objectives of the Budget:
1) To protect the lives of the people from all kinds of diseases including Corona pandemic,
to make the life of the citizens safe and reliable.
2) Coordinating policy and resources to revitalize the Corona pandemic while minimizing
its impact on the economy and other sectors.
3) To make people realize the presence of the welfare state by increasing the health,
education, employment and development friendly policy interdependence.
4) To increase the effectiveness of infrastructure, economic and social sectors by making
maximum use of available resources and means through adopting economical and
effective expenditure systems.
5) To guarantee civil security and social justice through effectiveness, transparency, good
governance and accountability of public service.

Major highlights of budgets
Health:
● The budget for the health sector has been raised to NPR 90.69 billion from NPR 68.78
billion for the current fiscal year, an increase by 32 percent.
● Given the Covid-19 pandemic, NPR 6 billion has been allocated to procure medicines
and equipment as well as to treat and control the spread of the coronavirus.
● Similarly, the budget also focuses on expanding tests in high-risk areas to prevent
further outbreak of the virus, providing free health insurance of up to NPR 5,00,000 for
all health care workers, and upgrading the existing Covid-19 specialty health centers into
full-fledged hospitals with specialty services.
Employment and Social Security:
● The Prime Minister Employment Program’s scope has been widened and allocated a
budget of NPR 11.60 billion with the aim of generating an additional 200,000
employment opportunities.
● NPR 1 billion has been allocated to facilitate employment for 50,000 people through
skill-based training, and NPR 4.34 billion has been allocated to strengthen organizations
providing technical, vocational, and skill training to employ 75,000 people, including
those from the informal labor market sector and returnee migrant workers.
● This budget also envisions creating jobs for 40,000 people through small farmers credit;
1,79,000 jobs through Youth and Small Entrepreneur Self Employment Fund; and 50,000
jobs in the private sector. Similarly, all social security schemes will continue as usual.
● Total budget of NPR 67.50 billion has been allocated for social security allowances.
Agriculture
● The government has envisioned promoting the ‘one local level, one agricultural product’
through the Prime Minister Agriculture Modernization Project for the upcoming fiscal
year.
● The agriculture sector has been allocated NPR 41.40 billion, where NPR 1 billion has
been separated to procure chemical fertilizers; and NPR 1 billion has been allocated to
establish 200 food banks at the local level.
EDUCATION

● The Ministry of Education, Science and Technology (MoEST) has been allocated a
budget of NPR 171.71 billion (11.64 percent of the total national budget) for the coming
fiscal year.
● NPR 6 billion has been separated to enroll volunteer teachers for Science, Mathematics
and English.
● NPR 1.2 billion has been allocated to expand the mid-day meal program. However, the
university budget distributed through the University Grants Commission has been
reduced to NPR 17.43 billion from NPR 17.62 billion for the new fiscal year.
Policy made by Nepal government to meet the corona crisis
● Due to the rise of Coronavirus, the pandemic health system has been focused in the
Budget 2077-78. Government has committed to establish a health system in the country
in coming years.
● To stop the further transmission of Covid-19 pandemic and to minimize the shortage of
additional medicines, medical tools and equipment NPR 6 Billion budget has been
allocated.
● To protect and motivate the people working as medical workers and lab technicians,
Personal Protective Equipment (PPE) and free health insurance of NPR 0.5 Million will
be provided.
● Allocated the budget of NPR 12.46 Billion for health infrastructure development and
NPR 14.27 Billion to build new hospitals. The Ministry of Health & Population budget
increased to NPR 90.69 Billion.
● Health insurance to be ensured for everyone within three years. By the end of next year,
40% of the population of every local level will be provided health insurance. For this
purpose, the budget of NPR 7.5 Billion has been allocated. Health insurance to be
ensured for everyone within three years. By the end of next year, 40% of the population
of every local level will be provided health insurance. For this purpose,the budget of NPR
7.5 Billion has been allocated.
● To create a fund of NPR 1 Billion to provide loan at the rate of 5% to corona virus
affected agriculture, cottage, small and medium industries, manufacturing industry, hotel,
tourism and various other affected industries.
● Only front workers involved in Corona pandemic will be provided allowances. Travel
allowance, fuel, furniture, new vehicles purchase as well as repair will face cuts in
budget. Motivation allowances, overtime allowances, meeting allowances, lunch
allowances and other types of allowances will be dismissed.

