Managerial Economic notes 1st sem mba

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Part A: Basic Economic Concepts.

NATURE OF ECONOMICS

Economics is all around you. It is about howsociety deals with the problem of scarcity. Wecannot have everything we want, whether it refersto continuous holiday or perfectly clean air. Wehave to make choices. Economics is the study ofhow society makes these choices. Economics is

not just about incomes, prices, and money. Sometimes it makessense to use markets; sometimes we need other solutions.Economic analysis helps us to decide when to leave things to themarket and when to override the market"

-David Begg, Stanley Fischer andRudiger Dornbusch

1 Origin of EconomicsEconomics is a branch of social science. It commenced with thepublication of Adam Smith's book "An Inquiry into the Nature andCauses of Wealth of Nations" in 1776. Before that economics was apart of politics, ethics and religion. In early and middle part of the19th century, it was called political economy. Towards the end ofcentury, it was called "Economics" a change from political economy.Economics was derived from the Greek word Oikos (house and tomanage). Thus, economics means to manage household affairs withlimited fund available in the most economic manner possible.

2 Definitions of Economics.Economics has been defined in different ways in different timessuch as (1) Wealth (2) Welfare (3) Choice and (4) Growth.

Adam Smith:Adam Smith, the father and foremost among the classical

economists, defines economics as the science of wealth. His book"An Inquiry Into The Nature And Causes Of Wealth of Nations" isitself the definition of economics.

The implications of this definition are(i) Human beings have wants to satisfy;(ii) The main concern of economics is the satisfaction of

human wants; and,

BasicEconomicConcepts.

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(iii) Wealth satisfies human wants.

Thus, the study of economics show, how wealth is produced andspent. J. B. Say, another classical economist also has given similardefinition. In his words, "Economics is the science which createswealth". Thus, wealth is main subject matter of economics.Classical economists Ricardo, Malthus and John Stuart Mill havefollowed Adam Smith's definition.

Criticisms of Adam Smith's Definition:

(i) Dismal Science:Some eminent literary writers of 18th century like Carlyleand Ruskin were very critical about Adam Smith'sdefinition of wealth. According to them, economics is the"Gospel of Mammon" or the "God of Riches". It teachespeople how to acquire wealth. They criticised economicsas dismal science and as such it disregards the fulfillmentof spiritual life. However, their criticisms were also notcompletely right. Even a hermit who has denouncedmaterialistic world cannot survive without basic minimumnecessities of life. Thus, earning and spending cannot beregarded as selfish activities

(ii) Wealth Is Not An End In Itself:The main defect of Adam Smith's definition of economicsis that it lays too much emphasis on wealth. Wealth isnot an end in itself. Wealth is important because itsatisfies human wants. Thus, human is primary concernof study and wealth is only secondary. Another defect ofAdam Smith's definition is the classification of economicand non-economic man. An economic person is thatperson whose main concern in life is to earn money andnon-economic person is one who is not after wealth. Inactual life, it is very difficult to find a person who is notmotivated by number of things like love, affectionpatriotism, profit etc.

Alfred Marshall:Alfred Marshall was the founder of the “welfare school”. He wasvery much affected by the criticism on Adam Smith's definition. He

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tried to save economics from the criticism by changing subjectmatter of economics. He defines economics as follows:"Political Economy, or Economics, is a study of mankind in theordinary business of life; it examines that part of individual andsocial action which are most closely connected with the attainmentand with the use of the material requisites of well-being. Thus it is,on the one side, a study of wealth; and on the other, and moreimportant side, a part of the study of man".

According to Marshall, wealth is not an end in itself, it is a means toan end, the ultimate end being human welfare. It is human beingswho are the main subject matter of economics. Thus, Marshall isthe first economist who placed human activities in the first placeand wealth in the second place. Marshall is of opinion thateconomics studies human activities in relation to wealth. Wealth isonly means, which satisfy human wants. The main features ofMarshall's definition are as follow:(i) Economics is a Social Science:

It studies the economic problems of those people who live inthe society.

(ii) Economic studies only ordinary business of life:Ordinary business of life means income earning and incomespending activities of human beings for living. Thus,economics deals with only economic aspect of human life.

(iii) Material Welfare:It studies material welfare of human life. Marshall's definitionis classificatory in nature. It has classified human activities intwo categories i.e. material and non-material. Materialactivities are those activities, through which one gets monetaryrewards. Non-material activities are those activities, which donot bring any monetary rewards. For instance, if a professorteaches in college he/she gets remuneration and this activity iscalled material activity. But if the same professor coacheshis/her own children he/she does not get any remuneration.Thus, this activity is called non-material activity althoughhe/she gets immense satisfaction from his/her work.

Criticisms: Marshall’s definition has been criticized in the followinggrounds:

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(i) Classification in Nature:Robbins rejected Marshall's definition on the basis that it isclassificatory in nature. According to him, division of humanactivities into economic and non-economic is unscientific.Human activities cannot be divided into two parts. It must betaken as a whole. The same activities, at times becomematerial and at other times non-material. For instance, if asinger sings for his own pleasure it becomes non-material andif he sings in public places for money, it becomes materialactivities.

(ii) Narrow Scope:It has narrowed the scope of economics as it confines its studyinto material activities only.

(iii) Social Science:Robbins does not want to limit the study of economics only tomaterial welfare. According to him, welfare is too vague tomake it a sound foundation for building up a respectablescience. Further, welfare definition makes economics purely asocial science. Therefore, it cannot be analyzed scientifically.

Lionel Robbins:

Science of Choice.The most scientific and widely accepted definition ofeconomics is the definition given by Professor Lionel Robbins.According to Robbins, "Economics is the science which studieshuman behaviour as a relationship between ends and scarcemeans which have alternative uses". The main ideas ofRobbins's definition are as follow:

(i) Human beings have innumerable wants or needs;(ii) The means or resources to satisfy them are limited or

scarce;(iii) These scarce resources have alternative uses;(iv) Human beings have, therefore, to choose between these

wants.

(i) Unlimited Wants:Human beings have unlimited wants, such as food, clothing,shelter, education, entertainment, leisure etc. When one want is

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fulfilled, immediately another want crops up. For example, whenbasic needs like food, clothes and shelter are fulfilled, humanbeings immediately feel the need of furniture, radio, TV etc.There is no end to human wants. The existence of economicproblem is due to the unlimited wants.

(ii) Limited Means:Means to satisfy human wants are scarce or limited. For example,human beings have limited money, limited resources, limitedtime etc. The scarcity of means lead to the economic problems.If human beings can have all the goods they want freely, therewould no economic problems. Scarcity is relative term notabsolute. For instance, nobody would like to have garbage.Therefore, it is not scarce. But as soon as people learn to turngarbage into fertilizer; then people start demanding for it. Thenit becomes scarce.

(iii) Alternative Uses:Scarce resources have alternative uses. It is not specific to one useonly. Thus, there is problem of making choice of uses of scarceresources for what to use, when to use and how to use. Again,alternative uses are of various importances. Some are more urgentand some can be postponed for future uses. Thus, choice betweenends and scarce resources is the economic problem and subjectmatter of economics. Economic problem arises when there ismultiplicity of wants, scarcity of means and alternative uses ofscarce means.

Superiority of Robbins's Definition:As compared to Marshallian definition, Robbins definition ofeconomics is superior on the following grounds:

(i) Scientific in Nature:It is scientific in nature. It does not classify between materialand non-material.

(ii) Wider Scope:It is wider in scope. Because it covers all types of human wantswhether material or non-material. It has not restricted thestudy of economics to wealth and activities relating to materialwelfare of human beings.

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(iii) Scientific:All classical and neo-classical economists regard economicsboth as science and art. But according to Robbins's definitionit is mainly science.

(iv) Neutral as regards to ends:According to Robbins, economics is neutral as regards to ends.It does not pass any judgement. For example, economics doesnot say anything regarding whether smoking is good or bad. Itdoesn’t cover ethical subject-matters. From this pointeconomics is positive science.

Criticisms:Robbins’s definition has been criticized in the following grounds:

Although Robbins definition is scientific and has wider scope, it isalso not without criticism. It has been criticized in the followinggrounds:

(i) Lack of Value Judgement:It ignores the motive aspect and value judgement. Economistsare of the opinion that the function of the economists is notonly to explain and explore but also to pass judgement.

(ii) Narrow in Scope:Critics have pointed out that economics is not only to studyresources allocation. It is more than that. It does not coverKeynesian economics. So it does not explain how the level ofincome and employment are determined in a country.

(iii) Does not cover Thesis of Growth:It does not cover theories of economic growth, which is now animportant branch of economics. Robbins's definition does notcover the issue of growth. Economists have constantly beenmaking an effort to widen and broaden the definition ofeconomics.

Prof. Paul A Samuelson:Prof. Samuelson has tried to overcome the shortcomings ofRobbins's definition. According to him "Economics is the study ofhow men and society choose, with or without the use of money, toemploy scarce productive resources which could have alternative

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uses, to produce various commodities over time and distribute themfor consumption now and in the future among various people andgroups of society".

Samuelson's definition and Robbins's definition of economics aresimilar in many aspects. Both of them have laid stress the problemof scarcity of means in relation to unlimited ends. Scarce means canalso be put into alternative uses.

The main feature of the definition is as follows:

(i) Dynamics in Nature:Unlike Robbins, Samuelson studies the problems of economynot at a point of time but over a period of time. Thus he hasmade economics dynamic by introducing the element of timein it.

(ii) Improved Existing Resources:According to Samuelson, man should not simply satisfy withthe means available to him. To satisfy endless wants aneconomist has also to suggest ways and means as to how theexisting resources are to be rationally allocated, and how themeans can be further increased to secure maximumsatisfaction of want for better living.

The theory of economic growth has come to occupy an importantplace in the study of economics especially with reference tounderdeveloped countries. Developing countries like Nepal, India,Bangladesh, and many other countries in Africa and South Americaneed economic growth and economic stability. Because of everincreasing fields of study, it is also said that 'Economics is whatEconomists do'. Thus appropriate and good definition of economicsis one which covers wide fields.

3 Scope of Economics:

Economics has been divided into different areas for its systematicstudy, which are closely related to one another. The broad areas ofthe study of economics are as follows:

(i) Consumption:

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It deals with the use of scarce resources for the satisfaction ofhuman wants. It is the process of using goods or services forhuman satisfaction. For instance, the utility of clothes bywearing it, food by eating and the services of house by living init. Consumption is also defined as destruction of utilities ofcommodities for human satisfaction. If clothes get useless bywearing it, it is consumption because it has satisfied the desireof consumer to wear it. But if the clothes are torn offaccidentally, it is only destruction and not consumption.

(ii) Production:Production involves the use of limited resources for theproduction of goods, which satisfy human wants. In short, itmeans creation of utility in the commodity. Utility here refersto power of satisfaction, which the commodity poses.

(iii) Exchange:It deals with exchange of goods for goods or goods for money.Exchange takes place both within the country and outside thecountry. In order to satisfy unlimited wants of the people, it isnecessary to exchange goods and services. Normally peoplebarter or sell what they have for the goods and services whatthey need.

(iv) Distribution:Goods and services are produced with joint effort of land,labour, capital and organization. Thus, the wealth of thecountry which people produce with joint endeavour has to bedistributed among the factors of production in the form of rent,wage, interest and profit.

(v) Public Finance:Classical economists have divided economics into fourdivisions only. They are consumption, production, exchangeand distribution. But later on, public finance was also added.Public finance deals with adjustment between the income andexpenditure of the government.

4 Economics as Science or Arts:

While discussing the scope of economics, economists have alsodiscussed whether it is art or science? The term "Science" refers to a

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systematic body of knowledge, which shows the relationshipbetween cause and effect. Its phenomena are measurable. Whenwe look at economics from this point of view, it is science.Economics is systematic body of knowledge. Economic lawsscientifically establish the relationship between cause and effect. Byusing measuring rod of money, economists can measure thedifferent nature of human beings. Economists notably, Adam Smith,Ricardo, Malthus and J. M. Keynes assert that economics is sciencewhich seeks to ascertain facts. It studies facts of human life andformulates laws from them.

According to critics, economics can not be pure science from thefollowing points of view:

(i) Different views of definition of economics:It is said, "Whenever six economists are gathered there areseven opinions".

(ii) Exact measurement not possible:Exact measurement is not possible in economics like in purescience. Economic Laws cannot be experimented in alaboratory like in physical science. For economist wholeuniverse is a laboratory. Laws and thesis are based on manyassumptions. They are very complex and changeable.

Economics as Art:Arts deal with doing and solving practical problems. For example,economics does not simply find out the various causes of rapidpopulation growth but also suggests the measure to control highpopulation growth rate.

Economics both Art and Science:In fact, economics is both science and art. Because it tries to findcauses of economic problems and suggests the solutions toovercome them. For example, it not only finds out the causes ofunemployment but also suggests measures to solve theunemployment problem.

5 Positive Science and Normative:A positive science only explains what is it and normative sciencetells what it ought to be. Positive science describes while normativescience evaluates. According to classical economists, economics

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should be concerned only with what is and not what ought to be. Itis neutral as regards to ends. Robbins has also supported neutralityof ends.

According to David Begg, positive economics deals with objective orscientific explanations of the working of the economy. It explainshow society makes decisions regarding consumption, productionand exchange of goods. Positive economics asks the questions likewhat is the economic impact of free trade. It can be compared withpure science like physics and chemistry.

It establishes causes and effects of an event. A normative science onthe other hand involves ethical judgement. It deals with things, asthey ought to be. It offers recommendations based on personalvalue judgements. It includes economic issues like unemploymentbenefits, senior citizen allowances, subsidy etc. However, theprominent economists say that economics can never bedisassociated from ethics.

From this short discussion, it can be concluded that economics isboth a positive and normative science. Thus, economics is not onlyconcerned in allocation of scarce resources among competitivewants but also deals with maximization of total satisfactionaccording to one's own judgement.

Both positive and normative economics are important. However,positive economics is more important in formulation of economictheory. Because positive statements are testable while normativestatements are not.

6 Micro and Macro Economics:Micro and Macro-economics are the two branches of economics.They are two important approaches to the economic analysis. Prof.Ragner Frisch first coined these two terms during the 1920’s.Economists use these two terms widely for economic analysis.

(i) Micro economics:Micro-economics deals with the choices and decision-makingbehavior of the individual units like individual household,equilibrium of firm, wages of the workers, profit of theentrepreneurs etc. In this approach, economists choose small unitsand make detailed study of its operation. The main areas of micro

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economics are demand theory, supply theory, law of diminishingutility, law of equi-marginal utility, consumer's surplus, pricedetermination under perfect competition, monopoly and imperfectcompetition, price determination of factors of production.Production function and so on. Adam Smith is considered as thefounder of micro-economics.

Micro-economics deals only with individual units and does notprovide explanation of entire economy. What is true of an individualmay not be true in case of the whole economy. For example,individual saving is virtue but community saving is vice. In otherwords, if everybody starts saving, his or her expenditure decreasesand as the result community income decreases.

(ii) Macro-Economics:Macro-economics deals with the national aggregate such as nationalincome, output, total consumption, saving, investment, totalemployment, total money supply, inflation, deflation, trade cycle etc.To understand working of an entire economy macro-economicanalysis is necessary. Similarly, knowledge of macro-economics isindispensable to formulate economic policies. J.M. Keynes made theterm macro-economics popular with the publication of the book"General Theory of Employment, Interest and Money". In this bookhe argued that government has important role in solving theproblem of trade cycle.

Despite great importance of macro-economic analysis, it has certainlimitations too. For example, rising price level does not affect richso much as it affects the poor. Such individual consequences ofcertain problems cannot be studied in macro analysis. It generalizeswhole problem, which may lead to disastrous results. For example,the total population between 1991 and 2001 may be the same. Butthe age distribution of population may have vast changes. Thenumber of the old and the children may have increased and thenumber of working age people may have decreased that may resultincrease in dependency ratio of the country. Thus to analyzeeconomic situation realistically, only aggregate information is notsufficient.

Interdependence of Micro and Macro-economics.In reality micro and macro-economics are inter-dependent. In fact,they are complementary to each other. Micro-economics studies

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individual units and macro-economics studies an entire economy.Thus when we study both these approaches side by side, then onlywe can have better understanding of the economic problem. In thisrespect, Prof. Samuelson writes there is really no oppositionbetween macro and micro-economics. Both are absolutely vital.And you are only half-educated if you understand one and unawareof the other".

1 Scarcity and Choice:

Scarcity means shortage. Every society has limited economicresources like land, capital, labour and entrepreneurship, which arerequired for the production of goods and services. Thus everysociety can produce only limited goods and services. But humanwants are unlimited. As soon as one want is fulfilled, another wantimmediately appears. It never ends. It is not possible to satisfy allwants with limited means. Human beings are confronted with theproblem of making choices, which wants are to be fulfilled, andwhat means are to be allocated among the competing wants. Tosolve the problem of unlimited wants and limited means, peoplehave to make choice and it is the central problem of every society.If economic means are free and unlimited, there would not beproblems. People need not worry about budgeting their income.

Scarcity is a relative term. It is related to human wants. For instance,air does not have price; it is not relatively scarce. People can have itas much as they want. It is free. Food, cloth and houses have pricebecause they are scarce.

Economic problems arise due to the following reasons:

(i) Unlimited Wants and Different Importance:Human wants are unlimited. Once a want is fulfilled, another cropsup in its place. Even if a particular want is fulfilled at a particulartime, after some time it appears again. It is cyclic process. Forinstance, when we are thirsty we drink a glass of water and at that

2 Basic Economic Issues

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moment our desire to drink water is fulfilled. But after some time,we feel thirsty again. Human wants are not only recurring, itmultiplies all the time. For instance, when a rural area is urbanizedthe wants of its inhabitants increase. People require to wear niceclothes and need many other things, which they were not usingbefore.

(ii) Different Importance of Wants:All the wants are not of the same importance. Some wants areurgent and more pressing than the others. For instance, for astudent study is more important than doing any other things duringexaminations. Similarly, for a patient, buying medicine is moreimportant than buying a box of cigarette. Thus, all persons arerequired to prioritize their wants in accordance with theirimportance. If all human wants are equally important, then there isno need of making choices and also there would be no economicproblems.

(iii) Limited means with alternative uses:This has two aspects:

(a)Limited means:Means are limited or scarce. For example, family needs food,shelter, clothes, medicine, entertainment etc. But they havelimited resources, may be it is time or money or othereconomic resources. Scarcity is a relative term. It is in relationto human wants. For example, nobody wants to have garbagethough it is limited. So it cannot be termed as scarcecommodity. But as soon as people learn to turn garbage intocompost fertilizer, and make money, people start collectinggarbage and it becomes economic resources. It applies to allcountries whether it is rich or poor. Even developed countriesface the problem of scarcity, as their wants have beenmultiplied as their country became richer. Thus scarcity isbasic problem and universal in nature.

(b) Means can be put into alternative uses:Although means are limited they can be put into alternativeuses. It is because of this nature, people need to make choices,which wants to be satisfied first. For instance a piece of landcan be utilized for several purposes, such as farming, buildinga house, making a playground etc. Here lies the problem ofchoice.

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(iv) Adjustments between wants and means:All the people are constantly facing the problem of makingadjustment between limited means, which have alternative uses,and unlimited wants having different importance. This leads tothe problem of choice, which is fundamental economic problem.It is rightly said that scarcity is mother of all economic problems.Had there been unlimited means, there would be no economicproblem. But this is not the case, all face the problem of limitedmeans. People in all countries and in all situations face theproblem of scarcity of resources.

2 Allocation of Resources:The basic or fundamental economic problem for the society is howto reconcile the conflict between people's unlimited desire for goodsand services and scarcity of resources to produce goods andservices. Thus society is required to make decisions to use orallocate limited resources to satisfy unlimited wants. In this respectproblem arises regarding (a) what is to be produced (b) How it is tobe produced (c) for whom to be produced. These are three basicproblems of economics.

(a) What is to be produced?The major question is what commodities are to be produced and inwhat quantities? A society has to make choice between consumptionof goods like food, clothes, furniture etc and capital goods likemachine, equipment etc. Thus, choice has to be made betweenconsumer goods like clothes, shoes, books etc and weaponry likemachine guns, fighter planes etc. Likewise, choice has to be madebetween mass goods and luxury goods. In this way, a country hasto make choices in deciding allocation of scarce resources for theproduction of goods and services.

(b) How are goods produced?Society must decide who will produce what and how? Which kind ofproduction technique to be applied for production. For example,food can be produced either with extensive cultivation or intensivemethod of cultivation. Similarly, in industry as well there is choiceof technique of labour intensive and capital intensive method ofproduction. It depends on the decision of firm, household andsociety for how goods and services are to be produced? In case oflabour intensive technique less capital and equipment are used and

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more labourers do the work. Whereas, under capital intensiveproduction method sophisticated machines and technology are usedand machines replace the work of labourers.

c) For whom to be produced?Another question is for whom to be produced? This means how isnational product distributed among the members of the society.How is national dividend distributed? In other words, who gets thefruits of development and how much?

Goods and services are made available utilizing various factors ofproduction. Thus major question is how the national income isdistributed among the various factors of production, i.e., land,labour, capital, and organization. Do the poor enjoy equally with therich is the important question? The main difficulty in distribution ofnational income is how to ensure equity, justice and incentive. Ifnational income is distributed equally to all the members of thesociety equity is achieved. However, this discourages the people toproduce more and work hard It diminishes National Income and mayfall down living standard of the people.

Thus, these three problems what, how, and for whom are the mainproblems of economy. All these problems come under the problemof allocation of resources.

3 Production Possibility Curve.Paul A Samuelson rightly remarked that "Society cannot haveeverything they want". Resources and technology available to themlimit the availability of goods and services in given time period. Letus take an imaginary example, a society can produce either 15000butter or 5000 guns with given resources or technology. In betweenthese two extreme possibilities, there are many possibilities like A, B,C, D, E & F as shown in the following table.

Table No.2.1Production Possibility

Possibilities Guns ButterA

B

0

1000

15000

14000

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C

D

E

F

2000

3000

4000

5000

12000

9000

5000

0

As shown in the above table if all the resources and giventechnology are used for the production of guns there would be nobutter. Similarly, if all resources and given technology are used forthe production of butter there is zero production of guns. Inbetween A and F possibilities, there are B, C, D and E possibilitieswhich represent some butter and some units of gun. Thesepossibilities are represented by Production Possibility Frontier (PPF).According to Paul A. Samuelson, "The Production Possibility Frontiershows the maximum amount of production that can be obtained bythe economy, given, its technological knowledge and quantity ofinputs available" PPF represents the maximum of goods and servicesavailable to the society " The PPF can be represented in the followingdiagram.

The Production Possibility Frontier Curve.Figure No.2.1

A

GunsButter

Butter

Note: Adopted from Paul A. Samuelson Fig.1.2

As shown in the above figure, society has to decide whichcombination of guns and butter has to be produced with given

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resources and technology. There is maximum limitation to theamounts of butter and guns that can be produced with givenresources and technology in a country. The increase in theproduction of guns requires a reduction in the production of butter.This explains that society has to reduce the production of onecommodity in order to increase the production of other commodity.In this case, we assume that society can produce only twocommodities. In our example, they are butter and guns. It explainsthat butter can be transformed into guns or guns into butter. Inother words land, labour and machine used for butter can betransformed for the production of gun. Thus, the production of onecommodity can be transformed into production of anothercommodity. The production possibility curve is also known asTransformation Curve.

