UNIT 5: NEPALESE ECONOMY

5.4 Manufacturing and Tourism Industry in Nepal

Introduction
The manufacturing and tourism industries have an important role in the overall
development of Nepal. The manufacturing industries are those industries which produce goods
by using or refining raw materials, auxiliary raw materials or semi-processed raw materials. The
manufacturing industries are also known as the production-oriented industries whereas the
tourism industries are those industries which provide services to the tourists. The tourism
industry is a type of service-oriented industry.

Concept of Industry
The industry is a group of manufacturers or businesses that produces or supply a
particular kind of goods or services by using factors of production. For e.g., sugar industry,
leather industry, tourism industry, etc.

Types/ Classification of Industry

Industries are of various types. In context of Nepal, there are two main criteria under which
the industries are classified:
A. On the basis of fixed capital assets that an industry possesses.
B. On the basis of the nature of the product or services produced by the industry.

A. On the basis of fixed capital assets:

Based on the fixed assets of the industries, Industrial Enterprise Act, 2076 BS has classified
the industries into the following 5 types:
1. Micro-enterprise:
The enterprises established with the maximum capital assets up to Rs.20 lakhs (2 million)
are categorized as micro-enterprises. Such enterprises use a maximum of 9 number of workers
and annual transaction limit is below Rs.1 crore. Most of such industries are run by the
investors themselves. Many of the oil extracting mills, rice mills, etc. fall into this category.
2. Cottage industry:
The industries established for the production of different products using traditional art and
skill passing from generation to generation are cottage industries. These industries use local
raw materials and supply most of the handmade products. Handlooms, wood carving,
handmade carpet, handmade paper, etc. industries fall into this category.
3. Small-scale industry:
The industries other than those of micro-enterprises and cottage industries and having the
fixed capital assets up to Rs.15 crores are called small industries. Furniture industries, rice mills,
etc. fall into this category.
4. Medium-scale industry:
The industries using modern technology and having a fixed capital asset between Rs.15 to
Rs.50 crores are called medium industries. In Nepal, many industries supplying sugar,
garments, food, etc. fall into this category.

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 5. Large-scale industry:
The industries with fixed capital assets of more than Rs.50 crores are called large-scale
industries. In Nepal, many notable industries like Unilever, Shivam Cement, Panchakanya
Steels, etc. fall into this category.

B. On the basis of nature of product or services produced by the industry:

Based on the nature of goods or services produced by the industry, Industrial Enterprises
Act, 2076 BS, has classified industries of Nepal into the following 8 types:
1. Energy-based Industries:
Industries that are involved in energy production business are called energy-based
industries. It includes various industries like natural oil industries, gas industries, solar power
industries, hydro-electricity companies, electricity distribution and extension line industries,
etc.
2. Production-oriented industries or Manufacturing Industries:
Industries that use raw materials or intermediate goods to produce final goods are called
manufacturing industries. It includes cottage industries, small-scale industries, medium and
large-scale industries. For e.g., handicraft industries, biscuit factory, cement industry, steel and
iron industries, brick factory, textiles, etc. fall in this category.
3. Agriculture and Forest-based Industries:
Industries that depend upon agriculture and forest for raw materials are called agriculture
and forest-based industries. It includes fruits processing industries, animal husbandry, meat
production and processing, diary production, tea, coffee and herbal industries, sugar and jute
mills, furniture industries, paper industries, plywood industries, etc.
4. Mining Industries:
Industries that are mine-based, explore and purify minerals are called mineral industries.
For e.g., petroleum product purifying industries, marble industries, slate, stone and other mine
based industries.
5. Infrastructure Industries or Construction Industries:
Industries that construct and operate the infrastructures are called construction industries.
It includes various industries which constructs road, bridge, airport, industrial estate, sports
stadium, drinking water, hydro-electricity, business complex, etc.
6. Tourism Industry:
The sectors or business which provide different types of facilities to the tourists are called
tourism industry. For e.g., hotel and restaurants, travel agencies, casino, trekking agencies,
rafting, cable car operators, home stay, bunzy jump, etc.
7. Information, Communication and Information transmission technology-based
Industries:
Industries that provide information, communication or information transmission technology
services for collection, processing and transmission of information by using technology are
called information, communication and information transmission technology-based industries.
For e.g., telephone, mobile, radio, television, newspaper, software companies, optical network,
social media, recording studio, etc.
8. Service-oriented Industries:

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 Industries that provide different types of services to the public are called service-oriented
industries. For e.g., health sector, education sector, counselling, consultancy, etc.
A Brief History of Industrial Development in Nepal
There is no specific record of the beginning and development of traditional industries in
Nepal. Traditional cottage and small scale industries related to crafts, woods and metals
were established from the very beginning of civilization in Nepal. Many of these are still in
existence. The history of organized industrial development in Nepal dates back to 1936 AD
during the reign of Rana Prime Minister Juddha Shamsher Rana. The following facts
represent the efforts for industrial development in Nepal made at different time periods:
Events Year Remarks
Establishment of Industrial Council 1936
A.D.
Establishment of Gharelu Prachar Illam Adda 1940
A.D.
Establishment of Biratnagar Jute Mills 1936 First modern industry in
A.D. Nepal
Establishment of 14 Joint Stock Companies 1936 to Established to cover the
1945 short supply of goods due
A.D. to world wars.
Establishment of Cigarette Factory in Birgunj 1936 First cigarette factory in
A.D. Nepal.
Establishment of Hetauda Clothes Mills 2032 B.S.
Establishment of 75 Public Enterprises By the Established with the
end of technical and financial
1990 support of foreign
A.D. governments.
Enactment of Privatization and Economic 1990
Liberalization Policy and Act A.D.
Privatization of 30 public enterprises using 1990
different techniques of privatization A.D. till
date
Enactment of Industrial Enterprises Act 2020
A.D.

The company act was enacted in 1936 AD which started the trend to establish
industries. Gharelu Prachar Illam Adda was established in 1940 AD and after that cigarette,
match, cotton, paper industries, etc. were established gradually. But the planned
industrialization started with the commencement of the First Economic Plan in 1956 AD. Many
industries such as sugar, cement, cigarette, cotton and paper industries were established in the
country thereafter. Every plan including the first plan had taken industrial development as one
of the major part of the plan objective. In several places like Balaju, Butwal, Hetauda, Dharan,
etc., the industrial estates were created. During the last few years, new places for industrial

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districts in Makawanpur, Rupandehi, Banke, etc. are also identified and a detail project report is
prepared.
The inflow of foreign direct investment has been increasing in the country every year
due to the implementation of economic liberalization after 1990 AD. Most of the foreign direct
investment has come from India and China. Many industries like Unilever, Hayat Regency
Hotel, etc. are established with the joint venture of domestic and foreign investors.
Despite more than 60 years of planned effort and policies for industrial development,
there is lack of industrial consistency. Many industries were established and shut down due to
the several reasons. Hence, industrial development of Nepal does not seem to be satisfactory.
Nepal is still in an early stage of industrial development. Industrial sector is regarded as the
secondary sector of Nepalese economy which contributes below 10% (only 5.1% in FY 2019/20
according to the Economic Survey of 2019/20) to the GDP. It provides employment to only
about 2% of total labour force.

Importance of Industrial Sector in Nepal

The importance of industrial sector for the economic development of Nepal can be
explained as follows:
1. Modernization of agriculture:
Industries produce modern tools, machinery, fertilizer, pesticides, etc. which are
necessary for the development and modernization of agriculture.
2. Resource utilization:
Industries are necessary for utilizing natural resources. For e.g., Nepal’s limestone
deposits can be effectively utilized only by establishing large-scale cement factories. Similarly,
Nepal’s hydro-electricity power potential can be harnessed and utilized with large-scale
industrialization.
3. Increase in employment opportunities:
Rapid industrialization generates more employment opportunities. It can reduce the
problem of unemployment as well as more income can be received by the people.
4. Reduce imports:
Nepal imports most of the consumer goods and capital goods at present from abroad.
Therefore, industries are necessary to provide such goods within the country which will reduce
the volume of imports.
5. Increase exports:
Industries are very important in increasing exports and to earn foreign currencies. For
e.g., Nepal can export cement, sugar, tea, etc. by establishing industries.
6. Source of government revenue:
With the establishment and development of industries, government can receive
revenue in the form of sales tax, excise duty, income tax, export duty, value-added tax, etc.
This in turn enhances the capacity of the government to spend more for accelerating the wheel
of economic development in the country.
7. Improvement in balance of payment:
Deficit or unfavourable balance of payment is a serious problem of Nepal. The
development of industrial sector reduces the imports and increases exports. This will help to
correct unfavourable balance of payment situation to a certain extent.

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 8. Economic self-dependency:
Development of industries will ensure maximum production of consumer and capital
goods within the country. This reduces the dependency on foreign products as well as increases
self-dependency which in turn helps to strengthen national independence.