CONCLUSION:
There are a number of policies targeted towards the development of an economy. If
implemented effectively, they can truly help to attain all the economic objectives of the state.
However, there are a lot of constraints including political instability, policy conflict and so on.
The Corona pandemic hampered the running periodic plan and policies of the government.
These are yet to be dealt with as the Government of Nepal has been occupied with dealing with
the pandemic at hand. More focus has been on reducing the spread and immunizing the Nepali
citizens for the time being.

Citation:
https://worldpopulationreview.com/country-rankings/minimum-wage-by-country
https://countryeconomy.com/national-minimum-wage/croatia
https://www.nepalisansar.com/government/nepal-budget-fy-2020-21-income-tax-rates-pr
ovisions-and-concessions-for-nepali-taxpayers/
https://www.gov.uk/income-tax-rates
https://www.kashflow.com/uk-vat/#:~:text=The%20standard%20rate%20of%20VAT,and
%20is%20charged%20at%205%25.
https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
https://courses.lumenlearning.com/wm-macroeconomics/chapter/counterbalancing-rece
ssion-and-boom/
https://corporatefinanceinstitute.com/resources/knowledge/economics/externality/
https://www.economicshelp.org/micro-economic-essays/marketfailure/positive-externalit
y/
https://www.tutor2u.net/economics/reference/4-key-diagrams-on-externalities
https://www.npc.gov.np/images/category/15th_plan_English_Version.pdf

Shrestha & Bhattarai 1
Aarya Shrestha, Surakshya Bhattarai
Prof. Binayak Krishna Thapa
Introduction to Nepal’s Economy, BECO113
10 March 2021
Critical Constraints and Opportunities for the Economic Growth of Nepal
Introduction
Despite numerous attempts to revolutionize the economy of Nepal, Nepal’s performance in terms
of economic growth is more-or-less stagnant throughout the time. The pace of growth can be
affected by various factors of the economy including, but not limited to, inefficiencies within the
market and the government, imbalances in the structure of the economy, and the level of
advancement in infrastructure and technology. However, these factors can also be efficiently
managed through economic policies and efficient coordination. This report has addressed some of
those major developmental factors that have constrained the long run economic growth of Nepal
and some of the ways to overcome such constraints.
Critical Constraints
The pace of growth of an economy can be stagnant due to several factors. The first part of this
report inquiries into the various critical factors that are slowing the growth of the economy of
Nepal.
Condition of Infrastructure:
Inadequate infrastructure can lead to low returns on investment by lowering the productivity of
factors of production and increasing the cost for businesses. Two of the many infrastructures that
have stagnated the growth of the economy of Nepal are as follows:
1. Road Infrastructure
2. Infrastructure for electricity
1. Road Infrastructure:
There is a positive correlation between a country’s road network and its developmental stage as it
stimulates economic and social development. Road network opens up an economy to greater
access to employment, efficient business opportunities, and operations.
In Nepal’s case, the East-West highway is the main thoroughfare linking the country’s eastern
and western borders, and the major entry points into the country. Any disruption in traffic on this
route or the roads linking it to border crossings and population centers leads to losses in trade and
severe shortages of essential commodities. However, disruptions in the East-West highway are
common and typically due to transport strikes rooted in politics or protests over traffic-related
accidents. Looking at the data between mid-July and mid-August 2008, traffic flow on the highway
was severely disrupted by several such incidents. Additionally, floods and landslides also often
disrupt traffic flow on roads linking the East-West highway to population centers such as
Kathmandu and Pokhara and to other routes in the hill and mountain areas. Looking at the latest
2019 data, the Bapsi bridge in Bardibas municipality collapsed due to a surge of water level in the
river.
Therefore, the poor maintenance of road infrastructure and insufficient alternate routes in Nepal
has caused significant barriers to the economic growth of Nepal. The inefficient movement of
people, goods, and the delivery of services had caused frequent delays in businesses and higher
supply costs which have ultimately hampered not just the running businesses but the interest of
investors as well.
2. Energy Infrastructure: Hydropower Electricity
The level of reliability of energy, like road networks, is correlated with economic growth. The
rise in a firm’s productivity requires a higher supply of energy, in Nepal’s case- electricity.
Therefore, the inadequate and unreliable supply of poor-quality electricity in Nepal is a major
development constraint for the economic growth of Nepal. As power outages of up to 16 hours per
day were common during dry periods in 2008 and early 2009, it crippled economic activity and
social development. Even industrial corridors such as Morang-Sunsari, Bara-Parsa, and Rupandehi
Districts were power-starved. It is estimated that each of these corridors required additional power
of 200 MW. Additionally, the system loss caused by poor distribution infrastructure, leakages, and
power theft in 2015-16 stood at 25.78 percent, causing losses amounting to Rs. 8.89 billion in a
single year.
This situation has been improving, but even today basic energy needs of Nepali citizens are only
being met partially. As of 2019, about 89% of the population has access to electricity. Supply
increased 63 kilowatt-hours (kWh) per annum in 2000 to 177 kWh per annum in 2018. However,
despite the dramatic growth in per capita electricity consumption it still is poor in quality and
unreliable and remains among the lowest in the world. Nepal’s per capita electricity consumption
still is one-twentieth of the global average.
Poor level of electricity availability and supply had a severe adverse impact on industrialization
and return of investment, consequently affecting the nation’s macro economy.
Human Capital and Underemployment
The labor market survey report revealed that Nepal has a dual labor market: for both the unskilled
and the unskilled labor. In addition to this, the employment opportunities for these unskilled labor
is very high. Unfortunately, it is converse in the case of highly skilled labor.
Therefore, a large number of unskilled human capital isn’t a critical constraint to growth. However,
the inability to operationalize skilled labor has become a major factor in constraining the growth
of this economy. This means there is a tangible need to create the profitable opportunities required
for high-skilled workers to operate.