Shift in the production possibility curve:

The rightward shift in the production possibility curve indicates theincrease in the production capacity of the economy due toimprovement in technology or new resources or both. The newcurve shows how economy can produce larger quantity of bothbutter and guns or more butter and the same number of guns, orvice versa. Rightward shift in PPC can be represented in thefollowing diagram.

Figure No.2.2.

Guns

Butter

In this diagram as compared to PP in P’ P’ both butter and guns canbe produced more. Thus PPF explains how the economy grows.

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PART A:3

3 NATIONAL INCOME

1 MEANING OF NATIONAL INCOME:The term National Income is used to denote money value of theaggregate production of goods and services of a country during aspecific period, usually one-year. It is used inter changeably withNational dividend, National output and National expenditure.National income has been defined in a number of ways. Accordingto Marshall " the labour and capital of a country acting in its naturalresources produce annually a certain net aggregate of commodities,material and immaterial including services of all kinds. This is thetrue net annual income or revenue of the country or nationaldividend". In this definition, the word "net" means the deductionfrom the gross national income in respect of depreciation andwearing out of machine. Income from abroad is added in the netincome. This definition is very simple and comprehensive. However,it has certain defects also. Firstly, it is very difficult to estimatecorrectly all the goods and services produced. Secondly, there maybe problem of double counting. In the words of A. C. Pigou, thefollower of Marshall" National income is that part of objectiveincome of the community including of course income derived fromabroad which can be measured in money". A. C. Pigou's definition issimple and precise. But it has also some defects. The first problemin Pigou's definition is making distinction between goods, which canbe exchanged for money and which is not exchanged for money.According to A. C. Pigou, a woman's service as teacher in school isincluded in National Income but excluded when she teaches herchildren. This creates the problem of estimation of National Income.Another prominent economist Irving Fisher adopted "Consumption"as the basis of national income, whereas, Marshall and Pigou havebased their definition in "Production". According to Fisher "Thenational dividend or income consists solely of services as receivedby ultimate consumer whether from their materials or from theirhuman involvement". But from the practical point of view, thisdefinition is less useful as there are difficulties in getting monetaryvalue of net consumption. Besides, certain consumption goods aredurable and last for many years like furniture, television set etc.

The above definitions are regarded as traditional. From the modernpoint of view, Simon Kuzunets has defined national income as "the

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net output of commodities and services flowing during the yearfrom the country's productive system in the hands of ultimateconsumers".

The National Income accounting was first introduced in England in1676. It was based on the book "Political Arithmetics" written byWilliam Petty. It was continuously developed in 1815 and 19thcentury. By 20th century, it was properly developed. After theSecond World War "Simond Kuznets" developed national accountingsystematically.

Irrespective of continuous improvement in National Income,Women's contribution in household economy is still excluded inNational Income Accounting. This is a great injustice to women.

2 Concepts of National IncomeGross Domestic Product (GDP):It is the value of final goods and services produced within thecountry in a particular year. Goods and services produced include alltypes of agricultural, industrial and commercial goods. It can becalculated both at the market price and factor cost. GDP iscalculated as follows:

GDP at market price = Market price of goods produced + marketprice of service produced.It can be expressed in term of formula as GDP = P (Q) + P (S)where P = Market priceQ = Quantity of goods produced during the year.S = Service.

While calculating GDP in accordance with the above formula, thequantity of every individual goods and services are multiplied bytheir price per unit. The total value of the entire individual goodsand services is Gross Domestic Product.

GROSS NATIONAL PRODUCT (GNP):GNP is the total of the flow of goods and services at the marketvalue resulting from current production during a year in a country,including net income from abroad. GNP includes four types of goodsand services. They are (1) Consumer Goods and services to satisfythe immediate wants of people (2) Gross Private DomesticInvestment in capital goods consisting of fixed capital formation

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residential construction and inventories of finished and unfinishedgoods (3) goods and services produced by the government and (4)export of goods and services i.e. net export of goods and services.

GNP is expressed asGNP = GDP + (X - M)Where X - M means net income from abroad or exports minusimports.

Among the different concepts of national income, GNP is the mostwidely used. In computing GNP following considerations are made.Firstly, to get market value (value in terms of Dollar or Rupees) ofgoods and services, it is necessary to group goods and servicesproduced in a given year with a common denominator likeagriculture, industry, services etc. Secondly, only final goods are tobe included. Thirdly, GNP includes only monetary transaction andnot pure exchange transaction i.e. sale of second hand goods andgifts etc. Lastly, it includes only flow variable not stock variable.

NET NATIONAL PRODUCT (NNP):GNP includes the value of total output of consumption goods andinvestment goods. During production some fixed equipments wearout, components are damaged and some became obsolete throughtechnological changes. All these processes are termed depreciation.In order to get NNP; we deduct depreciation from GNP.So NNP = GNP - Depreciation.

NATIONAL INCOME AT FACTOR COST OR NATIONAL INCOME (NI):In this method, National Income is calculated on the basis of costfactors of production i.e. rent, wage, interest and profit. TheNational Income is expressed asNational Income = NNP + subsidies - Indirect Taxes. The concept ofNI is useful to know distribution of National Income among differentfactors of production.National Income =NNP + subsidies – Indirect Taxes.

PERSONAL INCOME (PI):Personal Income is the income received by individual of a countryfrom all sources before direct tax in one year. It should not be takenthat all personal incomes will be national income. This is due to thefact that income earned by firms is distributed among factors. A

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part of the income is retained as undistributed profit. Firms alsopay corporate taxes. Factors also receive transfer income.Thus Personal Income = National Income - corporate taxes -undistributed corporate profits - social security contribution +Transfer payments.

The concept of Personal Income is useful to assess purchasingpower of households in an economy. It is also helpful to measurewelfare of the people.

DISPOSABLE INCOME (DI):All Personal Income (PI) is not available for consumption. A part ofthe income has to be paid to the government as personal directtaxes such as income tax, wealth tax, estate duty etc. Thus afterpaying all direct taxes from the Personal Income, the remainingincome is known as Disposable Income.

Therefore, Disposable Income = Personal Income - Direct Taxes.

REAL INCOME:The Real Income (in terms of goods and services) is the NationalIncome expressed in terms of general level of prices of a particularyear taken at base. It can be calculated by dividing money income bya suitable index of prices.

PER CAPITA INCOME:The average income of the people of a country in a particular year iscalled Per-Capita Income for that year. Per-Capita Income iscalculated as follows:

National Income for 2000Per Capita Income for 2000 =---------------------------------

Population in 2000

The concept of Per-Capita Income is widely used in economicdiscussion and writing. It is used to compare the state of economicdevelopment and as an index of changes in the standard of living ina country.

3.METHODS OF CALCULATION OF NATIONAL INCOME:

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National Income is calculated with the help of following methods:(1)Product Method:Under this method the total value of final goods and servicesproduced in a country during a year is calculated at market prices.To get the GNP, the data of all productive activities such asagricultural products, industrial products, forest products,contribution made by transport, communication, insurancecompanies, lawyers, doctors, teachers etc are assessed at marketprice. To avoid double counting, all intermediate goods areexcluded. Similarly, depreciation of replacement cost is alsoexcluded. But new capital assets produced during the period underconsideration are included. Product Method is also known ascensus of output method or value added method.

(2) Income Method:Under this method, the net income received by individuals andbusiness enterprises in a country during a year is collected andadded up. The total obtained is called the factor payments total. Inorder to get factor payment total, necessary data are collected fromgovernment reports and tax returns and government reports.Income includes wage, salary, social security, contribution ofworkers, earning of self employed persons, dividends ofshareholders, undistributed profit, rent of land, factories andbusiness premises and interest on capital. While calculating NationalIncome by Income Method following precaution must be taken:

(a)Only the net income of the individual and enterprises aretaken.

(b)Transfer payments is not counted as income.(c) Payments due to the employer own factors e.g. own house,capital and labour are counted on the basis of market price.

(d)Goods and services for which no money payment is mademust not be counted. For example work of housewives andchildren's help to parents.

EXPENDITURE METHOD:Under this method, the total expenditure made by the society in aparticular year is added together and includes personalconsumption expenditure, net domestic investment, andgovernment expenditure on goods and services and net foreign

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investment. While estimating the value of expenditure certainprecautions should be made. They are as follows:

(a)Expenditure on the second hand goods should not be included.(b)Expenditure on shares, debentures, bonds and securities shouldnot be included,because they represent only paper titles.

(c)Transfer payments by the government should not be included likepension,scholarship, unemployment allowances, and old age allowances.

Expenditure on final goods and services only should be included.Expenditure on raw materials and intermediate goods should not beincluded.

The three methods stated give the same result. The differencecomes only as regards to a level at which the national income iscalculated or non-availability of statistics or overlooking of certainitems. Otherwise income, expenditure and output are the samething looking from three different angles.

4.DIFFICULTIES OF MEASUREMENT OF NATIONAL INCOME.

There are certain difficulties in the measurement of National Income.They are as follows:

(a)The National Income must be calculated in terms of money. Butthere are certain things, which are not exchanged for money. Forexample, unpaid service of housewives. Thus exclusion of this typeof services involves an underestimation of the National Income. Inmany countries, though women contribute a lot to GNP, they are notreflected in GNP due to this conventional measurement of GNP.

(b)Incomes made by illegal activities are not included in the NationalIncome such as gambling, smuggling, bribery etc.

(c)Sometimes it is difficult to make distinction between final productand an intermediate product. In this case, it is difficult tomeasure National Income.

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(d)In many developing countries, tax evasion is rampant. This leadsto underestimation of National Income.

(e)In developing countries, statistics are not always accurate andcomplete. This makes difficult to compute National Incomecorrectly.

(f) In order to compare National Income of different years,adjustment has to be made for changes in price on the basis ofindex numbers. However, index numbers are not always accurate.Besides it is very difficult to compare index numbers of differentcountries precisely.

(g)National Income does not reflect real cost of production.

Apart from the above difficulties, under developed countries facemany other problems also. They are, e.g. lack of reliable data,absence of proper accounts, difficulty in estimating output,unorganized production, lack of proper classification of production,existence of barter economy etc.

5.USES OF NATIONAL INCOME:

(a)Other things remaining the same, economic welfare is greater ifNational Income is high.

(b) Higher National Income is generally associated with higherstandard of living.(c) National Income shows the trend of economic development.(d) The analysis of National Income statistics reflects the causes ofeconomic ills of country. It also helps to suggest measures.(e) National Income determines saving and investment level of thecommunity. Thus it is used to assess the saving and investmentpotentiality of the community.(f) National Income is also used to forecast future economic events.(h)National Income is also used to compare the economy of thecountry in two different periods.

4 CONCEPTS OF ECONOMIC DEVELOPMENT

1. CONCEPTS AND MEANING OF ECONOMIC DEVELOPMENT:Economic development has attracted attention of many economists.The history of “concepts of economic development” can be tracedfrom Adam Smith, Karl Mark, J. M. Keynes etc. All of them have

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discussed it in their works. Up to 1930’s emphasis of economicdevelopment was given only to the developed countries. After theSecond World War, economists started systematic study of theproblems and process of economic development in developingcountries of Africa, Asia and Latin America. In the process of study,the main concern of developed and wealthy nations is to maintainhigh rate of their economic growth and save it from adverse effectsof trade cycle. Similarly, the main concern of developing countriesis to reduce inequalities of income and wealth, to reduce povertylevels and to achieve rapid economic development.

Different economists have expressed their different views regardingthe concept of economic development. According to JosephSchumpeter, "No simple answer is feasible.’’ Defining economicdevelopment is a difficult task. The literal meaning of developmentis a passage from a lower to higher stage. In general, economicdevelopment implies an improvement in material terms, that is interms of goods and services that are available to the people."According to the Development Economists Prof. Meier and Baldwin"Economic development is a process whereby an economy's realnational income increases over a long period of time". Similarly,another developmental economist M.P. Todaro has definedeconomic development as a multidimensional process involvingmajor changes in social structure, popular attitudes and nationalinstitutions, as well as the acceleration of economic growth, thereduction of inequality and eradication of absolute poverty.

The meaning of economic development and economic growth is notthe same, though, they look alike. Economic growth refers to theincrease in GNP or per capita income. The growth is measurable likeexpansion in labour force, in capital, in saving and consumptionwhile economic development refers to the underlying determinantsof economic growth, such as changes in techniques of production,social attitudes and institutions. In short, economic developmentrefers to the problems of under developed countries and economicgrowth to those of advanced countries.

2. INDICATORS OF ECONOMIC DEVELOPMENT.The meaning of economic development is very wide and it is gettingmore and more precise with the passage of time. The widelyaccepted indicators of economic development are as follows;

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a) Real National Income as an Index of Development:Development Economist Simon Kuznets, Meier and Baldwin haveused national income as an index of economic development. The"Real National Income" refers to the country's total output of finalgoods and services in real terms rather than in monetary terms.But this indicator has certain inherent problems like changes invalue of money and growth of population. For example, if rate ofpopulation growth is higher than the rate of increase in RealNational Income, economic development retards instead ofadvancement.

b) Increase in Per Capita Real Income:Another index of economic development is the use of rates ofgrowth in per capita GNP. Prior to the 1970’s development wasassessed on the basis of per capita income. Developmentstrategies have therefore focussed on rapid industrialization atthe cost of agriculture and rural development. Social indicatorslike improvement in literacy rate, health condition and housingare given only casual importance. Similarly, the problems ofunemployment and inequality of income are given only secondaryimportance. Thus, many countries witnessed falling standard ofliving of masses irrespective of increase in per capita income.Besides, few rich people instead of sharing it with the poor enjoythe fruits of development.

c) The Modern View On Economic Development:During 1970’s economic development was redefined in terms ofthe reduction or elimination of poverty, inequality andunemployment along with increase in GDP. "Redistribution fromGrowth" became the common-slogan. Even the World Bank, whichused to emphasize economic growth as a goal of developmentduring 80s, shifted its emphasis to a better quality of life. M. P.Todaro, a development economist writes, "Development musttherefore be conceived of as a multi-dimensional processinvolving major changes in social structures, popular attitudes,and national institutions, as well as the acceleration of economicgrowth, the reduction of inequality, and the eradication ofpoverty."

Three-core values of development are:(a)Sustenance (b) Self esteem (c) and Freedom from servitude.

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(a)Sustenance:Sustenance means ability to meet the basic needs such as food,housing, clothing, primary education, health care etc. Most of thepeople in developing countries are not capable of fulfilling theirbasic needs due to poverty.

(b)Self-esteem:It refers to the feeling of self-respect and independence. However,most of developing countries are dependent economically andtechnologically on advanced countries due to the poverty and lowliteracy rate.

(c)Freedom from Servitude:"Freedom here is to be understood in the sense of emancipationfrom alienating material conditions of life and from socialservitude to nature, ignorance, other people, misery, institutionsand dogmatic beliefs" M. P. Todaro. Freedom from servituderefers to ability and freedom of the people to choose greaterleisure, have more goods and services and also lead a religiouslife if people want.

Therefore, the three main objectives of development are:(a)To increase the availability and widen basic needs of thepeople like food, shelter, health and protection.

(b)To raise standard of living. This means raising income,providing more jobs, better education and greater attention tocultural and humanistic values.

(c) Expand the range of economic and social choices. It means tofree oneself from ignorance, human misery and servitude

3. HUMAN DEVELOPMENT INDEX:The United Nations Development Programme put forward HumanDevelopment Index in its annual Human Development Report 1990.Mahbub ul Haq is the pioneer of introducing this concept.

The Human Development Index (HDI) has been made from threeaspects of human development. They are life expectancy at birth,adult literacy and GDP per head. HDI ranks each country from 0scale to 1 on the basis criterion of development. The HDI classifiesthe countries into three groups by using three criterion of

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development - low human development from 0.0 to 0.50, mediumhuman development from 0.51 to 0.79 and high humandevelopment from 0.80 to 1.0. The HDI for Nepal is 0.48 in 1999and in 2000 it is 0.466. In 1990 HDI for Nepal was 0.414.Following table shows the Basic Human Development Indicator forSAARC Countries.

Table No.4.1Basic Human Development Indicator in SAARC Countries

Countries Lifeexpectancyat birth(year 1990)

Adultliteracyrate (%)1999

GNP percapita US$,1999

HDI

Bangladesh 59 40.8 370 0.47Bhutan 62 42 510 0.735India 63 56.5 440 0.571Maldives 65 96.2 1200 0.739Nepal 58 40.4 220 0.48Pakistan 65 45 470 0.498Sri Lanka 74 91.4 820 0.735Source: Human Development in South Asia, 2001.

Economists agree that HDI is dependable and considered as a mostrecent medium for measuring economic development of countries.The HDI evaluates economic development both from economic andsocial aspects. It emphasizes the need of investment in socialaspects like, education and health in order to achieve higher level ofeconomic development.

4.CHARACTERISTICS OF DEVELOPED AND DEVELOPING COUNTRIES.Countries can be classified into developed and developing countries.Countries having high GNP per capita, higher living standard of thepeople, higher life expectancy and higher quality of education andknowledge are grouped under the category of developed countries.United States of America, Japan, Switzerland and western Europeancountries are examples.

The main characteristics of develped countries are as follows;(a)High Development of Industrial and Service Sector:Main sources of national income in developed countries areindustry and service sector. Agriculture is subsidiary income of

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the people. But agriculture is also highly capital intensive. Capitalplays dominant role in production.

(b) Large Scale Production:Mechanization is adopted in production. Goods are produced inlarge scales for export. Specialization and division of labour areintroduced for improving quality of the products. All the goodsare produced to make high profit.

(c)Technological Advancement:Goods are produced using advanced software technologies.This makes possible to produce quality product at cheaper price.

(d)High Growth Rate of National Income:Developed countries enjoy high growth rate of National Incomeand per capita income due to development in industrial sector.

(e)High Level of Literacy.The adult literacy rate is quite high in developed countries. Morethan 90 per cent of adult are literate.

Characteristics of Developing Countries.Under developed countries or developing countries or leastdeveloped countries are one, which have lower standard of living.According to the United Nations, an under - developed country isone in which per capita real income is much lower when comparedwith the per capita incomes of the USA, Canada, Australia andWestern Europe. But this definition considers only one aspect ofunder development. Low level of living standard, absolute poverty,low per capita income, low consumption level, low level of use oftechnology, poor health service, occurrence of high birth rate andhigh death rates are some of the characteristics of developingcountries. The countries having per capita income of less thanUS$5000 are grouped under developing countries.

The main characteristics of developing countries are as follows:(a)General Poverty:Underdeveloped countries are characterized by low per capitaincome. Based on per capita GNP, the World Bank has classifiedcountries as low income, middle income and high-incomecountries. The countries having income of US$785 or less areclassified as low-income countries. The countries having income

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of US$785-9,655 are classified as middle income countries. Thehigh-income countries enjoy income of $9,656 or more. Nepalfalls under low-income category. Most of low-income countrieslie in Asia and Africa. In SAARC region India, Pakistan,Bangladesh, Nepal and Bhutan fall in low-income category.

(b)Under Utilization of Natural Resources:Most of the underdeveloped countries are unable to utilize theiravailable resources. In under developed countries availablenatural resources are either unutilized or underutilized.

Many of the under developed countries have rich naturalresources like land, water, forest, mineral etc. To utilize theseresources, under developed countries do not possess necessarycapital, manpower and infrastructure and technology. Forexample, Nepal is rich in water resources. Similarly many Africancountries are very rich in mineral resources like, iron, copper, tin,bauxite and gold. South America has vast forest resources. Thus,under developed countries have natural resources but they areunutilized and some times mis-utilized.

In Nepal, one of the causes of mis-utilization of resources is dueto lack of good governance. Nepal Human Development Report2001 indicates that the persistence of poverty and the crisis ingood governance are the major dominant concern of Nepal.

(c)Lack of Capital:Underdeveloped countries are characterized as "capital poor"countries. In these countries not only present capital stock is poorbut also the current rate of capital formation is very low. Peoplehave low capacity to save due to low level of income. In most underdeveloped countries gross investment is only 5 - 6 per cent of grossnational income.

(d)Demographic Features:Rapid population growth is one of the common features of alldeveloping countries. In all countries, death rate is declining due tomodern medical facilities but birth rate is not falling. The birth ratein developing countries is approximately 40 per thousand. Thuseven if these countries increase GNP to some extent; they are notsufficient to feed increasing population. Lack of female education,employment, easy access to family planning and traditional value of

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society are responsible for high natural growth of population. Oneof the implications of the high population growth is increase in thenumber of young age dependent population. The workingpopulation is required to support the children, which decreasessaving and investment for capital formation.

(e)Under Employment and Disguise Unemployment:Under developed countries suffer from the problem ofunder-employment and disguise unemployment. Asnon-agricultural employment is limited people remain unemployedduring off-seasons. Even if people are working they do not getsufficient work to increase productivity. Excessive pressure ofpopulation results in disguise unemployment.

(f)Dualistic Economy:One of the features of underdeveloped economy is dualisticeconomy. This means that market economy and subsistenceeconomy exist side by side. The developed market economy isfound in urban areas and rural areas are characterized bysubsistence economy. In urban areas, handful of the people enjoysall modern facilities like cellular phone, car, houses etc. Their lifestyle is lavish. In rural areas, people are living with bare minimumnecessities of life. In some underdeveloped countries, foreigncompanies are utilizing valuable natural resources of the countryand enjoying the major portion of profit from it. On the contrary,the native are given minimum wage for their labour. Thesecompanies make huge profit, which are taken to their own country.They contribute very little to the development of underdevelopedcountries.

(g)Absence of Entrepreneurship:In developing countries people have very little means to developtheir hidden talent of entrepreneurship. Low level of literacy,ineffective government policies, lack of market, lack ofinfrastructure, limited resources, social rigidities and lack of securityare responsible for hesitation of people to undertake new initiativeand venture in entrepreneurship. Only small group of peopleengage in trading and industry including service industry andfinancial sector. In Singapore and Indonesia, however, immigrantpeople from under developed countries have contributed in theeconomic development of these countries. For instance Chineseimmigrants in Singapore and Indonesia have played crucial role in

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economic development of the country. Similarly, Indian immigrantshave contributed economic development of Burma, West Indies andSri Lanka.

(h)Lack of Infrastructure:Lack of physical infrastructure is common feature ofunderdeveloped countries. The infrastructure like road, electricity,irrigation net work, bridge, drinking water, hospitals/health posts,communication, and financial institutions etc are the pre-requisitefor economic development.

Mobility of people and goods has been hampered by the absence ofquick transport and communication. Similarly, necessary capital forinvestments is not easily available. People have to depend ontraditional sources of borrowing. People's health condition is poordue to lack of easy access of health care.

(i)Technological Backwardness:The under developed countries rely on primitive methods ofproduction, which takes more efforts and less production. Theirtechnological backwardness is reflected in high average cost ofproduction, poor quality of product, low productivity of labour andcapital. Limited availability of capital, illiteracy, lack of skilledmanpower and research are responsible for technologicalbackwardness. These countries depend on imported technology,which in many cases are not suitable for the country.

(j)Economic Backwardness:The low labour efficiency is another feature of under developedcountries. Due to the illiteracy, poor health, lack of training andspecialization, people earn very little from their hard work. There isalso occupational immobility of labour due to caste system. Inmany countries caste system has been abolished. But in rural areasstill occupation is classified on the basis of caste.