9. Development of infrastructure
10. Capital formation

Problems of Industrial Sector in Nepal

Despite the formulation of ambitious industrial plans, policies and programs, the
performance of industrial sector has been quite discouraging. Such dismal performance of
industrial sector is due to the following problems:
1. Lack of sufficient capital:
Industries require huge capital investment. But Nepal does not have adequate capital to
invest in establishing industries. Nepalese investors do not have adequate investment
capability. The government’s capacity to invest in industries is also very low.
2. Lack of industrial infrastructure:
Infrastructures like transport, communication, electricity, etc. are pre-requisites for
industrial development. Due to lack of all these infrastructure, industrial development has not
been possible in the country.
3. Shortage of raw materials:
Availability of sufficient and cheaper raw materials is another requirement for industrial
development. Nepalese industries do not get sufficient raw materials and they are of inferior
quality. So, maximum raw materials are imported from abroad and this increases the cost of
production and price.
4. Lack of skilled and trained manpower:
Industries require technical knowledge for processing purposes. Nepal does not have
adequate technical manpower for industrial processing. Foreign expertise is extremely
expensive and does not become available when required.
5. Lack of industrial finance:
Loans are not available on an adequate scale for industries. Financial assistance provided
by Nepal Industrial Development Corporation (NIDC) has proved to be inadequate. Process
involved in obtaining loan has also proved to be complicated and cumbersome.
6. Limited market:
Nepal is a small landlocked country. There is very limited market for industrial products as
the purchasing capacity of Nepalese people is low. India is potential market but it is not
providing its market for Nepalese products.
7. Tough competition with foreign goods:
Nepal has adopted economic liberalization policy under which foreign goods can easily
enter Nepalese market. Nepalese products cannot compete with foreign products in terms of
price, quantity and quality. This has led to tough competition with foreign goods.
8. Lack of industrial security:
The government of any country must provide reliable industrial security and environment to
establish, expand and develop any type of industry. But it has become a great challenge for the

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government of Nepal to provide industrial security due political instability. As a result, many
industries of Nepal are in endangered from the security point of view.

9. Absence of entrepreneurial class

10. Defective government policy

Tourism Industry
Introduction
The business or occupation which provides different kinds of facilities to the tourists is
known as tourism industry. It includes hotel, lodge, restaurant, travel agency, trekking agency,
rafting, etc. The contribution of tourism sector to GDP is 2.2% (Economic Survey, 2018/19).

Importance/Role of Tourism Industry in Nepal

Tourism industry plays a vital role in the economy of Nepal. The role of tourism in
economic development is as follows:
1. Source of foreign exchange earnings:
Tourism industry is an important source of foreign exchange earnings for Nepal. Amounts
spent by tourists in goods and services bring substantial foreign exchange for the country.
Earnings are increasing every year.
2. Cultural exchange:
Tourism facilitates cultural exchange. Tourists from different places with different culture
and traditions visit Nepal. They learn from us and we learn from them. This helps to become
more open and liberal. Tourists are known as cultural ambassadors.
3. Increase in employment opportunities:
As the number of tourist increase, the number of hotels, lodges, travel and trekking
agencies, airlines, handicrafts production and sales, etc. also increased. This increases the jobs
of the Nepalese people. As tourism sector expands, employment opportunities expand
correspondingly.
4. Development of cottage industries:
The development of tourism industry also helps in the development and expansion of
cottage industries. The tourists from foreign countries purchase the products of cottage
industries as a souveneir. This increases the employment and income by utilizing traditional
and local skills and resources, which in turn, helps in reducing poverty.
5. Increase in government revenue:
The government earns income from travel trade business in the form of tax, fees and
royalties. Hotels and travel agencies pay substantial amount of tax. This increases government
revenue.
6. Development of human resource:
Tourism sector requires trained and skilled manpower because tourists need specialized
services. As tourism industry expands, there is a need to produce a large number of trained
and skilled manpower. Thus, expansion of tourism sector naturally results in the development
of trained human resource.

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 7. Development of rural infrastructure:
Most of the tourist destinations lie in the remote areas of Nepal. Transport and
communication facilities have to be developed for the tourists to enjoy natural beauty,
sightseeing and trekking in remote areas. Therefore, expansion and development of tourism
industry leads to expansion of rural infrastructure like roads and communication.
8. Development of trade and commerce:
Many tourists visit Nepal with business motive. As the number of these tourist increase,
trade and commerce expand correspondingly.

