History of Nepal’s Economy

1950AD -1990 AD

Arpan Acharya
 Introduction of Democracy in Nepal.
• Before 1951 AD, Rana Family have been ruling
the country in autocratic manner without giving
human rights to the general population.
• The monarchy didn’t figure prominently in the
beginning as the Rana regime was an example of
Feudalism, where Shah kings were just the
nominal head of the state.
• Ordinary people had developed hatred.
• Armed Revolution.
 CHANGES
Development Activities such as :
Formal and informal educational programs,
resettlement programs, expansion of
transportation, agricultural development,
expansion of modern communication,
elimination of the practice of caste
heirarchy, priority on inter-caste marriage
and reproductive health with integrative
approach started moving ahead gradually.
 FIRST BUDGET
• Prepared by Subarna Shamsher (Finance Minister).
• Until then there was no system of presenting
periodic budget because there was no separation
between the funds of the state and privy purse of
the ruling prime minister.
• Estimates under many heads 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 proper way.
 POLITICAL TIMELINE
DATE EVENTS
1951 End of Rana rule. Sovereignty of crown restored and anti-Rana rebels
in Nepalese Congress Party form government.
1952 King Tribhuvan Bir Bikram Shah Dev ascends throne.
1955 King Tribhuwan dies, King Mahendra ascends throne.
1959 Multi-party constitution adopted; first general elections in Nepal
bring to power Nepali Congress Party with B.P. Koirala as prime
minister.
1960 King Mahendra seizes control and suspends parliament
 PANCHAYAT
• Party less political system incepted by king Mahendra.
• Moreover the system propagated the idea of Ek Raja, Ek Bhesh, Ek Bhasa,
Ek Desh.
• Political parties were outlawed and all the prominent figures including the
prime minister put behind bars.
• Civil liberties were curtailed and press freedom muzzled.
• “Party-less democracy” in paper, people could elect their representative,
while real power remained in the hands of monarch.
• Four tired structure- village, town, district and national panchayat.
• National Panchayat of about 90 members.
• Couldn’t criticize the royal government, debate the principles of party-less
democracy, introduce budgetary bills without Royal approval.
• Mahendra was the supreme commander of the armed force, appointed
(and had the power to remove) members of supreme court, appointed the
public service commission, could change any judicial decision or amend
the constitution at any time.
 Reforms during the Panchayat.
• Land Reforms and Rajya reforms.
• Economic plans carried out.
• East-West Highway (Mahendra
Highway).
• Land settlement program which
contributed a massive movement of
population from Hills into the Terai,
resulting in a large increase in area
devoted to agriculture.
• “Back to village campaign” was one of
the major rural development efforts of
the Panchayat system.
• 14 zones and 75 district in 1961AD.
 PLANNING COMMISSION
• First created in 1956.
• Renamed in accordance with the Yojana Mandala Act of 1957
(National Planning Council).
• After introduction of party less Panchayat system in 1961, it was
formed under the then king.
• Ministry of Economic Affairs was renamed the ministry of Economic
Planning.
• In 1968, all task related to development, budget etc carried out by
ministry of Economic planning were assigned to ministry of finance.
• The National Planning Council then morphed into National
Planning Commission under the chairmanship of Prime minister.
ECONOMIC PLANNING
 INTERPRETATION
• The expenditure done from the side of the government is
increasing year by year.
• Allocated amount has not been used properly. Spending
less also reduces the income of citizen because one’s
expenditure is the income of others.
• This is because of unproductive nature of government,
political arrogance, irresponsible administration. It creates
economic hazards, social anomalies and political chaos in
the country.
• Government of Nepal adopted economic liberalization.
Started in mid 1980s and accelerated by late 1980s.
 Education
• Before the introduction of democracy,
education opportunities were limited to the
Rana people and their close elite social CENSUS LITERACY RATE
members.
• 1952/54 5.3%
Democracy opened the classroom for more
diverse population. 1961 8.9%
• 1971’s education plan hastened its
development in the country. 1971 13.9%
• There were just 10,000 students in 300 1981 23.3%
schools in 1951. Now 50,000+ schools.
• Tribhuwan university was the country’s only 1991 39.6%
university until 1980s. Then government
developed the concept of a multi-university
system.
Population from 1949-1990
 Economic Activities
Agriculture
• Agriculture was the major Economic Activity of people.