Another problem of under developed countries is exploitation ofchildren and women labourers. Though child labour is illegal and itexist extensively in various industries, mining, restaurants anddomestic works. Prevalence of low status of women in the society isanother problem. Women are discriminated in work and wage. Equalwage for equal work remains only in the law. This problem is more

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widespread in private sector. Strict implementation of law is lackingin many cases.

(J)Lack of Dignity of Labour:Another problem of underdeveloped countries is lack of dignity oflabour. The white-collar jobs are given undue importance incomparison to labour oriented jobs. The civil employee enjoys manyprivileges and prestige. Manual workers are looked down even ifthey contribute a lot in national economy. Agriculture labourers inNepal toil under scorching heat and rain to produce differentagricultural products and contribute to national income and feed thepeople. However, their labour is not given so much importance aswhite-collar jobs. Traditional values and social structure areresponsible for this.

(k) Excessive Dependence on Agriculture:The main occupation of the people in developing countries isagriculture. A large number of people between 70 to 90 per cent oftotal population derive their livelihood from agriculture. Due tosluggish growth of non-agricultural sector, people are forced towork in agriculture even if they get meager return. Most of farmersare operating on subsistence farming forcing them to be in thevicious circle of poverty. As family members have no alternativejobs, people are forced to carry agricultural operation. This hasresulted sub-division and fragmentation of land holding. The smallsize of land holding again obstructs the use of modern farmingmachinery, which is essential to improve productivity of land.

(l)Political Factor:The underdeveloped countries are also trapped in party politics. Thepolitical parties instead of working for the benefit of the people mayengage in mis-utilization of power for personal benefit. Corruption,lack of transparency in government work, lack of justice, slacknessin implementation of law and order, insecurity of life and wealth,mis-appropriation of country's resources are responsible for despairand frustration among the people. Lack of people's participation indecision making which shape their lives lead to failure of the system.Political instability is the major cause of economic backwardness inmany underdeveloped countries. For instance, Tamil problem in SriLanka, Maoist problem in Nepal, occasional communal violence inIndia, Indonesia, have disrupted and retarded economic growth ofthese countries

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PART B: NEPALI ECONOMY

5. INTRODUCTION

1.Geographical FeatureGeographical Location and Area:Location:

Nepal is located between 26 22' north and 30 27' north latitude and 80 4'east to 88 12 east longitude.Border:

The boundaries of Nepal are Tibetan Territory of China in the North, the IndianStates of Sikkim and West Bengal in the East, Uttar Pradesh and Bihar State in

the South and Uttar Pradesh in the West.Size:The total area of the country is 147,181 sq. km. The average length of the

country is 885 km stretched East to West. The width of the country is notuniform. Mean width is 193 km North to South.Physical Feature:

Ecologically it can be divided into three major divisions ascending from south tonorth. They are the Tarai plains, the Hills and the Mountains.

(a) Tarai Region:The broad belt of low and flat land stretching East to West (Mechi to Mahakali)in the southern part of Nepal is called Tarai. It has been formed out of fine and

fertile soil brought down and deposited by the rivers flowing from the north. Itis 25 to 32 km broad. The region comprises 25 per cent of the total land area.

This region is also called greenery of Nepal, because it has 40 per cent ofcultivable land. Wide varieties of crops such as paddy, maize, wheat, sugarcane,vegetables, tobacco, tropical fruits are grown in the region. Around 46.7 per

cent of the population live in this region. As this region is most suitable forcultivation and open to Indian border, the population of the region is increasingat a very fast rate. This region is densely populated.

(b) Hilly Regions:

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It is the region lying between the Himalayas and Tarai. The altitude of thisregion varies from 610 meters to 4877 metres above the sea level. It consists ofMahabharat Mountain Range, Churia Hills and river basins. The Kathmandu and

Pokhara valleys lie in midland region. The Churia range extends upto KoshiRiver. This range is also known as Siwalik range.The altitude of the Mahabharat range varies from 1500 meter to 3000 meter

high. Most of areas are covered by forest. It is also the biggest physical region.It covers 42 per cent of land area. About one tenth of land is suitable for

cultivation. In fact, before the construction of concrete houses, there was muchfertile land where cultivation of cereal crops, cash crops and vegetables weregrown particularly in Kathmandu valley. Now most of the fertile land has been

used for construction of office building or residential houses.

(c) Mountain Region:

It occurs in the northern part of Nepal. The altitude ranges between 4,877meters to 8848 meters above the sea level. It covers 25 per cent of land area.

A large number of peaks and mountains lie in this region including the highestpeak on the Earth "Sagarmatha" (Mt. Everest). The other notable peaks areKanchanjungha (Third highest), Makalu, Ganesh, Gaurishanker, Lhotse,

Dhaulagiri, Annapurna, Cho Oyu etc. Similarly, some of the main Himalayanranges like Kumbhakarna, Mahalangoor, Rolwaling, Ganesh, Annapurna,Dhaulagiri etc, are situated in this region. The mountains over 5000 meters is

snow covered. The big glaciers and big rivers originate from this region.Approximately 2 per cent of land are suitable for cultivation and about 7.3 per

cent of population inhabit in the region.There are many well-known peaks in the region and people come fromdifferent parts of the world for mountaineering and trekking. The region has

great potential for adventure tourism, particularly mountaineering.

2. Rivers, Lakes and Glaciers:

(a) RiversBeing mountainous country, there are many rivers and streams originating in

the Himalayan region. Most of them are flowing from North to South. The

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Koshi River in the East is the longest and biggest, formed out of seventributaries namely Arun, Tamor, Sunkosi, Dudhkosi, Tamakosi, Likhukosi andIndrawati. The Gandaki River in the middle of the country also is with seven

tributaries namely Trisuli, Burigandaki, Marsyangdi, Seti, Daraundi, Kaligandakiand Modi. The Karnali River in the west formed with five tributaries namelyMugu Karnali, Humla Karnali, Bheri, Seti and Tila. The Karnali River is the

second largest and longest river.The rivers in Churia range depend on monsoon rainfall and are mostly dry in

winter. Tilawe, Sirsia, Bagari Mohana, Balan, Ratu are some of monsoon fedrivers. The rivers originating from Mahabharat range depends on spring andrainwater. The Bagmati, Mechi, Mahakali, Kankai, Kamala, Rapati, Tinau, Babai

are main rivers which originate from Mahabharat range.(b).Lakes:There are many beautiful lakes. The most famous lakes are Rara (biggest) in

Mugu District, Phewa, Begnas, Rupa in Pokhara valley, Phoksundo in Dolpo,Satyawati in Palpa and Tilicho in Manang. The Gosaikund, Suryakund,

Bhairavkund are religiously famous lakes of Nepal.(c) Glaciers:The huge masses of ice moving along mountain valley are known as glaciers.

Most of them are located in the eastern Himalaya. The biggest is Khumbuglacier in Mahalangur Himalaya. The Langtang glacier of Langtang Himal is thelargest one.

3. Climate:

Nepal has monsoon type of climate. But, being a mountainous country, theclimatic condition differs from one part to another, generally on the basis ofaltitude - higher the altitude cooler the climate. There are three main seasons

in Nepal.(a) Summer:March to July is summer season, which is characterized by high temperature. In

Tarai, temperature exceeds 30 C. Temperature decreases along with increasein altitude. Days are sunny, windy and dusty. Because of heat, storms

frequently originate in this season.

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(b) Rainy:June - September is rainy season. Monsoon blows from southeast direction andbrings rain to the country. The southern slopes of Mahabharat and Churia

ranges in eastern Nepal receive heavy rainfall of over 200 cm. The Pokharavalley receives the highest amount of rainfall (over 300 cm) and Himalayanranges get less than 50cm, which is mostly in the form of snow.

(c) Winter:October to February is the winter season. The temperature gets very low and it

becomes cold in most of the areas of the country. The temperature in Taraibelt is about 15 C and Himalayan region far below 0 C. Morning is foggy orfrosty. The western wind brings some rainfall, which decreases from west

towards east. Heavy snowfall takes place in high mountains.

Types of climate:

There are five types of climates in Nepal.(a) Sub-tropical Monsoon Climate:

In the Tarai and upto the altitude of 1200m, climate is very hot during summerand cold in winter. Rainfall varies between 170cm in the east and 100cm in thewest.

(b) Temperate Monsoon Climate:Between 1200 to 2100 m of altitude, the climate is moderately hot duringsummer and cooler during winter. The rain varies from 200cm to 100cm. This

is most pleasant climate.(c) Cool Temperate Climate:

Warm in summer and cold in winter. The average rainfall is about 150cm,which occurs more in east and less in the west.(d) Alpine Climate:

The lower part of Himalayan region between 3300m and 5000m of altitude hasalpine climate, which is slightly warm in summer and winter is very cold. Therainfall varies from 50cm to 100cm and sometime snowfall.

(e) Tundra Climate:

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Above 5000m the climate is very cold round the year. The precipitation is lowand is in the form of snow. Snowstorms in the afternoon are very frequent inmany parts of the country having this climate.

4. Characteristics of Nepali Economy.

Nepal is one of the least developed countries in the world. The main featuresof Nepali economy are widespread poverty, low human development,

under-utilization of resources, ineffective administration, corruption, lack ofsecurity and low status of women and girls. The main charac0teristics of Nepalieconomy are as follows;

Geographical Characteristic.(a) Unfavourable Physical Feature:

Nepal is a mountainous country. Nearly 83 per cent of land is hilly andmountainous terrain. Ecologically, the country is divided into three regions; the

Mountain region, Hill region and Tarai region. In the mountain regions,development of transport and communication is very difficult and expensive.Thus, many VDCs still lack basic facilities like health, drinking water, electricity

and communication. Besides, in almost every rainy season villages suffer fromnatural disaster like landslides and flash flood. Being landlocked country, Nepalhas to depend on India to get access to sea which sometimes face difficulty due

to disagreement in transit problem between the two countries. Except in Tarairegion river transportation is not possible in mountain region due to fast

flowing rivers. Nepal is rich in varieties of vegetation due to its varied climateacross the country. People from different parts of the world can easily adjust inNepal. Similarly different types of crops can be cultivated in various parts of the

country.(b) Under-utilization and Misutilization of Natural Resources.The main natural resources of the country are fertile soil, water and mineral

resources. Proper utilization of valuable and rare herbs is lacking due toabsence of effective policy. Rampant smuggling of forest products is

widespread in many parts of the country. Similarly, Nepal is very rich in water

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resources but is not being able to harness it for the economic development.Likewise, mineral resources is also not properly explored and exploited due tolack of effective policy. As for soil, indiscriminate use of chemical fertilizer has

spoiled its quality much to the distress of farmers in many parts of the country.

Economic Characteristics:

The economic characteristics include poverty, investment, saving, agriculture,industry, trade and technology etc.

(a) Human Poverty:The Human Poverty refers to lack of capabilities, lack of political stability,

inability to participate in decision-making, lack of personal security andinability to participate in the life of a community. Poverty is wide spread inNepal. The per capita income is only $210. About 42 per cent of people live

below the poverty line. Most of the people are very poor and can not even getbasic necessities of life. The Household Survey in 1976/77, Multipurpose

Household Budget Survey in 1984/85, Nepal Rural Credit Survey in 1991, andNepal Living Standard Survey in 1995/96 revealed the increase of poverty from33 per cent in 1977 to 42 per cent in 1995/96. The Global Human

Development Report 2004 estimated Human Poverty Index (HPI) for Nepal at44.2 and Nepal ranked 69 position out of 95 developing countries. HumanPoverty Index in rural areas is 41.4 whereas for urban areas it is only 23.9. TheMid and Far Western Development Regions are characterized by high population,low income and ?????? ,

(b) Dependence on Agriculture:The agriculture is main basis of Nepali economy. Nearly 40 per cent of GrossDomestic Product is contributed by agriculture sector. Similarly 60 per cent of

economically active people depend on agriculture. Among them 40 per cent arefemale. The women in rural Nepal are intimately involved in agriculturalproduction process. Although women participate extensively in agricultural

production but their productivity, however, remains constrained in several ways.Women have limited access to information, credit and complementary services

than men. Agricultural policy has not taken appropriate consideration of

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women's special needs and concerns. Besides, the necessary inputs arerequired for the improvement of agriculture which is not available to all farmers.The farmers are facing problems of not only inputs but also market for output.

The competition with imported agricultural products is depriving farmers to gettheir due price in the market.(c) Adverse Balance of Trade:

The trade is important to import necessary material for economic developmentand export Nepali products for earning foreign exchange. Lack of

diversification in exportable products and continuously increasing volume ofimport is creating problems of adverse balance of trade. Nepal's main items ofexport are carpet, ready-made garments, handicrafts, wool and woolen

products, silver products and paper products. The export of these products isnot increasing due to several problems associated with the trade policy. Theexport of traditional agricultural products is also declining due to low

production and quality.(d) Low Level of Investment:

Due to low per capita income and wide spread poverty both saving andinvestment is very low. During the period of 1995 - 99, the economy hasslowed down with compare to early nineties. Political instability, frequent

changes in government, Maoist problem and rampant corruption in all fields ledto slower GDP growth of per capita income, government revenue, expenditure,investment and saving. The average annual national saving was recorded at

16.5 percent at the end of the Ninth Plan, which is more than the target rate of16.1 percent. The growth in national saving mainly was due to the foreign

employment. The average annual growth rate of investment in the same planperiod was recorded at 3.5 percent as against the 6.1 percent target.(e) Dualistic Economy:

Nepal's economy is highly dualistic. The urban sector is characterized bynon-agricultural sector while rural area is characterized by backwardagricultural sector. Agriculture is still the backbone of rural economy where

majority of people live. Agricultural growth was only about 3.3 percent on anaverage by the end of Ninth Plan (2001). The average production of food grain

was 2.53 per cent per annum. The non-agricultural growth rate 3.95 per cent

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per annum during the same plan period. The poor performance of agriculturefurther created a wide gap in economic development between rural and urbanareas.

Demographic Characteristics:(a) High Population Growth:

Another characteristic of Nepali Economy is the high growth of population. Thepopulation of Nepal increased from 15 million in 1981 to 18.5 million in 1991

and increased to 23.1 million in 2001. The annual growth rate is 2.2 per centin 1991-2001 decade. According to 2001 census, crude birth rate is 32.5 per1000 population. The crude death rate is 9.3 per 1000 population. The total

fertility rate is 4.1 per women. The infant mortality rate is 64.1 per 1000 livebirth and life expectancy at birth is 59.7 years.(b) Population Density:

In 2001 population density was 157 persons per square kilometer. Amongdevelopment regions, the lowest population density was found in Mid-Western

Development Region (71 persons) and highest in the Central DevelopmentRegion (293 persons).(c)Sex Ratio:

The sex composition of a population is indicated by sex ratio. According to2001 census there were 99.80 male for 100 females. Females have slightly outnumbered males. This is because of the fact that adult males used to go

abroad in search of jobs.

Social - Cultural Characteristics:(a) Social Value and Institution:The backward social value and institution are deeply rooted in Nepali society.

Although caste system is already abolished but it is still prevalent in manycommunities. The people from lower caste are discriminated by the upper casteand often deprived them from the use of community resources like public tap

and well. The children from lower caste are not allowed to sit beside thechildren from the upper caste in the classrooms.

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The majority of Nepali people in geographically isolated regions have notreceived basic necessities of life like education, health care, access to safedrinking water and sanitation due to the laxity of concerned institution. The

lack of transparency and accountability in management of the service hasfurther deteriorated the situation in geographically isolated regions. Thedevelopment policy failed to mobilize rich tradition of community participation

and initiatives for community development. The mushrooming ofNon-Government Organizations also could not provide the expected results in

the development of remote regions.(b) Low Status of Women:The Nepali society is patriarchal. The male dominates the society. This results

wide differences in the development of male and female in physical survival,health, educational opportunities, and ownership of assets, mobility andcultural value of society. The Gender Development Index (GDI) rank for Nepal is

116 in 2004. The Index varies widely across the ecological region. The GDI ishigher in hills and lower in mountains due to greater access to knowledge,

information, health facilities and economic opportunities. The Mid-Westernand Far Western Development Regions are more backward than the rest ofregions. The GDI also follows same pattern with HDI. Where HDI is lower GDI is

also lower.

6 Natural Resources

Planned and careful utilization of natural resources is necessary for lasting andsustainable economic development of any country. Natural resources are freegift from the Mother Nature to mankind. The atmosphere, water, soil, forest,

wildlife, land, minerals are all natural resources. There are two types of naturalresources, renewable and non-renewable. The renewable resources are thoseresources which with short recycling times – that is, the length of time required

to replace a given quantity of a resources that has been used with an equivalentquantity in a similar form. For example, agricultural crops, pasture grassland,

trees, wild and domestic animals, air, water, solar energy, forest crops etc

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While non-renewable resources once consumed or utilized cannot be replaced.For example, if a barrel of kerosene once consumed it is gone forever. Similarly,all mineral resources are not renewable. Thus, the economic development of a

country depends upon not only availability of natural resources but also in itsproper utilization. Three major natural resources of Nepal are water, forest andmineral.

1. Water Resources:

Water is a vital resource of Nepal. It is life giving as well as life saving.1. Potentiality of Water Resources.The water resource is the most important natural resources of Nepal. It

possesses about 2.77 percent of the world's water resources. Nepal is said tobe the second richest country in water resources in the World. The majorsources of water are glaciers, snowmelting from Himalayas, rainfall, ground

water and lakes. It is estimated that there are 6000 small and big rivers. Thefirst grade rivers are the Karnali, Narayani, and the Sapta Koshi. The second

grade rivers are the Bagmati, Rapti, Kamala, Mechi, Kankai, Babai etc. And thethird grade rivers are those rivers which originate in the Siwalik range and dryup during dry season. The surface water is wide spread in the country. There

is great potentiality of developing ground water resources in Tarai region. Thewater table is generally found at about 15 meter from the surface in thenorthern part of Tarai. And in the southern part ground water comes near the

surface in the form of spring. .2. Role of Water Resources in Nepali Economy.

(a) Hydro Electricity.Nepal has huge potentiality to generate hydro electricity power. Water is alsopopularly known as White Coal. Generally two physical conditions are required

to harness hydro electricity – irregular-mountain topography and speedyperennial rivers. Mother Nature has provided Nepal with both of theseconditions. The country not only has perennial rivers but also posses many

water falls. The estimated potentiality of hydro electricity is 83,000,000KW.However, the total installed capacity of the present hydro electricity projects is

only 397 MW. This accounts little more than 0.3 per cent of the potential

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capacity. This shows that there is a huge potentiality still to be harnessed. Atpresent, most of the electricity produced are consumed in urban areas and ruralareas are still deprived of this energy. The low consumption of electricity

indicates the poor state of country's economy.(b) Drinking Water.Water is one of the basic necessities of life. It is used for cleaning, washing,

drinking and cooking. Nearly 90 per cent of the people depend upon riverwater. Most of them do not have knowledge of purifying the water to make it

safe for drinking. Piped water is supplied only in Kathmandu valley and certaintowns in Tarai. At present, 46 per cent of water supply in Kathmandu is fromground water sources. The city's drinking water supply despite coming through

purifying plants is not safe for drinking. The tap water often is foundcontaminated from sewerage waste. Water related diseases are very high inNepal. Diarrhoea is common and is responsible for almost half the child

mortality. Another problem is maintenance of drinking water project. Due tolack of community participation in the drinking water projects, the sense of

ownership of the project is lacking. However, now a days the maintenancework of drinking water project is done by the Water User’s Committee formedin many Village Development Committees.

(c) Spring water:Nepal is well known in the world due to its Himalayan ranges. Himalayan springwater has its exotic value for its purity as well as its rarity. It can be promoted

commercially as bottled spring water within the country and abroad.(d) Irrigation:

Water resources are source of irrigation. Nepal being an agricultural country,irrigation is very important to increase the productivity of land and expansionof agricultural land. The modernization of agriculture requires dependable

irrigation facilities. Irrigation is essential to cultivate different types of highyielding crops. Thus, to improve the economic condition of the farmer andreduce the risk from the vagaries of monsoon rain, irrigation is very important.

So far the irrigation facility is inadequate in Nepal. Out of 2,642,000 hectarecultivated land only 1,104,000 hectare of land has been irrigated till

1999/2000 (Water Resources Strategy Nepal, 2002). At present, 42 percent of

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cultivated land has irrigation facility, but only 17 percent of cultivated land haveirrigation facility throughout the year.(e) Industrial Development.

Water is equally important for all industries whether cottage or manufacturingindustries like steel, paper, cloth, carpet dying etc. Carpet and hand madeNepali paper are among the major export items of Nepal. The supply of water is

essential for the development of these industries. Water mills are used in mostof the rural areas both for grinding grains and generating electricity through

micro hydro projects.

(f) Development of Transport.

Water is equally important for navigational activities. River navigation is cheapermode of transportation. Therefore, the navigational opportunity in the countryhas to be fully explored. It is used for local transportation in some of the rivers

in Tarai.(g) Protecting Forest Resources.

The forest is the principal source of energy especially in rural areas. Ruralpeople are forced to use wood for household necessities, industrial use andother purposes due to lack of electricity facility. If the facility of electricity

available at affordable price, the use of wood will be reduced.(h) Recreational use.Water entertainment is not developed in Nepal like in other countries to attract

people. Water parks, water surfing and other amusement park can generateboth income and employment. However, white water rafting is becoming

popular among the vacationers.(i) Fisheries and Aquaculture:Fishing is done in some rivers and lakes in Nepal. So far commercial fishery is

limited to pond fisheries in limited areas. It can be extended to rivers as wellwith scientific studies. It could generate rural employment and food supply todomestic and foreign market

(j) Save Foreign Exchange.Every year Nepal, spends millions of Rupees in the import of diesel, kerosene

and gas for household energy. The expenses can be saved if these energies are

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substituted by generating available waterpower in the country. Besides, theproblems of occasional shortage of these materials due to roadblocks bylandslides in the rainy season or due to storage capacity can be avoided.

3.Current Situation of Water Resources.The current situation of water resources can be assessed from the following.(a) Drinking Water.

One third of population still do not have access to safe drinking water. TheNinth Plan (1997/2002) aim was to provide drinking water facility to all the

people in the country in phase wise manner.Table 6.1: The Ninth Plan Progress(Population in thousand)

Description Target Progress ProgressPercentage

The population benefited at theend of the Plan

AdditionalPopulationbenefited bydrinking waterfacility

9700 2904 29.94 17017 (71.6%)

Source: The Tenth Plan, HMG.

As shown by the above Table 6.1 the progress of the Ninth Plan is far from itstarget.The Tenth Plan aims to provide drinking water facility to additional population

of 38,52,000 in rural and 7,39,000 in urban areas.(B) Irrigation.

One of the main objectives of the Ninth Plan was to make available irrigationfacility as per the need of crops and to reduce dependency on rainwater.Another objective was to raise water utilization efficiency of surface and ground

projects, and to enhance people's participation in the management of irrigationsystem through user groups. The target of the plan was to irrigate 142400hectare of new land. It manages to achieve 65 per cent of the target.

The Tenth Plan (2002-2007) target is to irrigate 177600 hectare of additionalland.

(c) Electricity.

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The present hydroelectric project is 253 MW, which is said to be of only 0.3 percent of the total capacity of the country. Recently Kali Gandaki A - the largesthydro project in Nepal came into operation generating 144MW of electricity.