9. Correct unfavourable balance of trade

10. Publicity of nation

Prospects of Tourism Industry in Nepal

Tourism industry has been recognized as one of the major sector of the economy. Nepal
has immense prospects for development of tourism industry due to the following reasons:
1. Natural beauty of Nepal:
Nepal is a country fully covered with geographical and natural beauty. Nepal has a large
number of snow peaks like Mt. Everest, Annapurna, Machhapuchhre, Kanchanjunga and
numerous other snow peaks which attract tourists. Similarly, the pleasant rivers, waterfalls and
lakes are also of tourist attraction. White water rafting along the snow fed rivers promotes
adventure tourism.
2. Ancient art and culture:
Nepal is rich in art and culture. Nepal is also called country of temples. Every temple is a
specimen of architecture. Durbar squares of Kathmandu, Patan and Bhaktapur are famous for
art and architecture, extremely enjoyable for tourists.
3. Religious place:
Nepal is famous for important and religious pilgrim like Pashupatinath, Swayambu,
Gosainkunda, Muktinath, Ramjanaki temple of Janakpur, etc. Lumbini is the birthplace of Lord
Buddha. Thus, it is a holy place of Hindus as well as for Buddhists. All these can attract Hindus
and Buddhists of the world.
4. Different culture:
Nepal is a multi-ethnic nation with different ethnic groups in various parts of the country.
Each ethnic group has its own culture. Tourists enjoy cultural variety and can enjoy round the
year. Besides, Nepalese people believe that guests are as God and thus they take care of
tourists with greatest courtesy and hospitality.
5. Climatic variety:
In Nepal, different climates are found in different parts of the country due to the difference
in altitude. Therefore, tourists from different countries can choose the climate they prefer
most and suitable for them. If they prefer warm climate in winter, they can visit southern terai
plains. If they prefer cool climate in summer, they can visit the mountains. Temperate climate
can be enjoyed in the hills.
6. Less expensive:
Nepal is not a costly place for tourists. Rate of exchange between foreign currencies and
Nepalese currency is very low. Around 118 rupees can be obtained for one US dollar. Goods

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are cheap. Service charges are low. Therefore, it is possible even for low budget tourists to
visit Nepal and stay as long as they wish.
7. Trekkers paradise:
Nepal is considered to be trekkers paradise. Trekking routes ranges for few days to months.
The income and the living standard of the people providing food and lodging facilities along the
trekking routes will increase.

8. Mountaineering:
Nepal has numerous snow peaks including Mt. Everest. Mountaineering expeditions can be
carried out in these mountains. Arduous group can explore highest peak whereas others can go
for mountains with less height.

9. Rural simplicity
10. Wide range of bio-diversity

Problems of Tourism Industry in Nepal

Tourism industry is besotted with many problems which are as follows:
1. Lack of transport and communication facilities:
The development of tourism sector is hindered due to lack of transportation and
communication facilities. Tourism has to remain mostly limited to Kathmandu, Pokhara,
Chitwan and Lumbini due to inaccessibility to other tourist places. Similarly, there is lack of
communication facilities in remote areas.
2. Lack of recreation facilities:
Most of the tourist who visit Nepal have pleasure motive. But means of recreation like
rafting, skating, boating, etc. are very limited. Similarly, the nightclubs, health clubs, etc. are
also very limited. Only the Himalayas, temples and lakes cannot make them stay very long.
3. Lack of good quality hotel:
There is extreme shortage of hotels and lodges with proper facilities. Rich tourists need
good quality hotels and lodges. Most of the star hotels do not have required standard for rich
tourists. Existing star hotels are only located at Kathmandu and Pokhara.
4. Problem of pollution:
Pollution, lack of conservation and rehabilitation of tourist spots, problem of solid waste
management are the major problems in the development of this sector in Nepal. The tourist
visits Nepal to observe its scenic beauty. But nowadays they hesitate to visit Nepal because
Nepal is one of the most polluted country of the world.
5. Lack of trained manpower:
As the number of tourists goes on increasing, trained manpower requirements will also
increase correspondingly. Due to lack of proper training facilities, trained manpower in the
country is inadequate in tourism sector.
6. Lack of publicity:
Adequate information and publicity related to tourism can play a very important role for the
development of tourism industry. But Nepal as an attractive tourist destination has not been

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well publicized in foreign countries. There is lack of tourist information centers abroad and the
distribution of publicity materials is not enough. The institutional arrangement for tourism
promotion is also weak.
7. Backward tourism sites:
The most important tourism sites from historical and religious point of view point such as
Lumbini, Gosainkunda, Muktinath, Barahashetra, Rara lake, etc. do not required facilities for
the tourists. This causes inconvenience to tourists and adversely affects their arrival and length
of stay.