Political Scenario
A country’s development potential can be significantly damaged by corruption, conflict and
industrial relation climate. Therefore, all of the above cases have hugely stagnated the economic
growth of Nepal.
1. Corruption and Abuse of Authority
Weak governance and high corruption have constraint investment and growth in Nepal’s economy.
It impairs economic growth by impacting investment, taxation, human development and public
expenditures by affecting the access of individuals and businesses to equitable distribution of
resources, justice, registration of land, and even public services and infrastructures. Therefore, the
level of corruption and abuse of authority hugely impacts investor’s confidence. In addition, this
also impacts the efficiency at which infrastructures in the country are being used, maintained and
renovated. The Transparency International reported that the corruption in Nepal had increased by
58% until November 2020 in which 50% of the corruption cases are related to the Office of the
President and Prime Minister. With this increasing rate of corruption, the long run economic
growth of Nepal will be adversely affected.
2. Conflict and Political Instability
Political instability, conflict, and subsequent deterioration in governance impact investor
confidence. This, in turn, negatively affects investment which is a serious threat for developing
economies.
Most investors rank political instability as a major constraint. Findings of the 2008 Enterprise
Survey by the International Labour Organization, Asian Development Banks, and the Federation
of Nepalese Chambers of Commerce and Industry (FNCCI) suggested that 72% of the enterprises
consider political instability a very serious while the addition of 26% of firms considered social
unrest as a major constraint for investments. The following data illustrates the damages incurred
due to the political unrest in Nepal from 1991 to 2006.
1. During the 1991–2000 civil war the average annual growth rate dropped from
4.9% to less than 3%.
2. According to Asian Development Bank (ADB) study, the 3-week strike in
April 2006 cost us an estimated loss of about NRs 10 billion to NRs 15 billion ($135
million to $205 million).
3. In the 9 years of the conflict (1996-2006), about 5,100 establishments were
destroyed or badly damaged and infrastructure worth $129.6 million was damaged.
4. The estimated costs of the civil conflicts are much higher when including the
lost GDP growth. If the economy had continued to grow at the rate that it had
attained in 1991–2000, the aggregate loss from 2001 to 2007 would amount to
about $3.0 billion in 2000 terms.
Although the civil war ended in 2006, the negative impact of the conflict on the level of governance
and on economic activity has not fully recovered. With continued instability and frequent strikes,
investor confidence is likely to remain depressed which will prevent investment from reaching
levels required for growth.
3. Poor Industrial Relation Climate
Although the civil war ended in 2006, labor strikes and lockouts have been rising. In 2005/06,
about 190,000 person-days of work were lost due to labor-related issues; this declined in 2007/08
to slightly less than 90,000 person-days. This forced the operating time to decrease significantly
for manufacturing units which worsened the growth of Nepal’s economy which was already
suffering due to other constraints such as worsening power shortages and road infrastructure. In
2008/13, the average direct cost of general strikes rose at NRs. 1.8 billion per strike day and NRs.
27 billion per year at current prices. The lost output per year accounted for 1.4 percent of the annual
gross output.
Such losses have not only slowed the economic growth of Nepal’s economy, but it has even
decreased the confidence in investors which has diminished the chances of economic growth in
Nepal.
Externalities
Externalities can be defined as any cost or benefit incurred by the producer as a consequence of
the production process. The two externalities that are adversely affecting the growth of our
economy are as follows:

1. Learning Externalities
2. Coordination Failure
1. Learning Externalities
As many industries in Nepal hire unskilled workers into their labor market and provide training to
them after they’ve joined, the wage they are given is only of a subsistence level. However, after
some time the unskilled labor acquire skill; hence, begins demanding more wage. But when their
demands aren’t met, they are compelled to resign from the industry and migrate elsewhere: mostly
toward other countries, and the cycle repeats. This also acts as a disincentive to producers to keep
on investing on training for new workers.
The reason why the skilled force has to leave the industries is that the industry's operations are
restricted by their operating environment. The presence of such learning externality could lead to
underinvestment in new products and production processes. This restricts both diversification and
innovation, and, in long run, the country’s growth.
2. Coordination Failure
A firm’s productivity depends not only on its own efforts and the general economic conditions,
but also on how the different firms and sectors perform and link with infrastructure, regulations,
and other public goods. Similar to learning externalities, coordination failures can discourage
investment.
In our context, learning and coordination externalities have led to market failures.
Market Failure
The economy of Nepal is dominated by services and agriculture, and the industry’s share of GDP
is less than 18%. Within the industry sector, the manufacturing sector share does not even amount
to 10% of GDP. Both domestic and export manufacturing is small and inadequate. Not only is the
manufacturing subsector small, but it has not been growing in terms of value or sophistication.
Market failure is another set of factors that could also lead to low private appropriability and low
private sector investment.
Government Failure
Nepal’s policies and thrusts to overcome market failures may not have been strategically well-
targeted.
1. Ninth Five Year Plan (1998–2002): Targeted 10 industries including hydropower
generation, energy-based industry, computer software, industry based on domestic
nonmetal minerals.
2. Tenth Five Year Plan (2003–2007): Targeted industries in the comprised both export and
non-export products, but predominantly on products that were less likely to lead to the
development of more sophisticated industries.
3. 2008/09 budget speech: Revival of some sick or underperforming industries, including
agricultural tools, textiles, sugar refining, jute milling, rubber tires, cement, herb
processing, and electricity generation. Overall, focus on such products had little to no
impact on the sophistication of Nepal’s industry.
Economic opportunities
Economic opportunity means any transaction or arrangement involving property or services
wherein a consultant may gain an economic benefit. There are many ways of creating economic
opportunities like raising the minimum wages, providing quality education, increasing financial
literacy and many more.
As of Nepal there are many challenges, due to which we can find many opportunities. The
economy of Nepal is heavily dependent on agriculture and remittances. So, there are so many
sectors where we should improve.
Some of economic opportunities in Nepal that are to be discussed in this report are:
1. Accelerate Infrastructure development
2. Opportunities in the Market