One of the objectives of the Ninth Plan was to supply electricity at affordableprice internally and to export it at competitive price by developing reliableand quality hydropower. During the three years period of the Ninth Plan,

electricity facility has been provided to 670,000 users achieving 47.85 percent progress. The target of the Ninth Plan was to provide electricity to

828000 users or 20 per cent of the total population during the plannedperiod. The electricity facility has been available to 75 districts, 58municipalities and about 800-village development committees. During the

Tenth Plan it is aimed to provide electricity facility to additional 10 per centpeople from the national grid connection which will cover additional 2,600village development committees. Similarly, additional 5 per cent people will

get electricity from alternative energy sources.

4. Problem of Water Resources Development.There are many problems for the development of water resources in Nepal.They are as follows;

(a) Lack of Adequate Capital.Nepal lacks adequate capital to launch new electricity projects, drinking waterprojects and irrigation projects. The only way to get finance for big projects is

through foreign aid and loan, which is conditional and most of time it is not inaccordance with the need of the people.

(b) Lack of Technician.Nepal still lacks right kind of human resources to plan and implement bigprojects. The government has not yet come up with right type of education to

fulfill need of technical human resources. On the other hand, trained peopleare also leaving the country due to lack of proper motivation and jobopportunity and exposure.

(c) Lack of Transport Facility.Lack of transportation facility is a big hurdle for proper utilization of water

resources. The potential areas of water resources are not easily accessible due

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to non-existence of roads. On the other hand, the existing roads are oftendamaged during rainy season mainly in hilly region. The regular maintenance ofroads during rainy season is difficult and it takes long time.

(e) Limited Market.The people's economic situation has not improved despite the implementationof many development plans. It is said that the electricity tariff in Nepal is the

most expensive one in the whole of South Asia.The poor have to strive for the basic facility such as drinking water, irrigation

and electricity. The internal market is very limited.(f) Political Instability.Nepal witnessed political instability especially after the restoration of multiparty

system 1991. The elected leaders and Parliamentarians failed to fulfill the verybasic needs of Nepali people. This has created great frustration anddissatisfaction among the people. The poor have not experienced any change in

their livelihood. The drinking water, electricity and irrigation projects neverbecame available in remote and backward area despite expenditure of Crores of

Rupees.(f) Defective Government Policy:Irrespective of formation of various commissions related to resource

management development, there are shortcomings in design andimplementation of projects. Proper utilization and maintenance of projects arenot well conceived as the result irrigation canals remain without water and

electricity plant ceased to operate.Nepal has adopted the liberal economic policy but the government could not

ensure guarantee to private sector as the result it is not coming forward todevelop water related projects. In fact, no well-orchestrated and broad-basedvisions have been projected in this regard.

2. FORESTAll kinds of plants, which grow in natural habitat, are known as natural

vegetation or forest. The land use of Nepal shows that 37 per cent (5.4 millionhectare) of the total land area is covered by natural forest of which 17 per cent

is conifer, 59 per cent hardwood and 24 per cent mixed type forest.

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1.Types of Vegetation.On the basis of climatic zones, natural vegetation of Nepal generally classifiedinto five main types.

(a) Sub-tropical Evergreen Forest.The growth of forest is rapid in Tarai, inner Tarai, Churia range upto 1200metre altitude. The tall and thick trees are evergreen in the area because the

region has warm temperature and gets generous rainfall. The main vegetationof green forest is Sal, Simal, Sissao, Khair, Cane, Sabai and elephant grass.

(b) Deciduous Monsoon Forest.It is found in hilly region upto the altitude of 2100 metre. The trees in thisregion shed leaves in winter. The main species found in the area are Oak elm,

Beech, Birch, Maple etc.(c) Evergreen Coniferous Forest.The forest is found in higher parts of Mahabharat range and lower parts of the

Himalayan region upto 3300 metre altitude. The main species here are Pine, Fir,Spruce, Larches, Rhododendrons etc.

(d) Alpine Grassland.The Himalayan region upto 5000 metre altitude has cold climate and lowrainfall. This region is not suitable for growing trees. The main vegetation of

the region is grass, bushes and other flower plants.(e) Tundra Vegetation:The climate over 5000 metre altitude is too cold and dry. As a result, no plant

can grow. The region is also called cold desert. However, minute plants likemosses and lichens are found there.

The Table No.6.2 provides area under forest.Table No.6.2Area Covered by Forest

Base Year Area Per cent Source

1954 64,78,000 47.6 FAO, 1954

1964 64,02,000 45.6 HMG/USAID, 1964

1977 52,59,348 35.7 Dur Sambedan Kendra, 1985

1977/78 56,17,000 38.7 LRMP, 1986

1985/86 55,18,000 37.0 Forest Development Master Plan

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Source: Statistical Year Book of Nepal 1997.P.153.

2. Benefits of Forest.

The forest resources are important and valuable for Nepal. It has followingdirect benefits.Direct Benefits:

(a) Fuel Wood.The forest supplies about 90 per cent of total fuel consumption. The rural

people depend on forest product for their day to day use due to lack of fossilfuel.(b) Fodder for Livestock.

The forest is the principal source of food for domestic animals. It provides morethan 50 per cent of fodder to rural livestock.(c) Manure.

Grass and the leaves could also be used to make compost needed for farming.The compost manure has great value to produce healthy agriculture products.

(d) Herbs.Different types of valuable herbal plants are found in the high Himalayas. Thepeople in the rural area have been using herbal plants to cure different diseases.

The herbs collected from the region are sold to pharmaceutical industriesmainly in India and some are exported abroad. In the Fiscal Year 1995/96,government earned Rs.2,06,88,000 from the sale of herbs.

(e) Raw Materials.The forest products are source of raw materials for different types of industries

in the country. There are various industries based on forest products such asfurniture, paper, hand made paper, medicines, rubber etc.(f) Residential Construction.

Wooden timber, Khair, Sisao and Oak are used for construction of house. Thewindow frames, doors, rooftops all are mostly made out of wood. The peoplein rural areas are heavily depending on forest products for fulfilling their

construction works.(g) Export.

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There is high potential for earning foreign exchange by exporting the forestproducts such as timber, herbs, rubber products etc to third countries.(h) Employment.

The forest also generate employment opportunity to people in different forestbased industries. Apart from the industries, a large number of people areemployed as Forester, Ranger, Guards etc in the government service.

Forest resources provide following indirect benefits.

(a) Prevention of Landslide and Soil Erosion.The surface topsoil is very important for agricultural country like Nepal. It isestimated that about 240 million cubic meter of soil is eroded every year. Soil

erosion and landslide depend on the nature of rainfall and the type ofvegetation spread over the area. The natural vegetation helps to protect thesoil erosion and landslide. The massive deforestation in 1950s is causing

landslides and soil erosion in different parts of the country every year. Theproper management of forest and vegetation in the hills help preventing

landslide and soil erosion.(b) Support to Agriculture.The forest and agriculture are inter-related in many respects. The forest

provides raw materials needed to make compost for farming. The properconservation of forest is essential for the sustainable development ofagriculture.

(c) Prevention of Desertification:The Himalayan region is environmentally very fragile. Rapid deforestation is

catching due to cutting out the trees and causing ecological imbalance. Thetopsoil is washed away by rain with the loss of trees. Most of the areas areturning into desert and semi-desert and growing no vegetation. The proper

aforestation and sustainable development programme can prevent the processof desertification in the region.(d) Drinking Water.

Ground water is important source of drinking water for majority of people inmany part of Nepal. The majorities of people in Tarai solely depend on ground

water and extensively use hand pumps for water. The case now is not new to

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the people of Kathmandu valley because most of the people have to depend onground water. The forest also helps to maintain ground water table.(e) Oxygen Supply.

The forest vegetation provides life saving Oxygen to all living being. This is oneof the reasons that people prefer to live within greenery of nature.(f) Environmental Balance.

The forest helps to maintain ecological balance. The beauty and benefits offorest is so immense that any disturbance of over using it or disrespecting its

resources can have disastrous and counter-productive impact in the form offlood, draught and disease.

3.Causes of Deforestation."Hariyo Ban Nepal Ko Dhan" was the popular slogan in the country some fortyyears ago which is no more now. This important resource is rapidly declining.

In "Char Kose Jhari", once a very famous forest belt is getting thinner andthinner every year by encroachment and illegal logging. The conservation of

forest has became Herculean task. The main causes behind this grave situationare as follows;(a) Population Growth.

One of the causes of its declining situation is rapid increase of population. Inorder to provide food for the growing population, forest areas are cleared forcultivation and also for human settlement. Such land is also distributed to the

people who migrated from hill and mountainous regions.(b) Cutting Trees for Fuel.

Most of the rural people in Nepal use wood as the primary source of householdenergy for cooking and other purposes due to lack of other means of energy.(c) Logging Contract System.

The logging work is awarded to highest bidding contractor every year. Thesystem has become one of the major and very serious causes of deforestation.The contractors cut down trees more than the allocated quantity. Every year

huge number of timber is illegally exported to the neighboring cities in India.(d) Meeting the Demand for Raw Material.

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The number of forest based industries are increasing in the country. Obviously,the demand for raw materials is also increasing.Apparently, there is no proper mechanism to manage the supply of raw

materials to the industries. This creates the situation of using forest resourcesindiscriminately.(e) Deforestation: Ignorance/Negligence.

Most of the people are ignorant about the consequences of deforestation.Equally most of the people neglect it even knowing it for personal benefit.

Thus, the pace of cutting down trees continues due to lack of adequate controlof the concerned authority.(f) Defective Government Policy.

The government forest policy is not effectively implemented. The illegal logtraders are not punished. The logging continues in broad daylight. The policyrelating to community forest is discouraging for the participation of people in

forest management.

4. Forest Conservation Effort and MeasuresIn order to conserve and maintain ecological balance of wild life species,national parks, wildlife reserves and conservation areas have been established

in various parts of Nepal. The National Parks are Chitwan, Sagarmatha,Langtang, Rara, Shey-Phoksundo, Khaptad, Bardia and Makalu. Similarly, RoyalShuklaphant, Kosi Tappu, Parsa, Shivapuri and Dhorpatan are the wildlife

reserve areas. The conservation areas are Annapurna and Makalu Barun.

The community participation was low in mid seventies and early eighties inforest conservation activities. However, the participation of community in treeplantation and conservation of forests increased in the following decades. In

1993/94 out of total plantation of tree 57.4 per cent is through communityparticipation. Bagmara Community Forest in Chitwan and Multi CommunityForest in Saptari are managed by women community. In order to conserve

forest following measures should be undertaken;(a) Fixing Forest Boundaries.

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There has to be demarcation of all forest areas in order to avoid illegalencroachment.(b) Afforestation.

The priority for afforestation has to be addressed properly and encouragepeople broadly to participate in it especially in rural areas. The plantation ofnew sapling helps to maintain forest area in the long run. In other words, the

pace of aforestation has to be accelerated at the war-foot level.(c) Watershed Conservation.

Watershed conservation programme should be implemented in order to preventsoil erosion, landslide and flood.(d) Public Awareness.

In order to generate sense of belonging, the feeling of ownership andawareness among the people about the importance of forest conservation,various conservation programmes have to be launched in print and electronic

media regularly. School children too should be involved through essaycompetition, quiz contests etc. Symposium, seminar and conference need to be

frequently organized.(e) Forest Technicians.Appropriate training should be given to the people in order to increase human

resources necessary to conserve the forest area. The training policy andmodule should be adhered to women and include the concerned and needs ofwomen. The women are not only users of fuel, fodder and other forest

products but also are the one who is directly affected by deforestation. Thuswomen should be included in all phases of project cycles.

(f) Use of Alternative Source of Energy.There must be alternative choice of energy like solar, electricity, kerosene andbiogas in order to control deforestation in the country. Simple and affordable

means of energy sources must be available to the people at an affordable price.

4. Community Forest.

The guidelines of the Master Plan for the forest sector of Nepal put allcommunity forest management under the control of forest user group to ensure

equitable share of costs and benefits among the stakeholders of the community

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forest. The intended objective is sustainable forest management in Nepal. Upto 1997, 5277 forest user groups were formed and a total of 345,914 hectaresof national forest have been handed over as community forest to the user

groups. The government introduced the Forest Act 1993 and by-laws in 1995to empower user groups. However, the poor and the disadvantaged women arenot benefited from it. The main reasons for this are the low literacy level of

women, gap in communication, high opportunity cost for the poor women andfamily to participate in the community forest. Most often the clever and

powerful village leaders and elite people dominate the users group.Appropriate income generating programme should be launched for the benefitof the poor and time saving labour devices should be introduced to enable

them to involve in community forest.

3. MINERAL RESOURCES

Mineral resources are very important for economic development of the country.The exact situation of mineral resources is difficult to assess due to lack of

extensive and scientific geological survey of the country.The preliminary surveys and studies indicate the availability of the followingmineral resources in Nepal.

1. Potential and Current Situation of Mineral Resources.(a) Iron ore.

Iron ore is the main mineral resource of Nepal. It is found in different parts ofthe country, some of which are Phulchoki in South of Kathmandu, Thosey in

Ramechhap and Labdikhola in Narayangadh. It is estimated that about 10million metric tons of iron ore from each of the site can be obtained. Besides,these major areas, Jirwang and Gothe Danda in Chitwan, Ghatkhola in Bajhang,

Bhootkhola near Bandipur. Bhainse, Kulekhani, Pyuthan, Godavari and Pharpingare said to be other probable areas. However, the commercial production of themineral has not taken place in any of these areas.

(b) Copper.

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The main areas where Copper is found are Budhakhola near Bandipur, Gyaji inGorkha, Arkhauli in Makwanpur, Nangre in Nuwakot, Baitadi, Illam, Wapsa,Banglung and Barabise.

(c) Mica.Mica is found in several places of Nepal. The main areas are Bajhang, Chainpur,Doti, Bhojpur, Lamjung, Gosaithan, Nuwakot, Dhankuta, Sundarijal and Sindhuli.

However, the exact quantity is difficult to estimate due to lack of authenticinformation.

(d) Lead.Lead is found in several places of Nepal. The main places are Ganesh Himalarea, Arkhuli, Rasuwa, Banglung, Phulchoki, Baitadi and Tipling.

(e) Zinc.It is found in several places of Ganesh Himal, Phulchoki, Rasuwa, Majer Kholaand Tipling in Nuwakot.

(g) Magnesite.This is important raw material for the production of chemical fertilizer. Its

production started in Dolakha for some time. It is also found in Udaipur atKampughat.(h) Limestone.

It is used to manufacture cement. It is found in several parts of the country.The main areas are Bhaise, Chobhar, Murkhu, Jogimara, Hetauda, and Godavari.The quality of limestone in Nepal is of high quality.

(i) Petrol & Gas:Petrol and natural gas are called fossil fuels. Commercialization of these

mineral resources is not made so far. The main areas of occurrence are Surkhet,Dailekh, Muktinath, Pyuthan, Dhangadi, Chisapani and Kathmandu.(j) Coal:

Coal peat is found in various parts of Kathmandu valley. This is fossil fuel. Butthey are not of high quality. The main areas of coal are Dang, Salyan, Chatra,Thakkhola in Mustang, Chitwan, Kailali and Kanchanpur.

(j) Gold:

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Tiny flakes of gold are occasionally found in the sand of various rivers likeSunkoshi. Kali Gandaki, Marsyangdi & Budhi Gandaki. However, scientificsurvey on the volume of deposit has not done so far.

(k) Nickel:The main places of occurrence of Nickel are Ramechhap, Sindhupalchok,Khakling and Tungdhap. But the availability of actual quantity is not known yet.

2. Role of Mineral Resources in Economic Development.

(a) Development of Industries:Different mineral resources are required for the development of industries.Coal is prime source of industrial energy. Similarly, iron is major raw material

for heavy machinery industry. The machines and raw materials are required forlarge-scale industries and cottage and village industries. Every year Nepalimports machines and raw materials for various industries. Such importation

could have been lessened by developing mineral resources in the country andalso fulfill the need of raw materials for industrial sector.

(b) Employment:The development of mineral resources helps to create new jobs to the growinglabour force in the country. Unemployment is one of the critical problems of

Nepal. It was estimated that at the end of the Eight Plan, the size of labour forcein Nepal stood at 11.669 million. Out of total economically active labour force,4.9 per cent is fully unemployed. Among them only 5 per cent is employed in

industry, mines, power and construction. The poor women and girl child areemployed in stone quarries for manual labour at meager wage.

(c) Development of Agriculture.The chemical fertilizer is widely used for the growth of agriculture developmentand it is imported almost every year. The farmers most often face the problem

of scarcity of fertilizers in the market. It is also reported that farmers are beingcheated by supplying fake fertilizer by traders. The situation can be improvedif country can develop mineral resources like Magnesite, which is the basic raw

material for chemical fertilizer.(d) Development of Transport.

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The transportation is the basic infrastructure required for the economicdevelopment of the country. Vehicles like truck, tractor etc are the means oftransportation in the country. If the country is to manufacture these means of

transportation, development of mineral resources and engineering areprerequisite.(e) Fulfillment of Basic Construction Material.

The basic construction material like cement, iron rod, pipe and zinc sheets arenecessary for construction works. The demand for these raw materials is

increasing due to rapid increase of construction works both in the public andthe private sector. Every year huge quantities of cement, rods are imported tofulfill the need of construction works. The development of mineral industries

helps to fulfill the need of raw materials to these basic construction materialsindustries.(f) Foreign Exchange Earning.

The development of mineral resources also helps to earn foreign exchange byexporting raw minerals as well as finished mineral products. The foreign

exchange earned from export can be used for the import of goods from abroad.

3.Work done for the Development of Mining.

The exploration of metal ad non-metal minerals in an area of 6000 sq. km wastargeted during the Eight-Plan period. The progress during the Plan period wasas follows;

- The extensive survey of gas reserve in Kathmandu valley for commercial usewas completed.

-Geo-scientific study for petroleum exploration was completed in an area of31,000 sq. km.-Attempts have been made to promote cement industries in Surkhet,

Arghakhanchi and Dhankuta.-Mineral Act, 1985 has been amended.-Mineral Regulation 1995 has been drafted.

-The capacity of using remote sensing Geographic Information System (GIS) wasdeveloped to produce qualitative geological mapping.

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4. Causes of Non-Exploitation of Mineral Resources in Nepal.(a) Lack of Transportation.Despite of many years of economic development planning, transportation

facility required for the development of mineral resource is not achieved. Lackof well-identified and coordinated development of transportation has beenhindering the development of mineral base industries. Accessibility to remote

areas to explore the hidden treasure of different mineral resources will only bepossible with the availability of transportation facility.

(b) Lack of Investment.The survey and exploration of mineral resources involve high investment. Manysurvey works have to be given up due to lack of necessary fund.

During the Eight Plan the target of conducting seismic survey, drilling andmagnetic survey for exploring petroleum had to be given up due to the failureof getting foreign assistance. Same was the reason for the plan of producing

the qualitative geological map.(c) Lack of Research and Survey.

The extensive qualitative survey is required to ascertain quantity and quality ofdifferent types of mineral deposits available in the country and its utilization.Such surveys have not taken place due to different problems.

(d) Lack of Human Resources.The technical human resources like cartographer and required number ofgeologists have not given training due to lack of budget. Tribhuvan University

has been running M. Sc. degree course in geology. This has helped to someextent in producing human resources. The students should be motivated to

study geology by assuring them of employment opportunities which is onlypossible if mineral based industries are developed in the country.(e) Lack of Successful Implementation of Plan.

The target is set to conduct geological survey and to carry out activities relatedto the development of mineral resources in every development plan. But theachievements are far away from the target due to lack of coordination, budget,

human resources and commitment on the part of the government. The Planremains only in documents.

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6. NATURAL RSOURCES

4. ENVIRONMENT AND NATURAL RESOURCE MANAGEMENT1. The Importance of Environment and the Global Concern.

Environment is our surrounding made up of biotic and abiotic factors.Environment includes everything that relates to person and nature. It includes allaspects of surroundings of humanity affecting individuals and social grouping.Environment includes (i) Built environment means house, roads etc and (ii) Naturalenvironment means all the natural resources including air, land and water. To protectenvironment means to maintain the continuity of species on the Earth. The survival ofspecies depends on the availability of natural resources from the eco-system. Thus, tomaintain sustainability in the supply of natural resources, prudent utilization of theresources is essential.

The existing state of equilibrium will not change as long as there is no externaldisturbance. Pollution and all other changes made in nature will themselves maintain astate of equilibrium by a different natural cycle upto the carrying capacity of the Earth.Any further exploitation of both renewable and non-renewable resources will disturbthe equilibrium of the eco-system and cause environmental degradation and loss ofbio-species.

The reckless exploitation of scarce resources, both in developed and developingcountries, creates deterioration in environment resulting acid rain, depletion of Ozonelayer and high incidence of deadly diseases. Almost all the developing countries arefacing difficulties in providing regular supply of safe drinking water. Similarly, topsoilof arable land is also washed away due to floods and landslides. All these are highlyexpensive and dangerous for peaceful existence of mankind.

The world is facing many critical issues of importance. There are issues ofconflicts and wars, violation of human rights, issues of peace and preservation ofeco-system as well as issues relating to right to education and health facilities,reproductive rights and property right of women. All these issues concern billions ofpeople living on the Earth and also the coming generation.

In the midst of all these problems, the problem of environmental degradation isgrowing fast. There can be no two opinions that if there is no place to live on thisEarth then we are sure to be doomed. Thus addressing environmental issues andpeace is a matter of great concern for all of us.

The 1992 Rio Earth Summit was successful in introducing the globalenvironmental monitoring system under " Earth Watch". The landmark achievement of

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the United Nations conference on Environment and Human Development was the birthof a common understanding named "Agenda 21" which brought out a comprehensiveaction plan and a new concept of economic growth. It devised a plan for a long-termsustainable development requiring the adoption of development policies, which meetthe needs of the present generation without compromising the needs of futuregenerations.

2.The Concepts of Natural Resources Management and Sustainable Development.There are two types of natural resources (i) Renewable and (ii) non-renewable.

Renewable resources mean those resources, which can be obtained again after shortrecycling time. It means that the length of time required for replacing a given quantityof resources that have been used with an equivalent quantity in a similar form. Forexamples trees, pasture grass, agricultural crops, wild and domestic animals, air, waterand solar are renewable resources. Non-renewable resources mean those resources,which once consumed cannot be replaced. For example, a barrel of petrol onceconsumed is gone forever in that form. Mineral resources are non-renewableresources.

The concept of natural resources management adopts the theory of carryingcapacity of the natural eco-system. This means the use of renewable andnon-renewable resources in such a way as to sustain the maximum benefit for presentand future generation. It refers to the quality of environment in order to safe guardhuman environment and promotion of human welfare in sustainable way. According tothe Ninth Plan document "resource management means not only protection but alsojudicious utilization which fulfil the needs of existing generation and guarantees tofulfil the future needs.”

In the context of Nepal, sustainable resources management means ensuringsustainability of available resources by fulfilling the interest and needs of Nepalipeople.

Sustainable development means to meet the needs of the present withoutcompromising the ability of future generation to meet their own needs. It emphasizesan integration of environmental, social and economic consideration in decision making.