8. Insecurity:
The development of tourism industry is also affected by growing insecurity due to
insurgency activities. Political disturbances and strikes are also responsible for creating
insecurity and unreliable situation to tourists. Similarly, occasional acts of crime such as theft,
robbery, murder, cheating are also responsible to make tourists unhappy and insecure.

9. Deficient and unreliable services

10. Defective government policy

Remedial Measure / Solutions for Development of Tourism Industry

The following measures should be taken for solving the problems of tourism sector:
1. Transport and communication facilities:
The transport and communication facilities should be developed in remote areas. Besides,
the country should have regular, dependable and comfortable international air service.
Similarly, the regional airports should be developed to expand the tourism activities in different
parts of the country. This may lessen the tourism activities only at Kathmandu.
2. Good quality hotel facilities:
Measures should be taken to encourage the establishment of high quality star hotels.
Internationally reputed hotel groups with widespread linkages should be invited with guarantee
provisions.
3. Develop alternative tourism center:
Measures should be taken to develop the possible tourist sites along with the provision of
required latest facilities. These sites should be developed as alternative tourism center under
specific programs for each.
4. Remove pollution:
The health conscious tourists do not like to visit Nepal and even those who have visited do
not like to stay long because of the pollution. A Master Plan should be prepared for pollution
control and pollution control body should be established with all executive powers and
authority. Municipality should pay special attention to pollution control. Environmental
preservation measures should be effectively implemented.
5. Advertisement:
Adequate institutional arrangements should be made for publicity and promotion. Publicity
should be made through different news media for Nepal and foreign countries. Documentaries,
advertisements, pamphlets, brochures, maps, posters, etc. on Nepal as a tourist attraction

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should be circulated far and wide. Adequate advertisement and promotional activities are
essential to develop this sector.
6. Development of trained manpower:
As the number of tourists goes on increasing, trained manpower requirements will also
increase correspondingly. Hotel Management and Tourism Training Center should undertake
training activities on an expanded scale to ensure the availability of adequate trained
manpower required for tourism industry. Training centers should be encouraged and activated
in private sector.

7. Availability of proper trekking facilities:

Many tourists visit Nepal for trekking purpose. New trekking routes should be introduced
with proper facilities of food, lodging and security. This will lengthen the stay of tourists in the
country.
8. Arrangement of Security:
There should be proper arrangement of security in tourist destinations. Political
disturbances and instability should be managed. Crimes like robbery, theft and murder should
be controlled.

9. Quality products
10. Efficient and reliable services

Present Situation of Tourism Industry in Nepal

The present situation of tourism industry in Nepal can be discussed under the following
headings:
1. Tourist Arrival and Length of Stay:
Year Total number of tourists Average days of stay per tourist
2018 11,73,072 12.4
2019 11,97,191 12.7
Source: Nepal Tourism Statistics, 2020

2. Tourist Arrival by the Purpose of Visit:

Purpose of Visit (in %)
Year Holiday Trekking and
pleasure Mountaineering Pilgrimage Others
2018 60 16 14 10
2019 65 17 14 4
Source: Nepal Tourism Statistics, 2020

3. Tourist Arrival by Country:

Countries
Year India China USA UK Sri-lanka Others
2018 17 13 8 5 6 51

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 2019 21 14 8 5 5 47
Source: Nepal Tourism Statistics, 2020

4. Foreign Currency Earned from Tourism Sector:

Foreign Currency As % of total foreign
Year (Rs. Crores) currency earned As % of GDP
2018 7537.4 5.4 2.2
2019 5410.4 5.8 -
Source: MOF, Economic Survey, 2019/20

5. Number of Hotel and beds, Tourist agency and guides:

S.No Headings 2019 Mid-Jan 2020 Mid-Jan
.
1. No. of star hotels 129 138
2. No. of hotel beds in star hotels 11,146 13,200
3. Total number of hotels 1,254 1,289
4. Total number of beds 40,856 43,999
5. Number of travel agencies 3,508 3,680
6. Number of trekking agencies 2,649 2,764
7. No. of rafting agencies 73 81
8. No. of tour guides 4,126 4,200
9. No. of trekking guides 16,248 17,625
10. No. of community home stay 324 (1000 beds) 389 (1088 beds)
Source: MOF, Economic Survey, 2019/20

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