3. Reducing Corruption
4. Expanding tourism.
Accelerate Infrastructure development
As infrastructure is one of the major challenges of economic growth for Nepal, we can seek
solutions to improve basic infrastructure including road, electricity, communication and others
also. Following are the infrastructures on which we can see many opportunities.
a. Energy
Our government has mentioned that as energy is a major source of economic transformation in the
country due emphasis will be given to the sector. The government also plans to balance the number
of run-of-the-river, peaking run-of-river and reservoir hydropower projects to make our country
self-reliant in energy. This will also help to manage the energy supply chain. This is the opportunity
where we can reduce buying energy from other countries. And also with increasing projects more
employment opportunities will be available. Nepal can and must increase the storage capacity
problem by increasing it in a phased manner from 20 days to 160-180 days to improve the
country’s energy security, while import sources are diversified.

Our government has allocated the budget of Rs83.49 billion for next fiscal year for the
development of the overall power sector. As our country is rich in water resources here are few
ongoing hydropower projects:
• Upper Tamakoshi Hydropower project: It is the biggest hydropower of Nepal till the
date. It has significant economic importance because if we are able to complete this project then
the problem of the energy crisis will be solved. It is believed that not only we can make full use of
it, we can sell the hydro energy to other countries too.
• Tanahu Hydropower Project.
b. Transportation
We are well informed that the transportation service of our county for now is quite miserable. As
explained above it is one of the greatest challenges for economic growth. There are so many
possible ways to improve in this sector. New technology such as railways or even (HSR) can
directly contribute to low carbon transport and also regional development effects. Development of
cable cars in remote scattered and touristic important places could be technology options. This
could help to increase tourism and also trade goods even in remote areas.
Government is focusing on building a North-South strategic road network connecting China and
India to balance the road connectivity. They also allocated a budget of Rs138.80 Billion for
development of physical infrastructure and transport sector through federal budget for next fiscal
year 2020-21. Below are the few ongoing transportation projects:

• 36 road projects under construction in Karnali Province.
• Pokhara Regional International Airport: 60% of the construction is completed. And it
is believed that it will welcome more tourists in our country.
c. Irrigation
Nepal has an abundance of water resources in different forms, including glaciers, rivers, rainfall,
lakes, ponds, springs, and groundwater and others.
If we are able to utilize this wisely then it’ll be a very good opportunity for us in irrigation and
other related sectors. In 2017 alone, vegetables worth 22.67 billion Nepalese rupees (NPR) were
imported to Nepal. So, we can also reduce importing vegetables and fruits from other countries by
supporting farmer-managed irrigation. This will also reduce the number of people going foreign
to work as a labour as they can work in their own home with their family. We hear a lot these days
that people return to Nepal for irrigation. Government is also trying to encourage them by giving
them grants called “anudan” in Nepali. And if farmers need loans then they may pay less interest
comparatively.
Whatever options are chosen by the government must be compatible with the available
implementation capacity, resource availability, and management capacity. Government plans to
construct 247 deep bore wells to irrigate an additional 22,000 hectares of land and allocated Rs2.32
billion for the purpose. These are some ongoing irrigation projects:
• Mahakali Irrigation Project: This project is declared as a National Pride project this year
as it has been incomplete since 24 years. This is also one of the biggest projects of Nepal. a 10.25
budget has been allocated for it.
• Rani Jamara Kulariya Irrigation Project: This project aims to irrigate 38,300 hectares
of arable land round the year.
d. Human Capital
Human capital involves a wide range of constructs including knowledge, skills, training and
education, experiences, judgment, wisdom and creativity. As explained in the challenges above
there are a number of job opportunities and unemployed human capital here but the skills do not
match. So, if the skills are being operationalized properly then we can identify innumerable
opportunities in this sector. But there are few steps that should be taken to operationalize the skills
properly.
At least one percent of the country’s GDP must be allocated to support research institutions,
activities and programs. Educational loans should be common and easily available like in most of
the developed foreign countries. More focus should be given on increasing enrolment in secondary
education, reducing the number of dropouts. An Employment Fund has been established, with the
support of development partners, to incentives on the-job training providers. More such funds
should be established.
Opportunities in Market
Here we are going to look at opportunities for export, import and manufacturing quality goods and
services in Nepal, in detail.
a. Export
Export means sending goods or services to another country for sale. If we are able to export more
goods then more people will be employed which helps to alleviate poverty. It will also increase
world market demands for Nepali products. It can also be the means of women empowerment by
involving them in women oriented SMEs (Small and medium-sized enterprise). More investment
could be made on our most exported goods and also for manufacturing new quality goods to export.
As Nepal is surrounded by two of the highest trading countries in the world, there is high possibility
in maintaining good trade relations and to export our goods.
b. Import
Import means bringing goods or services into a country from abroad for sale. Our country imports
goods and services in a very large amount. But we can still work in this sector. It gives
opportunities to young generations for a new market and producing new and better services for
our own country. If we are able to export goods then it will help us maintain good trade relations
with more countries due to which it will be easier for us to export too.
In order to link imports with exports, the government has been offering various facilities such as
refund of duties if imported items are used in the production of exported items.
c. Improve Manufactured Product Quality
One of the reasons why Nepali products are not able to compete with imported items is because of
production of low quality goods. New manufacturers and even old can take this opportunity and
produce quality goods and services. If that happens then there will be competition in the market
and it will help consumers to get quality services and goods at a reasonable price.
In conclusion, if we start to produce goods and services of high quantity then the monopoly market
will come to an end and also we can reduce importing goods.
Corruption
Ways to reduce corruption
We should provide general awareness against corruption. Strict law, rulers and monitoring should
be practiced. We should maintain good governance, accountability, transparency and effective
rules and regulations. Civil society, media have to do their duty honestly. In any case of corruption,
it should be brought into public. Also proven corrupted officials, people should be socially
boycotted.
Overcoming corruption in Nepal