3. Importance of Natural Resources Management.Natural resources management is necessary for mankind to lead healthy, happy,

prosperous and peaceful life. In Nepal, according to latest census 2001, 86 percent ofthe people resides in rural areas. Landslide, flood, soil erosion, loss of forest and

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drying up of springs and water spouts affect the fulfillment of daily needs of wood,grass and drinking water etc of rural population.

Poor women in rural households who depend extensively on naturalresources for their own and their family’s survival affects acutely by environmentaldegradation.

The relationship between women and natural resources is very close, as theyrequire food, water, fuel, fodder and income from the surrounding resource because ofsocio-economic role of women. Women have been performing socio-economic rolesof productive, reproductive and community over the generations.

In urban areas too, there are many problems like smoke, dust, watercontamination and lack of proper management of garbage, which are adverselyaffecting health of the people.

4.Consequences of Environmental Mismanagement.(a) Deforestation.

The growth in the size of population, internal migration from hills andmountains to Tarai region and urban centers has caused a massive deforestation inNepal after 1950s. Illegal logging contract system and forest land distribution forpolitical reasons are other factors, which led to deterioration of forest in Nepal. Thishas caused frequent landslide, flood, and change in climate and other natural disasters.(b) Soil Erosion.

It is estimated that 240 million cubic meter of soil is eroded every year. Themain causes of soil erosion are deforestation, improper cultivation of land, overgrazing of pasture land and development works. As the result, productivity of the soilis decreasing every year. It has become serious concern for farmers.(c)Water Pollution and Scarcity of Drinking Water.

Most of river water near to big settlements is polluted. The problem is acute inBagmati and Bishnumati rivers in Kathmandu. The result is number of untimely deathdue to water borne diseases like typhoid, diarrhea etc. Due to depletion of forestunderground water is also decreasing causing acute shortage of water for domesticand industrial use.(d) Air Pollution.

Air is precious natural resource. The living beings cannot survive without it.Due to excessive smoke from vehicles and industries, air has been polluted especiallyin the cities. The studies have found high pollution level in the air in various places ofcities and industrial areas. The air pollution causes lung disease. The smoke and dust

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in the air affect the health of children and aged most. This not only increases cost forhealth care, but it may also cause untimely death or become disable.(e) Noise Pollution.

Un-maintained machines and vehicles in the cities cause noise pollution. Itleads to many diseases like blood pressure, heart diseases and mental disorder.(f) Global Warming.

Due to global warming atmospheric change is occurring in the world. Thehuman lives have been affected tremendously and eco system has deteriorated.

5. Present Situation of Environment.Thoughtless human activities are deteriorating both nature and man made

environment. The excessive uses of forest, land, water and unplanned growth of citiesare destroying valuable natural resources. The forests have been destroyed leading tonatural disaster. The pastureland areas have been overgrazed. Water has beenpolluted destroying the lives of aquatic lives like crocodiles, fish, turtles etc. The highpopulation growth has created unmanageable garbage in cities. The people aresuffering from various health problems leading their lives to further poverty andmisery. All these have been created by mismanagement of natural resources,unplanned growth of cities and neglecting the rule of environment. The Ministry ofPopulation and Environment is responsible for carrying out the Environment ImpactAssessment (EIA) of each and every development projects in the country.

6. Measures to Remedy the Problem:For the proper management of natural resources following measures should beundertaken.(a) Lack of Property Rights:One of the causes of mismanagement of natural resources is due to the lack ofproperty rights. The users must be involved and must have sense of ownership ofavailable resources for its proper utilization.

The concept of community forest has helped to preserve the forest. Becausecommunity forest programme made the users both owner and the manager of theforest property. Ownership of brooks, rivulets and watersheds help to arrestenvironmental degradation.(b) Use of Traditional Skill and Knowledge:

Both men and women have extensive knowledge about the surrounding wherethey live. For instance, rural women have knowledge of the places from where they can

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get drinking water, firewood, fodder etc. So not only men folk but also women’knowledge should be utilized in the formulation of plans and policies.(c) Legal Provision:

Due to increasing number of use of vehicles in city area, pedestrians arecompelled to breathe polluted air. As a result, people have been facing several healthproblems and accordingly health related expenses are also increasing.

Thus necessary legal provisions should be enforced to maintain the standardemission level and decrease air pollution. A system of compensation for the publicshould be introduced to maintain social equality.(d) Land Use Planning:Intensive agriculture and monoculture system has caused decline in productivity ofland. Another problem is use of environmentally fragile land and encroachment offorestland for cultivation. A proper land-use plan is necessary to control decliningcondition of land and forest.(e) Revival of People Based Organizations:In the past generally villagers themselves use to build and protect village taps,irrigation canal, temples and other community resources. Disappearance andnon-functioning of religious and cultural community group led to destruction ofnatural resources for selfish motives. Therefore, it is necessary to revive and makepeople based organizations effective.(f) Developing Reusing and Recycling Technology:

The society is becoming more and more consumption oriented. Accordingly,resources are also used more and more. Thus, the habit of the people has to bedeveloped to use less resource and encourage recycling of the used resources.(g) Proper Coordination of Economic, Social, Natural and Human ResourceDevelopment:

Sustainable development of economy requires a proper coordination ofeconomic, social, natural and human resources as they are interrelated in environmentprotection. While framing economic development plan, special care should be taken tothe fact that development and environment are inseparable parts. Thus, it isnecessary to tie up environmental programmes and management with developmentplanning from the very beginning.(h) Environmental Education and Awareness Programme:

Suitable awareness programmes and environment protection education shouldbe launched along with development programmes in order to make realization of the

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importance of environment. Participation of people should be encouraged widely inenvironmental resources conservation programmes and development.(i) Control of Population Growth:

One of the main causes of environmental degradation is intense activity ofhuman population. Old age security, improvement of status of women, improvementin child mortality and development of rural areas help to reduce population growth.Educating women, creating jobs for women and encouraging people to shed off the oldvalues about the birth control could check the growth of population.(j) Crop Insurance.

Introduction of crop insurance reduces the risk of crop failure and excessivepressure on existing resources for people’s survival in rural areas.

7. HUMAN RESOURCES

"The real wealth of a nation is its people both women and men. And purpose ofdevelopment is to create and enabling environment for people to enjoy long, healthyand creative lives. This simple but powerful truth is often forgotten in pursuit ofmaterial and financial wealth."

Human Development Report, 1995.

1 Role of Human Resources:The number of people of working age (both male and female) available in a

country at a particular time is called human resources. The population means totalnumber of people residing in any defined area, Nepal, India, Bangladesh etc. Skilled,educated, healthy, labourious and committed people are wealth of the country. Humanresources or human capital is necessary for rapid economic development. Manyprominent economists like Schultz, Harbison Dension and Kuzents’s studies show thateducated people in America have contributed in development of American economy. Itis well-established fact that one of the prerequisites of economic development is thedevelopment of human resources. Human beings are not only consumer of theproduct but also active agent of production. Among the four factors of productionlabourer, land, capital, and organization - labourer and organizer are active agents ofproduction. Human resources help in the development of the economy in the followingways:

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(a) Development of Physical Capital:The development of physical capital like road, highway, bridge,

dam, irrigation networks, hospital, school depends on availability oftechnicians, labourers, administrators and engineers. So it is said thatinvestment in education and health bring more return than investment inroads and other physical capital. The development of physical capital ispossible only with the development of human capital.

(b) Development of Natural Resources:The natural resources are necessary but not a sufficient condition

of economic development of a country. The country may have rich andvaried natural resources but they are not enough. What is more essentialfor rapid economic development of a country is the quality of its humanresources. Given the similar natural resources, a country having anoptimum level of skilled, acquisitive and entrepreneuring humanresources will have a better chance of having a higher standard of livingthan any other country where the condition of human resources are notequally favourable.

(c) Development of Industries:Human resources are important to develop industries. The

existence of different skilled manpower like mechanical engineer,computer specialist, chemical engineer is pre-requisite for thedevelopment of industry.

(d) To Develop Government Services:Human capital is necessary for staffing even in government

services. Government becomes effective when needed-trained staffs areavailable. Innovative and important changes in government are possibleonly if human resources are available.

(e) Save Foreign Exchange:Underdeveloped countries not only import physical capital but also

import technical know how and skills. With foreign aid, technicalpersonnel are also imported. Thus development of human resources helpto reduce the expenditure on foreign expert too.

(f) To Remove Economic Backwardness:Underdeveloped countries are characterized by economic

backwardness. Low labour efficiency limits specialization in occupationand trade. Similarly, deficiency in supply of entrepreneurship is

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responsible for economic backwardness. Skilled, educated, experiencedand healthy manpower helps to overcome economic backwardness of thecountry.

(g) Improve Traditional Skill and Culture:Some of the traditional belief, culture and values are not healthy

and conducive for economic development. For example, witchcraft, castesystem, dominance to women folk by male members of society, all thesepractices are not good for economic development and human progress.The development of education, science and technology and other socialreforms help to overcome these problems in the society.

2 Current Population Situation(a) Size of Population:

According to the latest population census of 2001, the total population is23151,423 among them 11,563,921are male and 11,587,502 female. Theannual growth rate is 2.25 per cent.

Table No.7.1Population Size, Growth Rate and Doubling Time.

Census year Total population Growth rate Doubling time

1911 5,638,749 - -

1920 5,573,788 -0.13 -

1930 5,532,574 -0.07 -

1941 6,283,649 1.16 60

1952-54 8,256,625 2.30 31

1961 9,412,996 1.65 42

1971 11,555,983 2.07 34

1981 15,022,839 2.66 26

1991 18,491,097 2.08 33

2001 23,151,423 2.25 31

Source: CBS, 1995; CBS 2002.

(b) Composition of Population:The composition of population means the number of people according to

sex, age, religion and mother tongue. On the basis of sex, there are11,563,921 males (49.94%) and 11,587,502 (50.05%) females. Female

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population outnumbered men by a little more than 23 thousands. The overallsex ratio in 2001 for Nepal, measured as number of males per 100 femalepopulation, stands at 99.80.

(c) Age Structure:Nepal’s population is primarily young. Out of total population 39.35 per

cent of the people are between 0-14 years age group. Similarly, 54.15 per centof the population is in the age between 15-59 and 6.50 per cent of the peopleare in age group of 60 and above. Population above 60 age and below 14 agegroups is known as dependent population. The dependent population has to besupported by the economically active people who fall in the age group between15 - 45 ages. The age structure shows that one person is in working age forevery one dependent person.According to WHO definition, age range 10-19 is called adolescents and age

range 15-24 is youth. Thus adolescent population constitutes 23.62 per cent andyouth population is 19.38 per cent of the total population.

Table No.7.2Percentage distribution of population by 5 years age group, 2001

Age Group Male Female Total

0 – 4 12.29 11.95 12.12

5 – 9 14.38 13.87 14.12

10 – 14 13.50 12.73 13.11

15 – 19 10.44 10.57 10.51

20 – 24 8.33 9.40 8.87

25 – 29 7.23 7.95 7.59

30 – 34 6.39 6.71 6.55

35 – 39 5.73 5.79 5.76

40 – 44 4.75 4.82 4.79

45 – 49 4.13 3.99 4.06

50 – 54 3.46 3.28 3.37

55 – 59 2.80 2.49 2.65

60 – 64 2.31 2.27 2.29

65 + 4.26 4.16 4.20

Source: CBS, 2002.

(d) Religion and Language:

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Nepal is the only Hindu Kingdom in the world. On the basis of religion,latest population census reveals that 80.62 per cent of the people follow Hindureligion, 10.74 per cent Buddhism, 3.60 per cent, Kirat, and the rest are otherreligions like Islam, Christian, Jain, Sikh etc.

The official language is Nepali. According to the population census 2001,the classification of population by mother tongue shows that 48.98 per cent ofpeople have Nepali mother tongue. And population speaking Maithili, Bhojpuri,Tharu, Tamang and Newari tongue are about 12.4, 7.6, 5.2 and 3.7 per centrespectively.

(e) Density of Population:The density of population means total number of people living in per square

kilometer area. The density of population for the country is 157 persons per squarekilometer while in terms of ecological regions, 33 persons in mountain, 167 persons inhill and 330 in Tarai. According to latest census, the lowest density (71) is found inMid-Western Development Region and the highest (293) in the Central DevelopmentRegion.(f) Rural/Urban Population Distribution:

There are 3914 Village Development Committees (VDCs) and 58Municipalities in the country. There are certain criterions to be urban areas likethe total number of population must be 20 thousand and there should be road,electricity, health and education facilities. According to population censusreport 2001, 85.8 per cent of the people live in rural areas and 14.2 per cent inurban areas.

(g) Population Distribution by Development Regions and Districts.Nepal is divided into 5 Development Regions, namely Eastern, Central,

Western, Mid-Western and Far-Western Development Regions. Eachdevelopment region is composed with number of districts. Altogether there are75 districts. In terms of district ranking, Kathmandu district contains highestpopulation size (1,081,845) and Manang district has only 9587 population.

8 AGRICULTURELand is main source of agricultural production. Total agricultural land in Nepal isabout 2.6 million hectares. A farmer, on average, holds 0.95 hectare (18.6 Ropanies)of land. However, 70 per cent of farmer holds less than one hectare of land. Among

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them 44 percent farmers have less than 0.5 hectare of land. The actual farmers havingcultivation skill have less land. This has been a great problem for the development ofagriculture.1 Role of Agriculture in Economic Development.Agriculture is the backbone of Nepali economy. It occupies an important place in oureconomy. The role and importance of agriculture are as follows:(a) Contribution of Agriculture to National Income:About 41 per cent of GDP comes from agriculture. Agriculture plays a significant rolein the national income, as the non-agricultural sector is very small in the country.(b) Source of Employment:According to the latest census, 86 per cent of the people live in rural areas and majorsource of employment and livelihood for about 81 percent of people is agriculture.(c) Source of Food:Agriculture is the source of food to the growing population and livestock. Paddy,Maize, Millets and Wheat are principal food grains of Nepali people. It also providesfodder for livestock.(d) Source of Raw Material for Industries:All agro-based industries like jute, oil, rice, sugar etc depend on agriculture. Besides,agriculture also provides healthy and strong manpower to the industries.(e) Development of Cottage Industries:During the off season, farmers are engaged in village and cottage industries. The rawmaterials, manpower, skill and capital required for the village industries are supportedby agriculture.(f) Basis of Foreign Trade:Agriculture helps both internal and external trade. Food grain, vegetable, fruits etc arepurchased by all people. Thus, development of trade depends on agriculturalproduction. Similarly, most of the exportable commodities are of agricultural originpulses, ghee, jute, hides and skin, and tea are important items of exports.(g) Source of Public Revenue:Agriculture is one of the main sources of government revenue. The registration of landand revenue from the export of agricultural products constitute an important source ofgovernment revenue.(h) Main Source of Employment and Earning for Women:In Nepal, both men and women work in agriculture. Women in particular take care oflivestock, kitchen garden, and poultry. These activities supplement family income and

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also fulfill family diet. Thus agriculture is particularly important for the developmentof the women and makes them economically independent.(i) Basis of Economic Development:Agriculture is the basis of economic development in the country as it provides capitaland employment to a large number of people. It earns foreign exchange, and providesfood to the growing population. It is also source of income to the government. Thuseconomic prosperity of our country depends on the development of agriculture.

2 Characteristics of Nepali Agriculture.(a) Subsistence Farming:Nepali agriculture is subsistence farming in nature. Subsistence farming is one inwhich the sole aim of the production is to produce for self-consumption and therebymake living from it. Most of production in farming is just enough for farmer's ownconsumption and for the consumption of the family members.

(b) Predominance of Food Crops:In subsistence type of agriculture, the farmer gives priority to the cultivation of foodcrops. Since the primary aim of production is to meet the domestic requirement, foodis the most important crop. It is only when the food need of the farmers have beenfulfilled they devote their time and resources for the production of other crops formarketing.(c) Regional Variation:Due to varied topography and climatic conditions, different crops are cultivated indifferent regions of the country. The total cultivated area for food crops such as paddy,maize, wheat, millet and barely occupy 85 per cent and the rest, i.e. 15 per cent ofcultivated land is occupied by cash crops. Paddy occupies 55 per cent of the totalcultivated land. All Tarai districts, Kathmandu valley and Pokhara valley are main areasof Paddy production. Maize is produced in hilly areas and inner Tarai area. Wheat andBarley are produced in Kathmandu and Pokhara valleys. Jute, Sugarcane, oil seeds,Tobacco are cultivated in Tarai. Besides these cash crops, Tea, Potato, Pulses,Cardamom and fruits are also cultivated. Horticulture, floriculture, bee farming, poultryfarming Sericulture and domestic cattle are also raised in different parts of the country.(d) Scanty Irrigation Facility:Nepali agriculture is still depending heavily on monsoon rain. Up to the Ninth Plan only37 per cent of cultivated land got irrigation facility throughout the year. Scantyirrigation facilities has hampered the crop diversification and also productivity of land.

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(e) Small Holdings:The farm size is very small and also fragmented over the year. The average size offarmland is 0.96 hectare as reported in National Sample Census of Agriculture (NSCA).The farm sizes tend to be larger in Tarai as compared to hills. The farm size is alsosmaller in urban areas compared to rural areas. Another problem of Nepali agricultureis fragmentation of land holding. Fragmentation is more common in western part ofthe country. Among geographical regions, fragmentation is highest in the mountain,lowest in Tarai belt. About 70 per cent of farmers own less than 0.5 hectare of land.Because of this small holding, intensive cultivation and modernization of agriculture isdifficult. The big landholders are mostly absentee Jamindar who do not cultivate bythemselves. In Nepal, it is most unfortunate that actual farmers do not posses theeconomic size of land to improve agricultural production.(f) Land Tenure System:Dual land ownership is still prevalent in Nepal. The big landowners usually rent land totillers on share cropping basis. The renting of land for fixed quantity of produce isprevalent in most parts of the country. One of the long-term objectives of land reformis to eliminate tenancy (Mohiyani) system by eliminating dual land ownership.(g) Low Productivity:Excessive dependence on monsoon, traditional method of cultivation, small holding,pressure of population on limited land and limited irrigation facilities are the maincauses of low productivity.(h) Land Area Distribution:A majority of households in Nepal own land. About 95 percent of households ownland; 35 percent of the households rent land and about 5 percent of households do notown land in 1995/96. According to the Nepal Living Standard Survey, 1996 (NLSS) theconcentration index for the total land operated was 0.54??. This shows the presence oflarge number of small farms in the country. The bottom 40 percent of agriculturalhouseholds operated only 9 percent of total land area. On the other hand top 6percent of agricultural household own more than 33 percent of the total land.There are 70 per cent farmers who own less than 0.5 hectare of land. Thirteen percentof large farmers operate with 2 hectare and more land. Smaller farmers predominate inHill region and large farms in Tarai region(i) Household Heads:The majority of agricultural household heads in the country are men. Women headedagricultural households constitute less than 15 percent of the total agricultural

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households. Women headed agricultural households are most common in hills and lessprevalent in Tarai. In hill region due to out migration of men folk for employment,agricultural operation has left to the women.

3 Problems of Nepali Agriculture:Agriculture is the mainstay of Nepali economy. According to Agricultural ProspectivePlan (APP) the annual growth rate of agriculture is 3.3 percent and annual growth rateof population is 2.25 percent. Irrespective of implementation of long term APP,agriculture still faces many problems due to lack of clear-cut strategy and ineffectiveimplementation of agricultural plan. The major problems of agriculture are as follows;(a) Pressure of Population on Land:More than 81 percent of working population depends on agriculture. Due to slowgrowth of non-agricultural sector, people are forced to depend on agriculture. As aresult, there is disguised unemployment, which is also responsible for low productivityper worker. Most of poor and small farmers have not benefited from the developmentprogrammes due to ineffective strategies to reach them. People are forced to work onlimited land due to lack of non-agricultural employment(b) Technological Problem:One of the responsible factors for the backwardness of agriculture is the use of poorand unscientific technique for production. Peasants are still using age-old method ofcultivation and using chemical fertilizer haphazardly. The use of suitable fertilizer isequally important. Farmers need to use fertilizers after detailed soil tests. Due toignorance in most of cases farmers have not used chemical fertilizer after testing soilas a result, the productivity of soil has not improved. Besides, only small percentageof farmer use improved seeds. For instance, only 5 percent of farmers use improvedseeds in paddy cultivation. Similarly, mechanization of agriculture is very low. Onlyfew farmers can afford modern equipment like tractor, thresher and water pump setfor irrigation.(c) Lack of Adequate Irrigation Facility:Water is lifeblood for any living being. Absence of irrigation facilities forces farmers todepend on rainwater in mainly monsoon, which is uncertain in time, quantity and place.Winter season in Nepal is quite dry, as such diversification of crop is not easy.(d) Lack of Adequate Agricultural Credit:Farmers still depend on traditional sources of agricultural credit due to lack of easyaccess to institutional credit in rural areas. The institutional credit accounted to only20 percent of agricultural credit. The Production Credit for Rural Women (PCRW) and

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Micro Credit for Women, though highly successful in catering need of women it stillhas to be reached to more needy women farmers. Besides, due to extreme poverty,farmers have no resources to undertake necessary investment in agriculture. They areeven forced to borrow money for consumption and social activities leading to perpetualindebtedness.(e) Lack of Marketing Facility:Lack of marketing facility is still another problem. Due to lack of storage facility andaffordable transportation facility, farmers are unable to bring their products in themarket to get good price for their product. Instead, they are obliged to sell theirproduct to middlemen at very low price. It is not only the problem for output marketbut also a great problem to the farmers to purchase seeds, fertilizers and insecticides.For women farmers marketing is critical problem as there is no security in longdistance transportation, no allocated place in the market and toilet facility. Thus,women farmers are forced to depend on men or middlemen to sell agriculturalproducts.(f) Defective Land Tenure System:Although Land Reform Act of 1964 insured tenancy right and fixed rent, in practice,poor and ignorant farmers are required to pay more than 50 percent of rent fixed bythe Act. Shrewd and cunning landowners always enjoy the hard toil of farmers withoutmaking any effort by themselves. This is also responsible for de-motivation for thefarmer to improve agricultural productivity. The Land Administration Rules of 1968 AD(2024 B. S.) is also discriminatory towards women. Similarly, the Land Reform Act2021 B. S. (1978 AD) deprives tenancy right to a daughter who is under the age of 35years.(g) Lack of Research:The National Agriculture Research Council (NARC) was established in 1991 AD as anapex autonomous body for undertaking agricultural research in the country. It isprimarily concentrated in commodity research in order to increase productivity ratherthan the farmer's problems. As such women farmers need is not in priority agenda ofresearch activities.

4 Measures or remedies to Overcome Agricultural Problem:Following measures should be taken to overcome problems in agriculture sector:(a) Control Population Growth:Population is increasing very fast in Nepal. The high population pressure on land isone of the critical problems. Therefore, attempts should be made to reduce population

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growth rate including migration from neighbouring countries. The population controlprogramme should be implemented through effective family planning programmes,spread of female education, increase employment to the women, implementation ofincome generating programmes for women and improvement of socio-economicstatus of women. Besides reducing population growth, non-agricultural sector shouldalso be developed at a faster rate.

