Table of Contents

Background................................................................................................................................................1
Impacts of the Conflict..............................................................................................................................2
Social Life during the Conflict Period.....................................................................................................2
Impacts on Environment..........................................................................................................................2
Economic Impacts of the Conflict...........................................................................................................3
Growth in Military Expenditure..............................................................................................................6
Cost of Conflict..........................................................................................................................................7
Conclusion..................................................................................................................................................9
References................................................................................................................................................10
 Background

The Communist Party of Nepal (Maoists) started 'People's War' in Nepal in 1996 with two major
objectives i.e. abolishment of monarchy and establishment of a communist republic. During this
conflict, the nation had to suffer heavy loss in most of the important sectors which reduced the
country’s national GDP and overall development. Some of the effects of the armed movement of
Maoists on the demography can be the death of 17,828 people with 25,000 children being
orphaned, 5,800 physically disabled and disappearance of 14,852.

A decade long conflict between CPN Maoists and the government of Nepal ended with the effort
of UNMIN (United Nations Mission in Nepal). Under the watch of UNMIN, a peace agreement
i.e. Comprehensive Peace Agreement (CPA) was signed in November 2006 which included the
management of arms of both the national army and the Maoist groups. It further called for the
election of Constituent Assembly to end the political instability with UN observing and ensuring
the electoral process is fair and effective.

In a significant move in 2012, most of the rebel forces agreed to choose voluntary retirement and
a few thousand joined the Nepalese army. Until this period the government of Nepal spent a
massive amount of money on the salary, ration and other infrastructural facilities of the fighters.
Besides, different national and international organizations, including UNMIN also provided
meaningful financial, technical, logistic and other necessary support to the government. It would
not have been possible for the government to restore peace in the absence of such support.

Page | 1
 Impacts of the Conflict

Social Life during the Conflict Period

People were most disturbed by frequent strikes, blockades, shutdowns, rape, sexual harassments,
extortions and abductions which the armed forces of CPN-M practiced at extensive rate. Women
were most vulnerable in the rural areas as many of the youth and male population who protected
them escaped from the villages to avoid the violence committed by the forces. In several
villages, in the absence of males, females were compelled to do the burning rituals and other
activities which females relied upon males to perform. In order to avoid such difficulties in the
villages, over 70,000 of the girls aged between 15 and 30 years were compelled to leave their
homes and join restaurants as dancers and waitresses. The situation turned to be so worse that
many of them had no choice but to enter into immoral practices like prostitution in major
townships of the country.

It is estimated that nearly 200,000 to 400,000 people were displaced during the conflict period.
The population that fled to overseas in search of employment was about two million and the
same number of people are expected to have fled to India for their protection as well
employment. These circumstances led to the increase in the rate of remittance from 2.03% in
2000 to 14.9% in 2005 which further increased to 22.09% in 2010.

However the most significant impact of the movement was seen on the most important sector for
the development i.e. education. Some of the negative effects can be 3000 teachers giving up
teaching profession, 700 schools being closed which ultimately made around 100,000 school-
going children illiterate. Instead of teaching the children, they were used as shields, housekeepers
and even as sex slaves. The conflict had negative impact on tourism sector as the tourists became
concerned of the failing law and order situation in the country. Several hotels were forced to
close their operation due to constant labor strikes and forced donations on tourist visiting the
Maoist influenced areas.

Impacts on Environment
Likewise, there was huge destruction of forest and its resources in most part of the country.
Medicinal plants, non-timber forest products and wild animals were smuggled. Poaching and
hunting of wild animals were extensive. Similarly, the armies and the Maoists dead bodies were

Page | 2
thrown into water bodies which created water pollution. Moreover, due to the negligence of the
government and CPN-M the dead bodies caused air pollution so we can say that the movement
was creating different types of pollution. Due to the threat of Maoists armies hiding in forest,
Nepal army was compelled to shoot at anything suspicious which in the process killed many
flora and fauna.