Constitution of Nepal 2072 part 21 article 238 and article 239 has empowered CIAA (The
Commission for the Investigation of Abuse of Authority) to investigate and probe cases against
the persons holding any public office and their associates who are indulged in the abuse of
authority by way of corruption. CIAA aims to crack down the corruption issues at a national level
with a system-based approach.
Expanding tourism
Tourism is an important source of government revenue in the context of Nepal. The government
earns revenue from the tax, visa, fee, royalty etc. If we observe the last 10 years of increasing
inflow data of Chinese tourists it can be assumed that Nepal is a potential destination of Chinese
individuals. If we are able to bring at least half of the population of China to visit our country
(which is considered to be possible) then the government revenue will increase a lot. The new
international airport is in process of construction in Pokhara. More tourists are expected after the
construction. Increase in tourism will result in employment opportunities. Local business will also
be supported. It will also make us conscious to develop and maintain infrastructures. Also many
tourist guides and Tourism Companies will earn profit. Thus, we can find many opportunities in
the tourism sector.
Conclusion
Looking at these constraints of economic growth it is apparent that it might take a long time
period for us to overcome these problems. In essence, some of the challenges Nepal is facing in
regards to economic growth are substandard infrastructure, government failure, market failure
and externalities. However, where there is a challenge, there is also an opportunity to face it.
Government of Nepal is trying to create opportunities to control economic constraints by making
various plans and policies, let it be by planning different projects for developing infrastructures,
overcoming corruption or creating market opportunities. If all those projects and plans will be
completed in prescribed time then our country will grow rapidly and consistently.
Overall, despite having many constraints, Nepal has been developing slowly over time. In this
report there are opportunities or solutions to the constraints mentioned. We all must patiently
understand the problem and try to seek the opportunities.