(b) Development of Simple and Affordable Technology:Improved technology should be within the reach of all farmers. As women are alsoinvolved side by side with men in agriculture activities, such technology should bewomen friendly.(c) Adequate Irrigation Facility:Adequate knowledge should be provided to farmers for the proper use of water andmaintenance of irrigation system. The users should be involved in all aspects ofirrigation planning.(d) Organized Marketing Facility:There should be organized agricultural marketing facility to ensure fair price foragriculture product and availability of agricultural input in time. Similarly, in HatBazars 1 women's needs and concern should be well taken care so that woman'sproducts could be marketed at fair price.(e) Adequate Credit:Easy access to credit is one of the main factors to encourage farmers to invest in theagricultural development. As 40 percent of people live below the poverty line withouteasy access to credit facility, it is not possible for poor farmers to undertakeinvestment in agricultural development. Hence, provision should be made to makeavailable agricultural credit at easy and farmer friendly terms.(f) Agricultural Extension Service & Research:The result of agricultural research should be disseminated to the farmer. Theextension officer should provide information about agriculture both to men andwomen equally. There should no discrimination between male and female farmers. Asfemale farmers also play equally important role in agricultural development, womenshould have easy access to extension services.(g) Transfer of Ownership:Most of the farmers are tenants and do not own their own land. Obviously, landownertakes away most of the produced. This weakens motivation of farmer for higher

1 Hat Bazar: small temporary market for local products.

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production from land. Therefore, in order to motivate farmers to work very hard forthe improvement of land and its productivity, ownership of land should be transferredto the actual tillers according to the objectives of land reform Act.

5 Agricultural Marketing in NepalThe development in agriculture increases the output of farm products. There

must be market to sell these products and prices for them must be enough to coverthe cost of production including farmer's effort. There are three essential things formarketing. They are;(i) Demand for the product;(ii) Marketing system or someone through whom to sell farm products, and;(iii) Confidence of farmers in working with the marketing system.

The middlemen and intermediaries control most of agricultural marketing inNepal. The people in intermediaries business collect agricultural products from thedoorsteps of farmers and sell it to consumers. These people buy farm products atcheaper price and sell it to the consumer at higher price. Therefore, the middlemenmake the lion's share of profit.

Agricultural marketing is not organized in Nepal. Farmers either sell agriculturalproducts directly to the consumer or to traders in small “Hat Bazars” in Tarai. In localvillage market mostly producers sell their products directly to consumers. The villagemarkets are linked with the major markets through whole sellers, trading agents,dealers, retailers, hawkers, consumers and farmers.

Problems of Agriculture Marketing.The main problems of agricultural marketing in Nepal are as follows:(a) Buyer's Market:It is well understood that a systematic organization is necessary for successfulmarketing of any product. The farm product traders are well organized in their tradingnetwork than farmers. As a result, farmers are forced to sell their products at the pricefixed by buyers. Once the agricultural product reaches the local markets it is difficultto take back and it is also not feasible for everybody to store it to sell later. So, theyare forced to sell at a price fixed by those middlemen.(b) No Grading and Standardization:In order to get good price of agricultural products, farmers are required to grade theiragricultural products according to product quality. But most of the farmers have not

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adopted this practice. Therefore, the farmers are unable to get desired price for theirproducts.(c) Transportation Problem:Nepal still lacks cheap transportation facilities. Therefore, it is very difficult to sellagricultural products at a deserving price. The problem is more critical with small andwomen producers because it is not economical to transport small quantity of theiragricultural products to main markets.There is also a women specific problem. Women farmers are forced to depend on theirmen folk to sell their products due to the lack of security to travel to main markets.(d) Lack of Cold Storage and Warehouses:Agricultural products are perishable in nature if they are not stored in propertemperature. Food grains are usually stored in mud-built containers, which are easilyspoiled by insects and pests. Perishable products like vegetable and fruits cannot bepreserved for long time without cold storage facility. Unfortunately, most of thefarmers do not have access to this facility.

(e) Lack of Marketing Information:Due to illiteracy and ignorance, most of the farmers do not know the prevailing marketprice and types of goods, which are in demand in the market. In both the cases, thesufferers are farmers.

(f) Lack of Institutional Marketing:Most of the farmers have to bring their products to the market individually becausethere is no organized marketing system. As a result, they have to pay additionalexpenses which makes the products cost high and they get less price for their product.

Measures to Improve Agricultural Marketing:The following are some of the measures, which should be carried out systematicallyand effectively to make the agricultural marketing system more efficient.(a) Easy and Cheaper Transportation Facility:One of the means to improve the agricultural marketing is to provide easier andcheaper transportation facilities by improving the existing rural road network. This willenable farmers to bring their products in the market with low transportation cost andat suitable time to get good price.(b) Assurance of Fair Price:

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The government must assure fair and reasonable price for the agricultural products.This is possible only by efficient management of agricultural marketing system. Fairprice encourages farmers to make hard effort to improve agricultural production.(c) Effective Implementation of Metric System:The metric system of measurement and weighing has been introduced in the countrysince a long time; but the substandard weighing and measurement systems are still inuse in many parts of the country. The authority concerned must pay special attentionto curb such practices through regular observation and investigation.(d) Cold Storage and Warehouse Facilities:Farmers get very low price for their products because most of the farmers are forced tosell their output immediately after harvesting season when prices are generally verylow. They are compelled to do so because of lack of warehouse facilities. If warehouseand cold storage facilities are available, products could be brought to the marketaccording to demand situation and get a good price for their products.(e) Facilities for Processing Agricultural Products:The processing facilities of agricultural products should be made available in variousparts of the country so that farmers can easily process their products and getreasonable price for their labour.(f) Market Information:Proper information is essential for efficient marketing of any product. Therefore, themarket information should be easily accessible to the farmers. This will help to get theright commodities to the right places at the right time and with minimum waste.Reliable and proper market information help to get fair price for agricultural products.

Agricultural Marketing Policy and Programmes:Agricultural marketing is an important component of agricultural development. Thegovernment has approved following policies in respect of agricultural marketing:- To provide marketing support measures in production pocket areas or commercial

production centres.- To encourage involvement of private sector.- To fix and implement minimum support prices for principal cereal crops.- To develop marketing infrastructure like wholesale market centres and collection

centres etc.- To provide agro-marketing information service to the producers, traders and

consumers.- To enhance the role of farmer groups in agricultural marketing.

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- To develop Hat-Bazars in rural areas.- To provide legal support for agricultural marketing development.

In order to develop agricultural marketing following programmes have been developed.(a) Wholesale Market Centres:The Wholesale Market Centre of fruits and vegetables has been developed at Kalimati,Kathmandu Metropolitan City.(b) Minimum Support Prices:The minimum support prices announced by the government covers cost of productionplus a reasonable profit. Minimum support price programmes for cereals areimplemented through Nepal Food Corporation.(c) Price Information System:The daily-wholesale prices of fruits and vegetables in Kalimati Wholesale Market arebroadcasted through Radio Nepal. The Marketing Division of Ministry of Agricultureand Cooperative publishes prices of some of the agricultural products in its annualbulletin.

6. Agricultural Finance:In the general sense, the term agricultural credit means the short term, medium termand long term loans, given to the farmers by any financial institution to enable them touse for the agricultural production.

Role of Agricultural Credit:(a) For Agricultural Inputs:The agricultural productivity is very low because the majority of farmers use traditionalmethods of cultivation. To modernize agricultural sector, farmers need modern toolsand other inputs like fertilizer, seed, insecticides etc. But average farmers cannotafford to buy themselves those inputs. Thus the agricultural credit is necessary forfarmers to buy these agricultural inputs.(b) For Buying Land:The excessive pressure of population on land has made the nature of land holding verysmall. The productivity from the small size of holding also goes down. Thus there is aneed to consolidate the land holding. Therefore, whenever an opportunity comes for afarmer to consolidate his land holding, he needs money to buy adjoining land. For this,farmers need a long-term agricultural credit.(c) Agricultural Related Activities:

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Farmer needs money to buy ox, buffalo, cow, goat, poultry etc. and to carry onagricultural related activities. Besides, farmers also need both medium and long termcredit for buying heavy agricultural equipment such as water pump sets, tractors,thrasher etc.(d) Social and Domestic Expenditures:Farmers also need credit to meet consumption expenditure during off-season andsocial expenditures like marriage, death ritual, social modes etc.(e) Agricultural Enterprise:The agricultural credit is needed for secondary occupations such as cottage industry,livestock farming, fish farming, bee keeping, mushroom farming etc. For theseactivities, farmers need long term and medium term credit.

Sources of Agricultural Credit:Farmers get agricultural credit from the following sources:(a) Village Moneylenders:The traditional source of credit includes village moneylenders, friends and relatives. Inrural area, village moneylenders are usually a Jamindar. They are the main sources ofagricultural credit.The poor farmers get loans from these landlords and village moneylenders wheneverthey need it. The village moneylenders not only charged an exorbitant interest rate butalso charged extra amount of money. Thus, once a poor farmer borrows money, theyare forced to give away their property including farmland to the village moneylendersdue to inability to pay back the loan. But, after the implementation of the LandReform Act of 1964, such practices have been curbed down to a great extent. But, inremote areas, farmers are still compelled to borrow money from local moneylendersdue to the absence of institutional credit facility. On the other hand, poor can not getloan from institutions due to lack of collaterals.(b) Friends and Relatives:The farmers also borrow money from their friends and relatives. But as majority of thepeople in rural area lives below the poverty line, credit from friends and relatives arealso limited.(c) Institutional Source:After the introduction of economic liberalization in Nepal, a number of financialinstitutions came into operation. At present, there are 16 Commercial Banks, 16Development Banks, 5 Regional Rural Development Banks, 53 Finance companies, 34Saving and credit cooperatives and 18 Non-government Organizations that have been

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operating up to 2003AD. According to Nepal Rastra Bank's policy, 12 percent of thetotal loan disbursed by a commercial bank should be given to priority sector credit andout of 12 percent, 0.25 to 3 percent should be given to the deprived sector. The singleborrower loan limit of deprived sector was raised to Rs.30,000 from Rs.15,000 in 1998.(d) Production Credit for Rural Women and Micro CreditIn 1982, Production Credit for Rural Women was also introduced which added a newdimension to rural credit. The Ministry of Local Development implemented theProduction Credit for Rural Women (PCRW) project. Now, it is under the Ministry ofWomen, Children and Social Welfare, with loan assistance from Internal Fund forAgricultural Development. This is the first programme focused on women in Nepal.The PCRW covers 55 districts. Under this programme, women can borrow money fromdesignated branches of Nepal Bank and Rastriya Banijya Bank against a group collateralbasis.With slight modification in implementation modality, Micro Credit Project was startedin 1994 with financial assistance from Asian Development Bank in 12 districts and 5municipalities. This loan was also based on group approach. This is the first creditprogramme in which the government recognized the role of NGOs in micro-financeactivities. The main activities of NGOs are to form women groups, help to mobilizegroup saving and link women group members to commercial banks. Thus, selectedNGOs act as a social mobilizer and also as credit agent. In the last stage, selectedNGOs work as Financial Intermediary. The commercial banks provide 2 to 4 percentinterest commissions to credit agents/NGOs as service charge on interest earned whichis determined on the basis of loan recovery rate.The PCRW and Micro Credit for Women covers 67 out of 75 districts of Nepal. Theyprovide services in 624 village development committees and 28 municipalities. Loan isgiven to women for income generating activities like purchasing livestock, setting upsmall enterprises and other agriculture related activities. Loan recovery shows thatwomen are careful about repaying loans on time.(e) Small Farmer Development Programme (SFDP)Small Farmer Development Programme was introduced by Agricultural DevelopmentBank (ADBN) in 1975 as a pilot project in 75 districts. At the end of FY 1997/98,170,170 families benefited through 381 projects in 604 VDCs. In these projectsRs.544.7 million was invested and Rs.473.7 million was recovered. Similarly, groupsaving reached up to 75.8 million by the end of FY 1997/98. This includes both maleand female group.???????(f) Rural Development Banks:

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To provide collateral free loan to the economically deprived people, Rural DevelopmentBanks have been established in all of the five development regions. By mid 1999, ruraldevelopment banks have disbursed a total credit of Rs.2090.20 million to its 87,317members through 19,410 groups.(g) Intensive Banking Programme (IBP)Under this programme, 60 percent of priority sector credit should be given to thefamilies living below the poverty line or people whose annual income is less thanRs.2,511. This is a poverty focused credit programme of commercial bank.

9: POVERTY1 Definition of Poverty.

The concept of poverty has been defined in different perspectives. They are asfollows:

a) Income perspectiveb) Basic needs perspectivec) Capability perspective.

In general, Human Development approach has taken in all of the above threeperspectives but particular emphasis has been given to capability perspective.However, development is a process of enlarging peoples' choices and raising the levelof well being. The concept of poverty focuses on choices and opportunities most basicto human development for long, healthy and creative life, decent standard of living,freedom, dignity, self respect and respect for others.

Poverty is socio-economic phenomenon, which does not have any precisedefinition. According to the World Bank, the people with annual per capita income of$275 are termed as extremely poor and per capita income of $370 as poor. With percapita income of $210 Nepal falls under the category of extremely poor.Poverty is classified into two categories:(a) Absolute poverty:

According to the World Bank, absolute poverty is "as a condition of life sodegraded by disease, illiteracy, malnutrition and as to deny its victims basic humannecessities." The absolute poverty approach focuses on poverty from minimum level ofincome required to sustain life or estimation of minimum dietary needs. Dietary needsdiffer from country to country. For Asia the estimated dietary needs is 2250 caloriesper day.(b) Relative Poverty:

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The comparison between the rich and the poor or income gap betweendeveloped countries and poor countries is known as relative poverty. Thus, absolutepoor people are the great concern than relatively poor people for any country.

2. Characteristics of Rural and Urban Poor:The poor include landless, small land holders, agricultural labourers, village

artisans, poor village women, low paid unskilled workers, landslide/flood victims andunemployed persons. Similarly in urban areas, slump dwellers and poor unemployedpeople are the poor.

The main characteristics of the poor are as follows(a) Rural and Urban Poverty:

The poor mostly found in rural areas where people suffer from unemployment,malnutrition, ill health, illiteracy and lack of opportunity for gainful employment.Occasional landslide and deforestation have further complicated the extent of poverty.Internal insecurity due to Maoist problem and ineffective government has furtherdeteriorated the situation.

In urban areas, migrated people in search of jobs, slump dwellers, unskilledconstruction workers suffer from uncertain jobs. Low wage, exploitation from themiddlemen and brokers, ill health, lack of basic needs are the major problems of thepoor. There is also danger of sexual exploitation of women and girls who come fromrural areas seeking for jobs in urban areas. Even poor boys are vulnerable to sexualexploitation.(b) Larger Family Size:

The size of family is generally large in a poor family. They do not have access tomodern contraceptives. Besides, due to prevalence of a strong son preference andbenefit from child labour, they do not want to use contraceptives. As it is notcompulsory to send children to school, poor family children help the parents ineconomic activities. Thus, they do not mind to have a large family. On the contrary, apoor family aspires to have more children to get support for household andagricultural activities. Due to lack of education and income generating activities, thestatus of women in rural areas is very low. Although, women work same jobs like menthey are paid less. Equal wage for equal work is not strictly implemented. Low statuswomen is also one of the reason for large family size.(c) Land Major Asset:

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Land is important asset in agricultural country. The poor don't own productiveland. They have to cultivate in marginal land, which do not have facility of irrigation orare most prone to landslide in the hilly areas and flood in Tarai. Because of lack ofasset, it is very difficult to borrow credit from banks.(d) Lack of Education:

Poor also lack education, training and information to improve earning capacity.As the result, they are forced to remain in the vicious circle of poverty. Poor womenagain suffer from the burden of reproductive and productive work. Due to lack of easyassess of basic needs like water, fuel and fodder most of their time is spent formeeting needs of family’s survival instead of attending school. Even if they attendschool, most of them are dropouts from school due to early marriage and need ofundertaking household responsibilities.

(e) Dependence on Agriculture:Agriculture is main source of income for poor people in rural areas. But

subsistence agriculture does not bring much income to the poor farmers. The mainsource of supplementary income is labour wage in construction work.

In urban areas poor people are self-employed in micro enterprise like smallshops, teashops, wage labour and other informal sectors.(f) More Expenditure on Food:

The poor people can spend very little income on education and health.Whatever they earn, they are required to spend on food. The distribution of food inthe family is again biased to male and earning member of the family. Thus women aremalnourished resulting in poor health.(g) Status in the Society:

The poor have low status in the society, as they are uneducated, unskilled andhave fewer opportunities. Their representation in the government, political parties andother sectors is very low. They are marginalized, exploited and manipulatedeverywhere. Even they are deprived of basic human rights.(h) Gender Discrimination:

In rural family, there is discrimination between sons and daughters. Generally,daughters are treated as liability, because after marriage they have to leave the familyand live with husband's family. Therefore, parents do not want to invest on daughter’seducation. There is less gender discrimination in urban areas as compared to ruralareas.

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3. Poverty Level:The National Planning Commission estimated that 42 per cent of the population

is living below poverty line. The poverty level was estimated to be Rs.4404 on the basisof a daily per capita calorie requirement of 2250 and other expenses in non-fooditems. Nepal Living Standard Survey, 1996 (NLSS) conducted by the Central Bureau ofStatistics (CBS) provides the most recent estimate of poverty both at national andregional levels on the basis of household consumption expenditure data. NLSS showsthat 44 percent of the rural households and 23 percent of the urban households wereestimated to live below the poverty line. Nepal’s, being agricultural country, access toland is very important about 70 percent of farmer own less than 0.5 hectare offarmland. Poverty is wide spread in Nepal. However, the incidence of poverty is morecritical in the mid-western and far-western regions of the country. Similarly, the plightof bonded labour in Banke, Bardiya, Kailali, Dang and Kanchanpur and someindigenous people and castes as Kami, Damai and Sarki, Kamaiya etc is evendeplorable. The condition of low caste group women is even worse.

4. Poverty Alleviation Programme:The Ninth Five-Year Plan has placed its sole goal to poverty alleviation. It has

targeted to reduce the poverty level from 42 percent to 32 percent by the end of theplanned period. The long-term goal is to reduce poverty level to 10.0 percent by theyear 2016. By the end of the Ninth Plan the population living under poverty line hasfallen down to 38 percent.

The Tenth Plan (2002-2007) brought out Poverty Reduction Strategy Paper. Likein the Ninth Plan the sole objective is to reduce poverty level from 38 percent to 30percent by the end of the Tenth Plan. The poverty reduction strategy is based on fourconditions. They are (a) Broad based economic growth (b) Targeted programmes forthe ultra poor, vulnerable and deprived groups (c) Social sector development includinghuman development and (d) Good governance.In order to reduce poverty level following policies and action plan will be adopted.

- To increase employment opportunity.- To increase the access of poor to employment- To implement targeted programme of income generation and employment for the

marginalized class.- To enhance productivity for the increment of income level of employment- To maintain labour interest and harmonious relation between management and

labour

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- To promote foreign employment.

The target is at the end of the Tenth Plan period the total unemployed including thefully unemployed is expected to decrease from 17.4 percent (FY 2059/60) to 13.5percent

10. INDUSTRY1. COTTAGE AND SMALL INDUSTRIES (CSIs)Cottage and Small Scale Industries:Simple commodities are produced in cottage and village industries usually by a singlefamily or with a few hired employees. Nepal has a long history of household andcottage industries. In villages weaving of baskets and ropes, paper making, utensils,cloth weaving, shoe making, jewelry, wood craft, stone craft, metal craft etc are carriedout as household industries. The Malla period was regarded as the golden age for thedevelopment of cottage and village industries in Kathmandu valley and adjoiningsettlements. The temples, Pagodas, stone waterspouts, carved wooden objects etc areall living examples of glorious days of handicraft industry in Nepal.In earlier days, many villages were even specialized in the production of differentcommodities like "Karuwa" and “Dhaka clothes” in Palpa, “Bhadgauali Topi” inBhaktapur, “Khukuri” in Bhojpur, cooking (mustard) oil in Khokana and so on. Earlier,people were self sufficient in most of their requirements. Women used to engage inproduction of household requirements like clothes, Sukul (straw floor mat), Dala(Bamboo basket), Doko etc. The Gharelu Prachar Elam Adda, which was established in1940 AD, had promoted cottage and small-scale industries in different parts of thecountry.During the Ninth Plan (1997-2002) HMG and UNDP has been implementing MicroEnterprise Development Programme (MEDP) with the objective of poverty alleviationand employment generation.

1) Definition of Cottage and Small Scale Industries (CSIs):The industries, which are labour intensive based on local resources and reflectcountry's traditional art and culture, are known as cottage industries. According toIndustrial Policy of 1992 AD, the industries having fixed investment up to Rs.1 Croreare classified as small-scale industries. In terms of industrial units, still more than 90percent of the industries fall under small and cottage industry. Such industries havecontributed over 76 percent of employment in the industrial sector, and 50 percent in

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value addition. Thus, there is a huge potential for using the development ofsmall-scale and cottage industries as important means for poverty alleviation.

There are 9,890 units of cottage and village industries with investment of Rs.7,720million in 2001/02 as reported in the Economic Survey of 2002/03. (HMG/Ministryof Finance).

2) Importance of Cottage Industries:Cottage and small-scale industries are important for Nepal due to the followingreasons:a. Low Investment:

The cottage and small-scale industries do not require large investment. Most ofthe works are mainly done by hands or with the use of simple tools and machines.Cottage and small-scale industries have been provided loan from theintensive-banking programme of the commercial banks. In Fiscal Year 2001/02, atotal of 1,246 cottage and small-scale industries spread over five development regionsof the country, were provided with the loan amounting to 145.4 million.b. Based on Local Raw Material:

The cottage and small-scale industries are based on local resources like forestproducts, mineral and agricultural products. Thus, they are most suitable for themobilization of local resources.c. Require Simple Skills:

The cottage and small-scale industries do not require sophisticated skill orformal training. The required skill is acquired by doing and observing. Thus, all themembers of household can contribute to the production process just learning by doing.d. Proper Utilization of Spare Time:

Farmers need not work in the fields throughout the year. During the off-season,farmers can engage themselves in these household industries and supplement theirincomes.e) Suitable Work for Rural Women:

Most of rural women are illiterate and poor. But they are labourious and engagetheir spare time in cottage and village industries and earn some income to improvetheir economic condition.f) Local Market:

The products of cottage and small industries do not require big market. Theseproducts can be sold in the local markets and Hat Bazars.g) Source of Employment:

Cottage and small-scale industries have contributed to the economic and socialupliftment of the country by lessening the problem of unemployment, and poverty.The cottage and small-scale industries provide employment to the rural people. There

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is tendency of migration of adult people from villages to towns and from hilly areas toTarai region and even outside the country in search of jobs. This has led to thedisintegration of family and villages. Villages are left with old people and children andtown has been flooded with more people resulting a different socio-economic problem.Developing cottage and village industries can control this kind of problem.h) Reduce Import and Increase Export:

The imports of goods are more than export. This causes unfavourable balanceof trade and depletion of scarce foreign exchange. The development of cottage andsmall-scale industries can help in reducing import of goods and even boost country'sexport. The handicraft and traditional industries produce products like Carpets,Pashmina, Rhadi, Pakhi, Leather goods, Cheese, Butter etc. These products of cottageand small-scale industries are gaining popularity in local as well as in internationalmarkets.i) Promote Tourism Industry:

Tourists usually buy handicraft products as souvenir. Thus cottage and smallindustries also help to promote tourism in the country.j) Protect Culture and Tradition:

The products of cottage and small-scale industries reflect culture and traditionof different communities living in different parts of the country. Thus these industriesare important to preserve culture and tradition of the country.k) Help Large Scale Industries:

The small and cottage industries can provide intermediate products whichlarge-scale industries use in their production processes. Thus, small and cottageindustries help each other. There are certain products, which are not suitable toproduce in large-scale industries but are necessary for them. The small and cottageindustries produces such products. For example, containers are required for packingfinished goods produced by large-scale industries. These items can be produced incottage and small-scale industries.(l) Decentralization:

The Cottage and Small Industries can be established with a minimum resourcesand simple skill. Thus they can be established in any part of the country to diversifyindustrial production and reduce regional disparity in economic development.