Census Agriculture Manufacturing Service

1952/54 93.8 2.2 4.2
1961 94.6 2.0 3.4
1971 94.4 1.2 4.4
• 1971 census- 94% labor force engaged in
agriculture.
• 1971 census- 66.5% of GNP was from agriculture,
11.59% from manufacturing and 21.86% from
service which included personal, commercial,
military and governmental service.
• Only 65% people were involved in agriculture
from Kathmandu according to 1952/54
which gradually decreased to 46% in 1971.
 Industry.
• Industrial Development is very slow in Nepal.
• 1936- Estd of Industrial council and 1946- Estd of Raghupati Jute Mill,
first Industry.
• Until 1980s, Modern Industry was non existent. Since then Industrial
Development has been given Emphasis in Economic planning.
• Until 1965, only 0.66% of Nepal’s GDP was derived from Industry.
• Then It reached 4.2% in early 1980s. 9.2% in late 1980s.
• Then there were planned campaigns to reform and privatize the Public
Enterprises.
• 6th and 7th five year plan has focused on industrial development to
increase output and by the end of 7 th five year plan 16 Pes, over half
industries had been handed over to private owners; 4 were shut down.
Industrial employment (% of total
employment, 1990
 Foreign Employment.
• Much of the labor migration from
Nepal mainly concentrated to India, at
least up to mid 1980s.
• In terms of GDP, remittance inflow was
just 0.70% during 1975-1980.
• The new destinations emerged with
the intensification of globalization,
dynamics and boom in the oil industry.
• Labor Migration started to the middle
East in the late 1970s.
 Finance Sector History
• The finance sector regulation and supervision started in 1956
after the establishment of Nepal Rastra Bank(1937).
• Initially, NRB’s main function was credit control through
directed credit programs and interest rate controls among
others.
• From late 1950s to 1960s, new banks and financial
institutions were established.
• Opened Nepal Industrial Development Corporation (NIDC) in
1959.
• Establishment of Rastriya Banijya Bank in 1966.
• Agriculure Development Bank Limited in 1968.
• Until mid 1980s, there were only four banks, and a few insurance
companies, all owned by the government.
• Government imposed interest rate controls, selective credit
policies and control on entry and exit of financial institutions.
• Due to lack of competition and government, Nepal’s financial
system was highly repressed.
• Prior to 1985,economic policies were centered on state-led
protectionist strategy. Government controlled the exchange rate
and restricted the quantity of foreign exchange which greatly
constrained export growth.
• From 1980 to 1983, government expenditure rose from 14.9% to
20.7% of GDP while the revenue growth was marginal, from 8.1%
to 8.4%.
• By mid 1980s, the government faced unprecedented budgetary
deficit.
• In 1984 to 1985, total outstanding public debt
amounted to 40.5% of GDP. The high public debt led
to insufficient commercial credit availability and
limited private sector growth. The fiscal problems
contributed to high inflation.
• The deepening economic crisis compelled the
government to seek help from international donors.
• Credit agreement with IMF and initiated reforms
under the Economic stabilization program.
 India’s Blockade
• In 1989, the Rajiv Gandhi-led government imposed an economic blockade
against Nepal because of a dispute over transit treaties and its uneasiness over
Nepal’s growing closeness with China.
•  Firewood was distributed at a subsidized price, and so were electric rice
cookers and electricity. The government made sure that black market didn’t
thrive. Within 45 days, Nepal drew the international community’s attention to
the problem.
• The government prepared to import 50 per cent of the fuel from a third
country and initiated the establishment of a stock tank in Panchkhal. 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 petroleum products.
• The industries suffered because of their dependence on India for resources.
 End of Panchayat
• Disturbed relationship with India.
•  widespread feeling of the Palace being non-representative of the masses.
•  Marich Man Singh government faced political scandals
• People were furious with government strategy to manage crisis (blockade).
• NC and the ULF launched a mass movement on February 18 to end the
Panchayat regime.
• On April 6, the Marich Man Singh government was dismissed and Lokendra
Bahadur Chand became the Prime Minister on the same day.
• Agitating mob was not satisfied because they weren’t against Singh
government but against party-less system.
• On April 16, the Chand government was also dismissed and a Royal
Proclamation was issued the next day which dissolved the National
Panchayat and the Panchayat policy. 
GDP PER CAPITA, 1950-1990
 ECONOMIC TIMELINE
DATE EVENT
1952 First Budget prepared by the then finance minister Subarna Shumsher.
1955 Planning Commission was started.
1956 Nepal Rastra Bank as central bank was established.
First five year plans introduced.
1960 Nepal Rastra Bank started printing Nepali notes.
Boarder Treaty was signed with China.
1961 Introduction of partyless Panchayat system.
NPC council formed under the then king.
1963 NPC dissolved and new planning body formed under chairmanship of council of
ministers.
1966 Establishment of Rastriya Banijya Bank.
1967 Establishment of Insurance Board.
1968 Establishment of Agricultural Development Bank.
Task related to national budgeting and foreign aid handed over by ministry of
Economic planning to Finance ministry.
National Planning council morphed into National Planning commission under
the chairmanship of primeminister.
DATE EVENT
1970-1980 •Reconstruction of NPC as the central Planning agency.
•Country experienced severe economic crisis.
•Adaptation of Structural and economic reform programs.
•NPR devalued.
•Adopted regional and distributive approach in development planning.
•Priority was given to integrated ruler development.
1990 Re-establishment of democracy.
NPC formed again by newly elected government.
Thank you !