Economic Impacts of the Conflict

Each sector of the economy including agriculture, industry, employment, and foreign aid was
affected. The Gross Domestic Product (GDP) of the country dropped to an all-time low of 0.8
per cent in 2001-2002. Between 2001 and 2005, it declined from 4.8 per cent to as low as 2.6 per
cent. Another most effected sector was the private investment. Production of carpet, garment,
textile, tobacco, beverage and other products fell dramatically, which affected the export sector
most. Nearly 20 to 25% of the private sector sales in the rural market declined during the conflict
period. The rate of growth of local production of goods and services declined to as low as 2% in
the aftermath of Royal coup of February 1, 2005. All those who were engaged in trade and
commercial activities were harassed. It declined from 15.4% to 12.6% between 1996 and 2004.
As a cumulative effect, the rate of economic growth of the country could not increase more than
3.5 per cent in the post-conflict period.

Table 1: Growth of Gross Domestic Product

Average Growth Rates 1991-95 1996-2000 2000-2005
Real GDP 5.0 5.0 2.7
Agriculture 1.5 3.6 2.9
Non-agriculture 8.1 6.0 2.6
Source: Deraniyagala (2005)
General expenditure exceeded development expenditure for first time in the country’s history in
FY 2002/2003. Thereafter, development expenditure declined at a rate of 4.2% during FY2002-
04 compared with a growth of 10.4% during the 1991-2001 period. Government development
expenditures stood at about 6% of GDP in FY2004, down from 9% of GDP in FY2001 (Figure
1). In contrast, government security expenditures almost doubled from 1.6% to 3% of GDP in the
same period.

Page | 3
TABLE 2: Comparative Expenditure in Nepal (Million rupees/Year) from 1996-2004
Fiscal Total(100) Royal Nepal Police Palace General Development
Year Army
1996/97 57566 2425 (4.21) 2235(3.88) 70(0.12) 24984(43.40) 32581(56.60)
1997/98 62022 2629(4.24) 2521(4.06) 73(0.12) 27983(45.12) 34039(54.88)
1998/99 69693 3028(4.34) 2922(4.19) 83(0.12) 31952(45.85) 37741(54.15)
1999/00 77238 3511(4.55) 3324(4.30) 88(0.11) 35686 (45.81) 41852(54.19)
2000/01 91621 3897 (4.25) 5271(5.75) 93(0.10) 43513(47.50) 48108(52.50)
2001/02 99792 4521(4.53) 5795(5.81) 116(0.12) 49322(49.42) 50470(50.58)
2002/03 96125 7228(7.52) 6304(6.56) 388(0.40) 57445 (59.76) 38680(40.24)
2003/04 102400 7179 (7.02) 6279(6.13) 329(0.32) 60555(59.14) 41845(40.86)

Source: Pokharel (2004). Numbers in parenthesis are percentage.

Figure: Comparisons of Government Expenditures of FY 1991-2004

Since the government was almost unable to take necessary measures to put an end to the Maoists
armed movement, they came into operation in several districts of the country that imposed tax,
collected road tax, and extorted money from the government officials, school teachers, business
communities, industrialists and other sections of the society. They were also able to seize some
12,000 pieces of private properties. Moreover, banks and particularly the state-owned banks
were targeted. Even the micro financial institutions and Small Farmer Co-operative Limited were
not spared. Several banks were looted and robbed. A number of banks were forced to withdraw

Page | 4
from the remote and rural areas and confine their activities to the safer places and district
headquarters.

There was substantial decline in the development activities during the conflict period. Between
2001 and 2004, the development expenditure of the government declined from 9% of the GDP to
6%. In most of the Village Development Committees (VDCs) and District Development
Committees (DDCs), development activities came to a halt as the resources meant for the
development were diverted to other sectors.

Agriculture sector was declining since the investment declined to as low as 1 percent. Moreover,
the farmers were demotivated since they had to throw their products on the roads due to transport
issues like strikes. So many of the farmers in different parts of the country left agricultural land
uncultivated.

Frequent strikes, blockades, shutdowns and extortions discouraged the domestic and foreign
investors from making investment in Nepal.  Many of the investors, including the joint ventures
and multinational companies working in Nepal were compelled to stop their production activities
as their staffs living particularly in the rural areas were threatened. To name a few of such
investors, the Dabur Nepal, Surya Nepal, GMR working on Upper Karnali and Upper
Marshyangdi and United Telecom Limited had hard time during the conflict period; while the
multinational like the Colgate Palmolive Nepal Pvt. Ltd. had to close its operations in Hetauda.
Jyoti Spinning Mills in Sarlahi was burnt; while Uniliver Nepal, Coca-Cola Company, hotels and
the distilleries were frequently targeted.