3. Problems of Cottage and Small Scale Industries:Irrespective of crucial role of cottage and small-scale industries, they are not

free from problems. The main problems of these industries are:

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a. Problem of Finance:The cottage and small-scale industries face financial problem. Usually, initial

investment comes from own sources and credit from non-banking sources at very highrate of interest. The banks shy away to provide loan to cottage and small scaleindustries. The small entrepreneurs have no access to modern development banks inrural areas.b. Shortage of Raw Material:

These industries also faces continuous shortage of rawmaterials at reasonable price. For example, forest based industrieslike bamboo is facing difficulty to get raw material due to depletionof forest in the country.

c. Problem of Modern Technology:The market structure is changing very fast. Most of the small and cottage

industries have not been able to introduce modern technology to meet the demand ofcompetitive market due to lack of access to suitable technology.d. Problem of Marketing:

The goods produced by cottage and small-scale industries are generally not ofstandard. Usually, they suffer from poor design and quality. The prices are also notcompetitive. As a result, it is difficult to market the products. Many products likebamboo products, pottery, hand knitted straw floor mats are facing marketing problem.e. Problem of Transportation:

There is difficulty in transporting finished products to the market due to lack ofeasy and cheaper means of transportation facilities. The same problem applies fornecessary raw material for the industry.f. Middle-person Exploitation:

The small producers are not able to sell their product directly into the market.They are obliged to sell the products at cheaper price to the middle-persons. Thegovernment owned cottage industry shops are also not able to promote cottage andvillage industries.

2. Medium and Large Scale Industries (MLSI).1. Beginning of Organized Industries:

The medium and large-scale industries started with the promulgation ofCompany Act 1936 AD in the country. Establishment of many other industriesfollowed the establishment of Jute Mill in Biratnagar. Many consumer goods industries

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were established during the post World War II period. The objective of establishmentof such industries was mainly to meet the scarce condition of consumer goods createdby the war. Unfortunately, the end of Second World War brought together the closureof many industries due to the depression and lack of basic infrastructure like transport,communication and financial institutions. The first industrial policy was introduced in1957 and amended many times. Some financial infrastructure namely Nepal IndustrialDevelopment Corporation (NIDC) and industrial estates were established for thedevelopment of medium and large scale industries. After the restoration of multipartydemocratic system, new industrial policy was introduced in 1992. According to thenew industrial policy, the industries having fixed investment of Rs.1 Crore to 5 Crore isclassified as medium scale industries and industries having investment of above Rs.5Crore is classified as large-scale industries. The main medium and large-scaleindustries in Nepal are Biratnagar Jute Mills Ltd., Raghupati Jute Mills Ltd., MorangSugar Mill, Mahendra Sugar Company of Bhairahawa, Match Factories in Birgunj, Butwal,Hetauda. Bhadrapur, Cigarette Factories in Janakpur, Birgunj and Hetauda, CottonTextile Industries, Himal Cement Factory, Saw Mills, Brick & Tile Factories, BeerFactories, Noodle Factories, Carpet Factories, Garment Factories and so on. Most ofthe industries are located in eastern Tarai and Kathmandu valley.2. Importance of Medium and Large Scale Industries:

The medium and large-scale industries produce goods at large scale. Thus,they can supply superior quality goods at cheaper price to the consumer.

The medium and large-scale industries have following importance:a. Development of Capital Goods Industries:

The capital goods industries are those industries, which help production ofother goods. Production of equipment, raw materials like cement, iron rods,building plants are capital goods industries. The capital goods industries aremedium and large-scale industries and established both in private and publicsectors. The development of capital goods industries is essential for achievingrapid economic development in the country.

b. Development of Consumer Goods Industries:The establishment of medium and large-scale industries is essential to fulfill thegrowing needs of edible consumer goods and durable consumer goods. Themedium and large-scale industries can produce goods at large scale of superiorquality at cheaper price to satisfy the demands of the people.

c. Raise Income:

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Agriculture production is affected by vagaries of nature. Thus, it is difficult toraise national income by agriculture alone. The medium and large-scaleindustries play an important role to increase national income. The economies ofindustrialized countries like Japan, USA and Europe show this fact.

d. Improve Standard of Living:The cottage and small industries alone can improve standard of living of people.The development of medium and large-scale industries is important to producemore goods at shorter time at cheaper price.

f. Utilization of Natural Resources:The development of medium and large-scale industries help to mobilizenational resources likes water, mineral and forest resources.

g. Creation of Employment:Unemployment, underemployment, seasonal unemployment and disguiseunderemployment are critical problems of Nepal. The educated unemploymentis also increasing every year. The development medium and large industriesabsorb growing labour force of different skills and specialization.

h. To Reduce Imports:Nepal imports both consumer and capital goods. Establishing importsubstitution industries like cement, sugar, and other consumer goods canreduce the import of goods. Similarly, export promotion industries like carpetand readymade garment also can be developed to overcome the problem ofadverse balance of trade.

i. Defense Goods:For national security and defense purpose, capital goods industries should beestablished within the country.

3. Problems of Large Scale Industries.The process of development of medium and large-scale industries is very slow

and existing industries are also not healthy. The private sector is hesitant to establishlarge-scale industries due to ineffective government policy and uncertain politicalenvironment. Many medium and large-scale industries in the public sector have beensold out to private sector after the adoption of privatization policy. The problems ofmedium and large-scale industries are as follows;a. Lack of Capital:

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According to recent Human Development Report (2001) 40 per cent of thepeople live with abject poverty. Thus both saving and investment rates are verylow. As the result, industries suffer from paucity of necessary capital.

b. Lack of Transportation and Communication Facility:Nepal still lacks transportation and communication facilities. Many parts of thecountry are still to be connected by roads. The existing major highways are alsofrequently blocked for hours and days due to multiple landslides during therainy season. Same is the case with communication network. All this impendsthe development of medium and large-scale industries in the country.

c. Lack of Power:Though Nepal is very rich in hydro energy resources, electricity is not cheap andalso supply of electricity is not regular. Many parts of the country are still notconnected by national grid. Frequent interruption and loadshheding havehampered many industries for smooth operation.

d. Lack of Technical Know-how:Technical people are not motivated to work in Nepal. Every year many peopleleave the country in search of job out side the country creating shortage ofnecessary manpower for medium and large-scale industries.

e. Competition with Foreign Products:The Nepali industries are not protected from undue competition from foreignproducts. Once flourished industries like Himal Cement Factory, Balaju CottonMill, Hetauda Cotton Mill and many other industries have closed down due tocompetition of foreign goods including cheaper smuggled goods across thenorthern and southern borders.

f. Absence of Entrepreneurial Class:Investments in large-scale industry are not only risky but also have to wait longtime for return from the investment. The gestation period of medium andlarge-scale industries is quite long. Thus enterprising persons only venture inthis field. Nepal has not been able to produce such enterprising people.

g, Class Struggle:After the restoration of multiparty system, there were many clashes between theworkers and management due to the absence of clear-cut policy and politicalintervention. Workers adopted the methods of strikes, dharnas and gherao etcand the management had adopted the policy of lockouts. In this way,

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disturbance continued due to the lack of clear-cut policy for dispute settlementbetween employer and employee.

h. Industrial Finance:The medium and large-scale industries still face problem of necessary capital.The general people are hesitant to invest in industries due to the poorperformance of industrial groups. The NIDC is also not able to supply necessarycapital to the medium and large-scale industries.

i. Lack of Political Stability and Security:Although current industrial policy has been introduced in 1992, the governmentis not able to build up necessary confidence among industrialists. The frequentchange in the government and Maoist problem are creating insecureenvironment for the industrialist to undertake investment.

3. Salient Features of Current Industrial Policy, 1992.The main feature of current Industrial Policy (1992) is as follows;???

a.Definition:Four kinds of industries have been defined in current industrial policy. They are

Traditional Cottage Industries, Small-scale Industries, Medium Scale Industries andLarge Scale Industries. The industries have been defined in terms of fixed capitalinvestment except traditional industries. The industries with fixed investment upto 1Crore is classified as Small Scale Industries. The industries with the fixed capitalinvestment from 1 Crore to 5 Crore is classified as Medium Scale Industries. Likewise,the industries having fixed capital investment excess of 5 Crore are called Large ScaleIndustries.

The economic survey of 2002/03 state that analysis of some major industrialitems revealed that production of some items under food and beverage category hadincreased in Fiscal Year 2001/02. Likewise, production of tool, industrial and electricalequipment did well in that Fiscal Year compared to Fiscal Year 2000/01, also theproduction of wood and wooden goods, other chemicals, leather products, plasticgoods, non-metal minerals, iron and steel goods and machinery goods had increased.It is said that among the products that have recorded noticeable increase in productionin Fiscal Year 2001/02 are; noodles (727mt), sugar (3,887mt), tea (488 mt), animalfeed (649 mt), vegetable ghee (3632 mt), soap (810 mt), detergent powder (50 mt),cement (17,902 mt), synthetic textiles (518,000 meters), shoes (35,000 pairs), plywood(24,000 sq.ft), matches (23,000 gross), sandals (194,000 pairs), iron bars and angles

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(4,049 mt), GIHB wire (1,107 mt), dry cell batteries (1,156 million pieces) and plasticgoods (32 mt).b. Classification of Industries:

The current industrial policy of Nepal has classified industries into sevencategories. These categories are (1) production oriented industries, (2) energyoriented industries, (3) agro-based and forest based industries, (4) mineral-basedindustries, (5) tourism industries, (6) service industries and (7) construction industries.c. License and Registration:

There is no need to have license for establishment, expansion andmodernization of industries except those related to defense, public health andenvironment. For the industries, which require license, decision for approval ordisapproval is made within 30 days of application.c. Facilities:

The facilities given to the industries in the current industrial policy (1992) are asfollows;(i) Traditional Cottage Industries are exempted from excise duty, sales tax and

income tax.(ii) Manufacturing, energy, agro and forest based, and mining industries are

exempted from income tax for 5 years from date of starting of production.Industries, which are of national priority, are exempted from income tax for 7years.

(iii) Income tax is not levied on export earning.(iv) Industries, which provide direct employment to six hundred or more persons is

given tax holiday for two years.(v) Added incentives are given to those industries, which reinvest their earning in

the same or ancillary activities.(vi) All needed services for domestic and the foreign investor are given through one

window policy by the government.

(vii) No new industries are nationalized while public industries are graduallyprivatized.

(viii) The ownership of cottage and small-scale industries are reserved only to theNepali citizen. Foreign participation is allowed only in technology transfer.(x) Sick industries are rehabilitated in accordance with rehabilitation feasibility

study.

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4: TOURISM:

1. MEANING OF TOURISM:Visits by people from one place to another for entertainment, meeting friends

and relatives, enjoying natural beauty, mountaineering, trekking and visiting religiousplaces are known as tourism. The services provided to visitors are known as tourismindustry. All the organizations like hotels, lodges, restaurants, travel agencies etccome under “Tourism Industry”. It is age-old industry. In old days due to limitedmeans of transportation and communication facilities, few people could travel fromone place to another. The developments of transport and communication have enabledpeople to move from one place to another easily. In fact, these days the world hasbecome ‘Global Village”. People can visit different parts of the world due to amazinggrowth and development of air transportation. Thus, development of transport andcommunication has given a big boost to the tourism sector. Nowadays, people cansafely travel from one place to another in the short time. People can now enjoy andgain knowledge visiting different places and meeting people from different countries.

2. Tourism Development in Nepal:Tourism industry in Nepal began from 1950 AD onwards when Nepal opened its doorto foreigners. Nepal got membership of the International Union of Travel Organizationin 1959 AD. “The Tourism Board” was established in 1957 AD. The UN Conference onInternational Travel and Tourism, which was held in Rome in 1963 AD, highlighted theimportance of tourism for developing countries to improve economic condition. In1972 Tourism Master Plan was introduced in the country. However, only in 1977 theMinistry of Tourism was established. In Eight Plan (1985-90) emphasis was given toquality tourism, conservation and maintenance of historical and cultural heritage areas.Private sector was involved in the development of tourism. The country observed VisitNepal Year 1998 with the objective of attracting over 500,000 tourists in that year.Nepal Tourism Board (NTB) was established in 1999 AD in the form of partnershipbetween His Majesty’s Government and the private sector tourism industry of Nepal.The NTB is responsible for marketing activities aimed at promoting Nepal as a premierdestination.

3. Potentiality:

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Nepal is known as the land of Sagarmatha (Mt. Everest), the land of the birthplace ofSiddhartha Gautam and also as Shangri-La in the world. It possesses immensepotentiality to develop tourism industry. It has natural beauty, geographical diversity,and cultural and artistic heritage.

A brief description of potentiality of tourism industry is given below:

(a) Natural Beauty:Nepal is very rich in natural beauty. The presence of Mt. Everest, the highest peak inthe world has made Nepal renowned in the world. Out of 14 above 8000m peaks inthe world, eight are in Nepal. Besides, these high mountains, there are 122 Himalayanpeaks above 7000m. These mountains attract people from other countries.

There are many famous and beautiful lakes like Phewa in Pokhara and Rara inJumla. The thick jungles of Bhaber region and many kinds of wildlife equally attractvisitors. Different types of climatic conditions are also equally suitable according to thetaste of people. Nepal is considered as one of the best places for bird watching. Existbird pops?

(b) Cultural Feature:Nepal is very rich in cultural heritage. There are numerous artistic temples scatteredall over the country especially in Kathmandu valley. Each place is unique in its culturalvalue. Every month there is some sort of celebration in the country like Holi, Dasai,Tihar, Indra Jatra, Vibaha Panchami, Teej and many more religious festivities. Similarly,there are many places, which are very popular from religious and historical perspective.Lumbini, Pashupatinath, Janakpurdham, Gorkha, Muktinath, Swayambhu, Gosaikundanare some of the examples. Bungamati in Lalitpur is known for its wooden handicraft.Similarly, Patan, Bhaktapur, Kirtipur, Janakpur, Palpa, Dhankuta and other places areknown for traditional handicrafts and arts.

(C)Friendly People:Nepali people are friendly and hospitable to the tourists. They can easily mingle withdifferent communities living in different parts of the World. This is one of the reason,many tourists return to Nepal..

4. Importance of Tourism Industry.

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The importance of tourism industry is increasing day by day as source of foreignexchange earning and source of employment. The importance of tourism industry isgiven below.

(a) Source of Foreign Exchange:The tourism industry is an important source of foreign currency earning. In FY2001/02 foreign exchange earning from tourism sector was Rs.7,798.5 million, a dropof 33.4 percent compared to FY 2000/01. During the first six months of FY 2002/03,earnings from this sector totaled Rs.5,343.4 million representing 22.7 percent of theforeign exchange earnings from export of goods. 14.4 percent of the export of goodsand services and 11.2 percent of the total foreign exchange earnings of the country. Incomparison to ratios of earning in FY 2000/01, all these three ratios have increasedduring the review period. In 2002,US$ 106.8 million foreign exchange was made fromtourism. It is accounted to 8.0 percent of total foreign exchange earning. The foreignexchange is very important to import goods and services required for the economicdevelopment and to fulfill the needs of growing population.

The number of tourist’s arrival varied year to year. The total number of tourists’ arrivalfrom 1997 to 2001 was 2,201,928. A total of 2,75,468 tourists visited in 2002. Thehighest number of tourists were from India.

Gross Foreign Exchange Earnings in Convertible Currencies by Fiscal Year

F/Y Rs. (000) US$(000) % Change in US$

2018/19 (1961/62)2038/39 (1981/82)2048/49 (1991/92)2049/50 (1992/93)2050/51 (1993/94)2051/52 (1994/95)2052/53 (1995/96)2053/54 (1996/97)2054/55 (1997/98)2055/56 (1998/99)2056/57 (1999/00)2057/58 (2000/01)2058/59 (2001/02)

593493,8423,090,7003,082,0003.397,6005,896,2006,605,8006,158,8008,084,93011,584,91211,709,09811,969,1747,798,535

7838,14972,46767,72169,309118,563119,060108,527131,042171,403169,848162,513101,628

--27.7-6.52.371.10.4-8.820.730.8-0.9-4.3-37.5

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Source: Nepal Rastra Bank.

The following table shows the target and achievement of Ninth Plan (1997-2002) fornumber of tourists and Foreign Currency.

Year Tourist Arrival(in numbers)

Foreign CurrencyGeneration(US $ in million)

Achievement in % Achievement in %

Target Achievement

Compared totarget

Compared topreviousyear

Target Achievement

Compared totarget

Compared topreviousyear

1997 420,000

421,857

101.4 7.2 .213 115.9 54.4 -0.6

1998 462,000

463,684

101.4 9.9 255.6 152.5 59.7 31.6

1999 508,200

491,504

96.7 6.0 306.7 168.1 54.8 10.2

2000 559,020

463,646

82.9 -5.7 368.1441.6

166.8 45.3 -0.7

2001 614,922

361,237

58.74 -22.1 1585 140.2 31.74 -15.9

Total 2,564,142

2,201,928

85.9 745.3 47.0

(b) Source of Employment:

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Unemployment is critical problem of Nepal. High population growth furtheraggravated this problem. The population is growing at the rate of 2.25 per cent perannum and 300,000 labourers enter the labour market every year 47 per cent of thetotal population remain unemployed. The projected total employment from tourismindustry is 257,000 for FY 1997, and 685013 for FY 2015. In 2002 mountaineersexpedition teams employed 10,599 persons.

(c) Development of Handicraft Industries:Tourist industry helps to boost up ailing handicraft industries. These industries aresource of income to rural people. Tourists like to buy various types of goods andhandicraft products.

(d) Source of Government Revenue:Tourism is also the source of income of the government. The Government receivesincome from royalties paid by the mountaineering expeditions, visa fees and taxespaid by the hospitality sector.

(e) Manpower Development:The development of tourism requires different types of manpower like tourist guides,personnel in hotel and travel agencies. To supply necessary manpower for tourismindustry, the Hotel Management and Training Centre provides training on tourismrelated subjects. Even in higher education of Tribhuvan University, hotel and tourismmanagement courses are provided. This subject is getting popular among thestudents.

(f) Development of Business;People come to visit not only to spend holidays but also promote business between thecountries. In 1995 some 21829 persons and in year 2002, 16,990 visited Nepal forbusiness purpose. This helps to develop trade between countries.

(g) Development of far off places:Most of the tourists come to visit for mountaineering, trekking and pilgrimage. Theytravel different parts of the country for days, this helps to generate developmentactivities in remote parts of the country.

(h) To Promote Friendly Relation:

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Tourism helps to promote friendly relation among people of different countries. Thishelps to establish peace among the countries and avert conflict. Love, affection andfriendship will be fostered when people meet one another. People can also learn andexchange ideas.

(i) Improve Balance of Payment:Nepal being developing country, the value of imported goods and services is manytimes more than value of export causing unfavourable balance of payment. Theforeign exchange earning from tourism industry helps to correct unfavourable balanceof payment.

5. Problems of Tourism Industry in Nepal:Irrespective of great potentiality of development of tourism industry in Nepal, it is notprogressing satisfactorily. Even Visit Nepal Year could not attract expected number oftourists. The main obstacles for the development of the tourism industry are asfollows:

(a) Internal and External Disturbances:One of the most important factors, which affect the flow of tourists, is internal andexternal disturbances. Since the restoration of democracy in 1991, Nepal hadnumerous strikes and protests. Maoist problem has further deteriorated internalsecurity. The Twin Tower Trade Center attack in the USA in September 11, 2001 hashad negative impact in Nepali tourism as well. Thus, internal and internationaldisturbances not only slowed down the growth of tourism it even decreased thenumber of tourist arrivals.

(b) Pollution:The cities in Nepal are labelled as one of the most polluted areas in the world.Occasional solid-waste dumping problem in Kathmandu city has destroyed the imageof Nepal. Even in trekking routes and along the trail of famous peaks, garbage left bytrekkers and mountaineers is also acute.

(c) Lack of Adequate Transportation and Communication Facility:Although Nepal has many breathtaking beautiful places like Rara lake, Humla, Jumla,Muktinath etc they are not easily accessible by road and regular air services. As suchtorurists can not visit such places easily. This is one of the reasons for shorter stay of

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tourists in Nepal. On average tourists spend only one week in Nepal. Shorter durationof stay has reduced the possibilities of earning more foreign exchange.

(d) Quality Hotels:By the end of 1999 there were 785 hotels out of which 95 were star hotels and 690were non-star hotels. The number of hotel beds were 32,214 upto 1998. Most of starhotels are located in Kathmandu valley. All the hotels do not have required facilities toencourage the tourists to lengthen their stay.

(e) Tourist Sites:The historical, religious and other tourist sites are not well developed. Most of thebeautiful temples are in bad condition. Even in Kathmandu city, historical monumentslike Dharahara, Swayambhu area, Pashupati area etc are not well tended. Lumbiniwhich is sacred place for Buddhists all over the world, is not kept clean even afterimplementation of master plan for many years.Tourism industry is most sensitive industry. Any kind of negative information detersarrival of tourists. Once the potential tourists are lost, it is very difficult to win themback. Thus, keeping country clean and safe is very important to attract the tourists. Iftourists take back pleasant memories of their visit to Nepal, they tell this to theirfriends and relatives back home. Their presentation of image of Nepal is mostimportant to lure other potential tourists.

6. Visit Nepal Year 1998.The Visit Nepal year 1998 was implemented with much publicity which aimed to attract5 Lakh tourists within a year, extend stay up to 13 days and increase income from thegrowth of tourists. The major objectives of visit Nepal year 1998 were to furtherenhance the image of Nepal to the world as a unique visitor's destination. Plan wasmade for the effective campaigning to familiarize Nepali art, skills and cultures to theworld, to increase number of tourist arrivals. During the campaign year a total of463,684 tourists visited the country.

7. Tourism Development Programme in the Tenth Plan:In consideration of the already emerging importance of tourismindustry the current plan (Tenth Plan) aims at sustainabledevelopment of tourism sector; protection, conservation and

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practical use of historical, religious, cultural and nationalheritage sites; and make air transportation secured, dependableand affordable to all.

8. Measures:Tourism is not only world's most profitable business but also a volatile andunpredictable business. Any bad image or negative information about the country willeasily change tourist’s destination. Thus, to avert any such adverse impact followingmeasures should be taken to develop tourism industry.

(a) Environment Situation:Environmental situation in and around tourist destinations should be clean and healthy.The concerned authority should take their responsibility seriously and sincerely.Besides, campaigns should be launched to raise civic and sanitation awareness of thepeople. Anti garbage dumping measures should be strictly implemented.

(b) Pollution:Pollution situation in Kathmandu valley should be controlled. The vehicle emission testmust be strictly implemented.