Works Cited
Lemma, Henley, Hoque, Velde et al. “The Nepal Labour Market: A Four Sector Case Study.”
Supporting Economic Growth. Oct, 2017, pp: 7-9, 15-16.
Rameshwor P. Khanal “Nepal: Critical Development Constraints”. ADB, DFID, ILO, 2009, pp:
31-37, 43-57.
Himalayan News Service. thehimalayantimes.com, Nov 25, 2020.
https://thehimalayantimes.com/nepal/corruption-cases-up-by-58-per-cent
NEF Editorial. IMF Graph June 2019 Nepal: Recent Macro-Economic Developments. June 7,
2019. https://nepaleconomicforum.org/neftake/imf-graph-june-2019-nepal-recent-macro-
economic-developments-neftake-nepaleconomicforum
https://datacommons.org/place/country/NPL
Editorial, Kabarhub, english.khabarhub.com, July 13, 2019.
https://english.khabarhub.com/2019/13/31771
Editorial, kathmandupost.com, March 14, 2021.
https://kathmandupost.com/opinion/2019/05/07/human-capital-for-
growth?fbclid=IwAR3zYObqm9Yh9lJt4MJeup9u2A5FbsIXtb-K8xHUdSONwasU_Zb8r_NLl9s
Himalayan News Service. thehimalayantimes.com, May 29, 2020.
https://thehimalayantimes.com/business/budget-focuses-on-infrastructure-to-generate-extra-jobs
Commission for the Investigation of Abuse of Authority, pp 7. http://ciaa.gov.np/page/7

Challenges and Opportunities of Tourism in Nepal
https://www.iciclesadventuretreks.com/news/challenges-and-opportunities-of-tourism-in-nepal
Jib Raj Koirala. “Import and Export Opportunities and Challenges, and Transit System”, pp: 15.
http://www.sawtee.org/presentations/ImportExport_JibRaj.pdf

Introduction To Nepal's Economy

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction To Nepal's Economy

Uploaded by

Copyright:

Available Formats

REPORT ON ECONOMIC HISTORY OF NEPAL

Presented on: 28th January, 2021

Submitted by: Submitted to:

Silva Rambu Thapa Professor Binayak Krishna Thapa

Economic History of Nepal 1

Economic History of Nepal 3

Economic History of Nepal 5

The Economy of Nepal: Post-Unification to The End of

Economic History of Nepal 6

The Economy of Nepal: 1950 to 1990 A.D.

Economic History of Nepal 9

Economic History of Nepal 10

Financial History as a whole

The Economy of Nepal: 1990 - Present

Economic History of Nepal 11

Effects of the Maoist Uprising

Economic History of Nepal 12

Economic History of Nepal 14

Economic History of Nepal 15

Economic History of Nepal 16

(*Report formatted in APA Referencing style)

● Causes of Population Growth

● Thomas Malthus and co-relation of his theory

In a general term, Population is deﬁned as a group of individuals of the same species

ecologists rely on a series of statistical measures, known as demographic parameters, to

describe that population (Thapa, 2020).

population demographics, also known as Demography.

Broadly, Demography can also be said as study of the characteristics of populations.

It provides a mathematical description of how those characteristics change over time.

necessary to understand the term “Population Growth”.

at which the number of individuals in a population increases in a given time period as a

population over a unit time period.Often expressed as a Percentage of the number of

individuals in the population at the beginning of that period(Chalise, 2018).

Factors that Influence Population Fluctuation/ Growth

which include the following:

Natality – It is the number of births in a given period of time in a population

Mortality – It is defined as the number of deaths that takes place in a population at a

given period of time.

Immigration – It is defined as the number of individuals which come from another

population and add to the population in consideration during a period of time.

Emigration – It is defined as the number of individuals from a population who leave

the habitat and go to a different habitat at a given period of time.

Fun facts related with population around the world:

United States will lose its third place to Nigeria.

within the year 2001 A.D. (Chalise, 2018).

almost 82 million per year.

History of Population Growth:

1) Pre- Agricultural Period:

(Egalitarian) This period of time is best described as hunter-gatherer or nomadic era.

perspective that considers ways to reduce economic inequalities or form a political

A huge increase in agricultural productivity and output during the agricultural

contributed a rapid growth in population.

billion in 1974(Crenshaw et al., 1997).

Failure of Thomas Malthus’ Theory:

population, and starvation becomes the primary check to population growth.

A fundamental criticism of Malthus was his failure to appreciate the ongoing

the fertility rate.

immigration and emigration.

morality has declined steadily resulting in population momentum.

houses in Kathmandu, Lalitpur, Bhaktapur and Gorkha was estimated to be 22 thousand, 24

recruit in the British army.

In 1879, the population was estimated by British Government to be about 2 million