With regard to foreign aid, nearly $250 million worth of aid assistance was suspended following
the Royal coup of February 1, 2005. Consequently, many of the programmes related to poverty
reduction, rural development, education, health and forestry were affected. Norway cancelled its
investment programme worth $500 million and the World Bank withdrew US $ 65 million
investment programme. In addition, countries like Japan, Switzerland, Canada, Finland, England,
Germany, Norway, Denmark, European Union and the Netherlands suspended their aid
programmes in the Maoist affected areas, mostly in the mid and far western region of Nepal.  As
a result, Nepal's reputation among the international community was badly eroded and the country
was almost at the brink of being declared a failed state.

Page | 5
TABLE 3: Decreasing budget pattern (percentage) in crucial service sector
Sectors FY 2000/01 FY 2001/02
Health 2.78 2.75
Education 1.97 1.87
Drinking Water 2.40 1.74
Local Development 4.62 4.15
Source: NPC (2003)

Growth in Military Expenditure

For the protection of the state from CPN-M, government had used most of its treasury on the
military which included security, particularly on activities related to fighting with the rebel
forces. The defense budget tripled from Rs. 4 billion to Rs. 12 billion a year. This was largely
due to the fact that the number of Nepalese Army more than doubled from 46,000 to 96,000.
The expenditure of the state on security almost doubled from 1.6% of the GDP to 3% between
2001 and 2004.

Even the Maoist party was not far behind in mobilizing resources in their bid to keep alive the
insurgency movement. The operation cost of the Maoists reached 15 million rupees each day,
which was over and above the cost in buying the weapons. They had employed 30-35% of
women in their forces.

TABLE 4: Rough Estimate of the Arms and Weapons with the Government of Nepal
S.N. Organization Number of people Number of Arms
1 Royal Nepal Army 80 thousand 1 hundred thousand
2 Armed Police 16 thousand 16 thousand
3 Nepal Police 47 thousand 50 thousand
Total 143 thousand 1 hundred 66 thousand

Page | 6
 Cost of Conflict
Department for International Development (DEFID) estimated the cost of conflict between 8 and
10% of the GDP; while the National Peace Campaign estimated the cost to the level of $66.2
billion between 1996 and 2003. Also, economic costs of conflict are estimated at $2 billion.

Reports are that some 1,500 buildings of the VDCs were partially or completely destroyed in
different parts of the country.  Besides, a number of telecommunication towers, roads, air strips,
bridges, government buildings, banks, police stations, school buildings and power plants were
damaged, which cost the nation $250 million until 2002. Similarly, government property worth
five billion rupees was destroyed. An account of the cost caused by the damage or destruction of
different infrastructures in the country such as police posts, roads, forest, health and other sectors
is briefly presented in the following table:

Page | 7
Table 5:  Infrastructures damaged by Maoists between February 1996 and July 2005.

Source: Samaya Weekly, Vol.2, No 69, 28/4-2/5 2062 (12-18 August 2005) p. 38

Page | 8
 Conclusion

During the time when Maoist started the civil war, government had little knowledge of handling
such situations in a wise manner due to which the war escalated for a whole decade. The war was
very devastating since Maoists were stopping any of the ongoing development activities and so
the growth rate fell to 2.6% during the conflict period. Many of the people were living in
constant fear of Maoists which increased the number of people going to India for employment as
well as for the protection. Most of the sectors of the country were hardly hit during the period of
conflict which led to the fall of production and hence the GDP fell. Thus, the government should
take appropriate measures to prevent these types of civil wars from happening ever again so that
smooth development of the nation can be done.

Page | 9
 References
 https://www.vifindia.org/article/2013/october/17/economic-impact-of-people-s-war-in-nepal-
a-study
 https://peacemaker.un.org/nepal-comprehensiveagreement2006
 https://reliefweb.int/report/nepal/nepal-measuring-economic-costs-conflict-effect-declining-
development-expenditures

Page | 10