(c) Ensure Security:Political and social situation of the country must be peaceful. The government mustensure security of visitors in the country. The general strikes and unstable politicalenvironment always rips the tourism industry.

(d) Depedable Trasportation:Transportation system should be secured and dependable. Tourists come to visit Nepalto relax, enjoy place and learn new things with planned time and budget. Any slightlacking in transport facility discourages to lengthen stay and their revisits.

Tourism Industry Related Organizations:Following are some of the associations related to tourism industry;- Nepal Association of Travel Agents (NATA)- Pacific Asian Travel Association (PATA)- Nepal Mountaineering Association (NMA)

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- Union of International Alpine Association (UIAA)- Trekking Agents Association of Nepal (TAAN)- World Tourism Organization (WTO)- Hotel Association of Nepal (HAN)

xxxMountain Tourism:Policy of opening up more mountains for climbing, the government has already opened326 peaks for climbing. It has come up with different tourism friendly polices tofacilitate mountain tourism. Some of the proactive steps that the government has takentowards this end include waiving the royalty on 20 peaks, reducing the royalty by 75%for 40 peaks and provision of liaison officers for peaks above 6500 meters only.Mountain tourism generated over Rs.18 million in royalty in 2003.

5. Role of Privatization in Nepal.The economic reforms was started during mid 1980s in Nepal under the World Bankand IMF Structural Adjustment Programme. The first elected government in 1991initiated the process of globalization and economic liberalization in the country.1. Objectives of Privatization:The act of privatization was introduced in Nepal in 1994. The main objectives ofprivatization are as follows:(a) To reduce financial and administrative burden of His Majesty’s Government.(b) To ensure efficiency and productivity.(c) To expand private sector participation.(d) To stimulate overall development in the country.2. Measures taken for privatization.Following measures have been adopted for privatization.(a) Selling the assets of enterprise concerned. For example, Bhrikuti Pulp and Paper

Factory, Leather and Shoe Factory and Harisiddhi Bricks and Tiles Factory were soldto private sector.

(b) Giving on Lease:For Example Bhaktapur Brick Factory Ltd was leased for 10 years from Aug 1997.(b) Selling shares to people:Shares of Agriculture Tools Factory Ltd, Nepal Bank Ltd, Raghupati Jute Mills, RawhideCollection and Development Company, Bitumen and Barrel Industries Ltd, Nepal LubeOil Ltd, and Nepal Film Development Company were sold to the public.

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(c) Liquidation of the company:Tobacco Development Company and Nepal Jute Development and Trading Companyhad been liquidated.Regarding privatization, there are both negative and positive points. They are brieflydiscussed below:3.Defects of Privatization:Privatization is considered bad because of the following reasons:a) Profit motive:

The private sector investors are in general only interested in making profit. As aresult, the consumers are likely to be exploited by the private sector producer.b) Public Welfare Ignored:

Private sector producers only produce those goods, which are profitable. Thusgoods which are necessary for increasing public welfare may not be produced.c) Wastage of Resources:

Generally luxury goods bring more profit than essential goods. Thus, private sectorproducers produce luxurious goods at the cost of essential goods.d) Exploitation of Labour:

Under privatization, workers are exploited because they are forced to acceptminimum wage and limited facilities. Security of job is also lacking.e) Lack of Government Responsibility:

Once industries are privatized, government’s responsibility to provide peoplewelfare is also reduced.e) Development of Remote Areas Neglected:

Private sector concentrates its business only in urban areas. Thus, remote andbackward areas are neglected.4. Needs of Privatization:Privatization is recommended because of following advantages:a) Free Competition:

Free competition reduces the cost of production and consumers can get goods atcheaper price.b) Optimum Utilization:

Under market economy, resources are utilized in optimum way.c) Technical Development:

For healthy competition, efficiency is essential. Thus producers try to improvetechnique of production to increase efficiency. This helps to produce goods at cheaperprice.

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d) Employment Opportunities: Private producers work hard to expand the business andmake profit. With the increase in profit more investment is made and employmentopportunities increases.e) Loss Prevention: Losses in business leads to close of business. Private produceralways tries hard to avoid losses.f) Workers Participation:

In modern organization, workers are also given opportunity to participate inorganization by allowing them to purchase share of the company. In this, way evenworkers can own the business.g) Capital Mobilization:

When the public companies are sold to private sector the unutilized private sector'scapital will be mobilized to prevent losses.6. Liberalization:Liberalization means non-intervention of government in economic activities.Privatization is a part of liberalization. The transfer of economic activities of a countryfrom a government sector to private sector is known as privatization.Liberalization policy has adopted following measures:a. Registration and Licensing:

License is provided to all industries except defense industries.b. One Window System:

Different facilities required for industries are given from one source like water,power, transport and communication.c. Encouragement of Foreign Investment:

Necessary facilities will be given to remit the profit and repatriate capital inhome countries to the foreign investors.d. Loan:

Nepal Industrial Development Corporation (NIDC) provides loan to industrialists.They are also granted foreign exchange facilities.e. Foreign Trade:

Foreign trade has been liberalized. No restrictions have been imposed on exportand import of goods except those goods, which are in the negative list.f. Foreign Exchange:

Foreign currencies can be sold and purchased openly in free market withoutrestriction.g. Financial Sector:

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Financial sector is liberal. There is no restriction in establishment of commercialbanks in private sector. Banks can fix rate of interest on competitive basis.h. Capital Market:

Capital market has been opened for private sector. Investors can buy and sellshares, bonds and debentures in open market.i. Guarantee Against Nationalization:

Government has given guarantee that none of the enterprises will benationalized.Forest Sector:Forest sector has also been made liberal. Provision has been made for private and usergroup community forests.Power Sector:Power sector has opened to the private sector.The experience of Nepal for more than a decade shows that liberalization has notbenefited the poor people except rich people of urban area. It has been criticized asanti-rural, anti-poor and anti-agriculture. It has not been able to reduce themagnitude of poverty and create employment to the growing population.On the contrary, it has further perpetuated inequality in asset and income distribution.It is suggested that liberalized policy should be implemented to benefit the poor andrural people as well. It means to say that liberalization should be with human face.

11: TRANSPORTATION AND COMMUNICATION

Efficient transport and communication systems play a vital role in economicdevelopment of a country. The transport and communication system provide the basicinfrastructure for the progress of underdeveloped country like Nepal.The major means of transportation are road, airways, waterways, cable car, railways,trolley bus, and ropeways. Similarly, the major means of communication are radio,newspaper, television, internet and telephone.

1 Role of Transport:a) Development of Tertiary Industry:Banking, hotels, insurance companies, schools, hospitals, transports andcommunications are known as tertiary sector. At present, tertiary sector isconsidered as the second largest sector, which provides employment to large

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number of people. Additional employment opportunities will be created with thedevelopment of transportation and communication.

b) Agriculture:The development of transportation and communication systems helps timely

distribution of fertilizer, improved seeds, modern agricultural tools and otheragricultural inputs which help to increase agricultural production. Besides inputs, thedevelopment of transport and communication help to disseminate technology throughradio and television programmes and print media. The Radio Nepal and NepalTelevision broadcast agricultural programmes regularly, which provide importantinformation about seeds and its uses, information about various crops, poultry farming,fishery, livestock as well as proper use of fertilizer and insecticide etc.

c) Extension of Market:Efficient and cheap transportation and communication facility enlarge the marketfor goods. Rural transportation facility helps small farmers and artisans to bringtheir products into market and get reasonable rewards for their hard labour. Theavailability of transport and communication facility can also help to minimizeexploitation of middlemen.

d) Industrial Development:Transportation and Communication are essential for the development of industrialsector in the country. The availability of cheap and efficient means of theseinfrastructures provides access to the market for inputs as well as for the outputs.Industrial development helps the country to achieve rapid economic development.Industrial development is necessary even to develop agriculture sector.

e) Increase Mobility of Labour:The transportation system helps in the mobility of people. They can move from oneplace to another to work. This will help to solve the problem of unemployment andunderemployment. The mobility of laborer helps to get better and remunerative jobs.Similarly, facility of communication provides information to the people regarding jobopportunities in different places.

f) Development of Natural Resources:

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The development of transport and communication help to mobilize the naturalresources like forest product, water and mineral resources. Unexplored naturalresources can be utilized for the economic development of the country. Similarly, thedevelopment of roads helps in the conservation of forest and wildlife too.

g) Balance Regional Development:Several villages of Nepal are located in remote areas and these villages are yet to havebasic facilities like education, health and security. To develop these areas and providebasic facilities to the people, transport and communication play a vital role.

h) National Integration:Easy and cheap transportation and communication provide opportunity to meet peoplefrom different parts of the country. Such opportunity help to bring people closer anddiscuss problem, exchange ideas, know each other’s tradition and culture, which helpthem in understanding local and national situation. This again creates environment forcollective endeavor for viable solutions to the national problems. These activities helpin generating feeling of national integration among the people.

i) National Defense:Well-developed transport and communication system is equally important for nationalsecurity and unity. During national crisis, arms and ammunition and defensepersonnel should be able to move easily in different parts of the country. Similarly,efficient and effective communication system helps the quick action and relayimportant messages to appropriate authority.

j) Supply of Food in Deficit Areas:Hill and mountain areas face food deficit every year due to difficult terrain. But in lowland Terai, food is usually in surplus. The facility of transportation plays importantrole to carry food from surplus areas to deficit areas. At times, the situation getsworse and had to airlift the basic food grains to deficit areas, which is expensive.

k) Tourism Development:Tourism is one of the important industries for employment generation in thecountry. It also earns foreign currencies and also develops cottage and villageindustries. The development of transport and communication is prerequisite fortourism development. Tourists come to enjoy natural beauty, visit religious places,

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for trekking and experience indigenous culture. Without the efficient facility oftransportation and communication, tourists cannot be attracted and their stay inNepal will be short.

2. PRESENT SITUATION OF TRANSPORT AND COMMUNICATION:

a) Road:Road is major means of transportation in Nepal. Roads can be basically classified intothree types black topped, graveled and earthen. The major roads are MahendraHighway, Tribhuvan Rajpath, Siddhartha Rajmarg, Prithivi Rajmarg, Dharan DhankutaRajmarg, Arniko Rajmarg and Mechi Rajmarg. Though, road is an important means oftransportation, 14 districts of Nepal do not have facility of roadways. Similarly, 18district headquarters of the country are not connected with road network. Manyvillages are still isolated from neighboring villages due to lack of basic facility of roads.

The total length of road in 2007 B. S. was only 376 km. In the beginning of the firstplan in 2013 BS, the total length of road was 624 km. The Nepal Road Statistics2000AD records construction of road so far is 15905 km that include 29% blacktop,24.9% graveled and 46.1% earthen.

Type Km Portion in %Black toppedGraveledEarthenTotal

4,6173,9587,33015,905

29.024.946.1100

Plan Year Year of the Start of Plan Total Length/km2007 BS 376

First 2013 BS 624Second 2019 BS 1193Third 2022 BS 2049Fourth 2027 BS 2730Fifth 2032 BS 3173Sixth 2037 BS 4940Seventh 2042 BS 5925Eighth 2049 BS 8851Ninth 2054 BS 11714Source: Ninth Plan Document.

b) RAILWAY:The first railway line, which is known as Nepal Government Railway (NGR), wasconstructed in 1927. It covers a distance of 29 miles from Amlekhgunj, Nepal to

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Raxaul in the Indian border. This railway is not in operation now. The other railwayline, which is known as Nepal Jayanager - Janakpur (NJJR), was constructed in 1935. Itis a narrow gauge line. This is the only railway line currently in operation in the country.It is improved and extended to 51 km. A feasibility study of the East-West railway andJanakpur- Bardiabas railway is going to be carried out. Raxaul-Birgunj broad-gaugerailway is also under construction. It will connect with dry-port in Birgunj. The mainpurpose of this line is to shuttle cargo between Birgunj dry port to Calcutta port.

c) TROLLEY BUS:Kathmandu-Bhaktapur trolley bus service is the only trolley bus service in Nepal. It is13km long. There was a plan to extend the service in Kathmandu along ring roadduring the Ninth Plan period. There is also plan to undertake a detailed study in otherparts of Nepal.

d) AIRWAYS:The air transport started in Nepal in 1950 with a weekly Patna-Kathmandu serviceoperated by Indian Airlines Corporation. The Royal Nepal Airlines Corporation(RNAC) was established to cater internal air services in Nepal from 1957. Latter, itstarted air service to India, Thailand, Hong Kong, Singapore, Shanghai and toOsaka. Similarly, for some years RNAC operated its flights to London andFrankfurt via Dubai. There are 44 airfields in the country. There has been a rapidexpansion of air transportation in Nepal after the adoption of open-air policy inthe country in 1990s under which private sector airlines came forward to operatein major internal air destinations. Currently, some nineteen private airlines areoperating in the country with small aircrafts and helicopters.The RNAC, the national flag carrier is operating international flights. A total of1,771,000 passengers used domestic flights in F. Y. 1999/2000. Similarly, in thesame year 721,000 passengers traveled by international flight. The Governmenthas also granted permission to operate ballooning in Kathmandu valley and ultralight gliding services in Pokhara valley for sightseeing purpose.

e) Rope way:The first rope way was constructed in 1927 A. D. It covered a distance of 14 milesfrom Dhursing to Matatirtha. (Ichangu to Lainchaur, Hetauda to Teku) Now it does notexist.

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The Cheres (Kuringhat) - Manakamana Cable car services, operated by ManakamanaDarshan Pvt.Ltd, is a recent venture started in 1998. It covers a distance of 3.1 km.This service has made the journey to Manakamana Mai Temple comfortable, quick andconvenient for pilgrims and interested visitors.

Ropeways

Ropeways using cables to transport freight were constructed as part of an effort toprovide transport facilities for the populace and to replace human and animal power asa means to traverse the difficult terrain. The first ropeway was initiated in 1922 andwas extended twice until reaching its forty-two-kilometer-length.In the early 1950s, many goods were transported to Kathmandu using ropeways.Ropeways have become less important with the development and extension of roads.Nonetheless, the forty-two- kilometer ropeway that traverses Hetauda into theKathmandu Valley still was operational in 1991. The transport of food, constructionmaterials, and heavy goods on that ropeway could be accomplished at the rate oftwenty-two and a half tons of freight per hour. During the 1985 to 1989 period, theropeway carried approximately 12,000 tons of freight per year.Data as of September 1991

3 Present Situation of Communication in Nepal:a) Postal Communication:Postal service, which is the oldest and foremost means of communication in Nepal, wasstarted in 1875. It has improved its service quality and expanded the service area. ByFY 1999/2000, postal services were provided by 4033 post offices. There are onegeneral post office, 5 regional post offices, 70 district post offices and 827 area postoffices. There are also 3130 additional post offices. The postal saving service isprovided in 116 post offices. There is also Express mail service to about 22 countries.

b) Telecommunication:Telephone services started during the Rana regime. After 1956, telephone serviceswas expanded in Nepal. Telecommunications Corporation is providing both internaland external telephone links. As of March 2001, a total of 275,558 telephone lines arein operation and a total of 1726 VDCs are linked with telephone service. There is alsoa cellular mobile service in Kathmandu, Biratnagar, Birgunj and Pokhara. Even inremote areas where electricity has not reached, telephone is operating with the help ofsolar energy.

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c) Newspaper:The oldest vernacular daily is Gorkhapatra. After the restoration of multipartydemocratic system in the country, there has been a considerable increase in thenumber of daily newspapers, weekly and fortnightly magazines. As of mid April 2001,the total number of newspapers registered in various districts in the country reached2870. The government provides a subsidy on newsprint for newspaper publication.Since 2001, the government has been providing cash subsidy based on advertisementof public interest.

d) Radio Broadcasting Service:The Radio Nepal was established in 1950. It is the oldest radio station, which providesradio broadcasting services all over the country through short and medium waves. Itbroadcasts news in different languages in addition to various informative, educationaland agricultural, and entertainment programmes. With the implementation of liberalradio broadcasting policy number of FM stations came into existance in Kathmnduvalley and in other districts.Besides above means of communications, these days internet and E-mail are fastestand widely used means of communication.

12 FOREIGN TRADE

1 MeaningTrade is one of the age-old occupations of the human civilization. In earlier yearsof civilization, traders traveled from one place to another bearing great hardship totrade merchandise.Trade is of two-type (a) Domestic Trade and (b) Foreign Trade.Trade done within the country is known as domestic trade. In villages, people

buy and sell goods at Hat Bazar which take place weekly and on special occasionswhereas in urban areas trading takes place everyday. Due to increased transportationand communication facilities, domestic trade is also expanding very fast.

The trading with foreign countries is known as foreign trade.

2 Importance of Foreign Trade:Foreign Trade plays an important role in the economic development of a country.

Nepal needs different types of goods such as, machinery, equipment, technology andtechnical knowledge for the economic development of the country. Nepal is

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predominantly agricultural country. Modern technology, machines and other rawmaterials are very important to modernize agriculture for better yield and to developindustries in the country. The role of foreign trade in economic development of Nepalis briefly discussed below.

(a) Economic Cooperation:The economic cooperation of other countries is necessary for the economic

development of any country. Two and more countries can form their economicassociation and work for mutual benefits and for common interest. The South AsianFree Trade Agreement (SAFTA) agreed between the seven regional countries underSouth Asian Association of Regional Cooperation (SAARC), ASEAN, European CommonMarket (ECM) are the examples of mutual cooperation in economic development of themember countries. Similarly, Bangladesh, India, Myanmar, Sri Lanka and Thailand(BIMST) economic cooperation was formed in 1997. Nepal and Bhutan were admitted inthe group in 2004. Nepal has also joined World Trade Organization (WTO) in 2004.

(b) Specialization:Foreign Trade helps to produce goods at cheaper price. Because, when a countryenters into foreign trade she can produce only those commodities, which havecomparative advantage and import other goods at cheaper price from the foreigncountries. For instance, Nepal being agricultural country it is not economical toproduce machines, equipment, means of transportation, and electronic productsetc. These products can be imported and Nepal can concentrate in the productionof those goods like Carpet, Readymade Garments, Pashmina, handicraft andagricultural products. Through specialization, Nepal can enjoy the economies oflarge-scale production.

(c) Advantageous in Emergency:The foreign trade is also the source of meeting the urgent need of certain

commodities. The emergency may be caused due to flood, storm, fire, famine,earthquake, landslide, war etc. Importing goods specially foodstuff may fulfill therequirement in the emergency situation. In old days whenever famine occurred, peopledied due to starvation. Such problems can now be averted through foreign trade.

(d) Supply of Scarce Commodities:Because of geographical diversity, all the countries are not able to produce all

the goods. For instance, Middle East countries are rich in oil resources. Thesecountries export oil and import the necessary goods from other countries. Similarly,

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Nepal lacks machinery, equipment and many other commodities, which are importedfrom other countries. All these activities come under the foreign trade.

(e) Exchange of Technical Know-how:Acquiring of modern technological knowledge takes long time. At the same

time, it is very expensive to develop all the necessary technology for rapid economicdevelopment in the country. Therefore, the developing countries are obliged to importsuitable technology from foreign countries.

(f) International Cooperation:The trade relationship between the countries brings the countries closer. The

economic cooperation leads to friendly relation among the countries, which help tofoster international peace and solidarity.

(g) Industrial Development:International trade helps developing industry through the import of raw material

and capital goods.

Assembly industries basically based on electronics and electric goods suchTelevision, VCR, DVD, Air conditioners, Vehicles, Computers etc, assembled here fordomestic market. There are also some electronic components, which are made herefor export.

Another recent exportable commodity is computer software programmes.

3. Features of Nepali Foreign Trade:The following are the features of Nepali foreign trade:

(a) Growth and Trend of Foreign Trade:Trade relation of Nepal with India and Tibet is very old. Nepal’s major trade

partner is India. Trade with third countries started only after 1956 AD, and trade withoverseas countries started after the implementation of trade diversification policyduring third plan (1965-70 AD).

Volume of Foreign Trade Value in ‘000Rupees’Fiscal Export % in Import % in Total trade Trade

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Year Total Total Deficit

1998/99 35,269,272

27.7 92,003,390

72.3 127,272,662

56,734,118

1999/20002000/20012001/20022002/2003*

49,561,02855,245,90047,386,78850,494,322

30.431.730.0527.8

113,687,149118,786,609108,664,801131,041,834

69.668.369.672.2

163,248,177174,032,509156,021,589181,536,156

64,126,12163,540,70961,248,01380,547,512

Source: Trade Promotion Centre & Nepal Rastra Bank 2002/03.

*Provisional

The total volume of foreign trade in FY 1998/99 was 127,272.7 million and trade defic56,734.1 million. Similarly, balance of trade is deficit in other years also. The volume of trade2002/2003 was 181,536.2 million. As compared to FY 2001/2002 export has been decreased by ne2.3 percent in 2002/2003 amounting to Rs.50,494 million while in the same period import haincreased by 2.6 percent amounting to Rs.181,536 million.

(b) Composition of Foreign Trade:The composition of foreign trade refers to export and import according to major

items of export and import. According to the Standard International TradeClassification (SITC) major items of export and import are shown in the following Table.

Composition of Foreign Trade according to SITC group. (Rupees in million)

1998/99 1999/2000

SITC Group Export Import Export Import

Food and Live Animals 3724.5 7619.5 5390.9 10,734.7

Tobacco & Beverage 50.0 846.1 110.4 941.2

Crude Materials & Inedible 469.9 6246.7 526.8 7232.0

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Minerals Fuels & Lubricants 0.5 8737.5 2.0 9113.9

Animals & Vegetable oil & Fats 3597.2 333329.0

3605.6 4445.9

Chemical & Drugs 2804.0 12476.4 4075.8 15464.6

Classified by Materials 13539.6 25638.0 16013.7 33408.8

Machinery and TransportEquipment

97.8 18063.7 384.2 20227.4

Miscellaneous ManufacturedArticles

11392.8 4302.4 21513.6 5320.2

Not classified 0.0 266.0 0.0 78.1

Total 35676.3 87525.3 51623.0 106966.8

Source: HMG, Ministry of Finance, Economic Survey 2000/2001.

Note: Figure for 2000 is provisional (First Eight Months)

As shown in the above table total exports in FY 1998/99 Rs.35,676.3 andincreased to Rs.51,623.00 in FY 1999/2000. Similarly, total import is Rs.87,525.3million in FY 1998/99 and increased to Rs.106,966.8 millions in FY 1999/2000.Above table shows that miscellaneous finished goods constitute 41.7 percent oftotal export. Woolen carpets and readymade garments are major items of export tooverseas countries while traditional export items like rice, vegetable oil, jute goods,mustards, herb, dried ginger are the major items of export to India.As for the items of import according to STIC grouping, finished goods, transport

and mechanical equipment, chemicals and medicines, minerals fuel, fats, food itemsand livestock are major items of import.

(c) Direction of Foreign Trade:Nepal has signed trade agreement with 17 countries. The major trading partners

are Austria, Bangladesh, Belgium, China, France, Germany, India, Italy, Japan, NewZealand, Singapore, Switzerland, U.A.E, U.K. and the U. S. A. Nepal has trade withabout 50 countries of the world.

Major Trading Partners of Nepal. Value in ‘000

Rupees’

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Countries Export Countries Import

FY2001/02

FY2002/03*

FY2001/02

FY2002/03*

India 27,956,200

26,913,200

India 56,622,100

73,737,900

USAGermany

9,377,8324,043,218

12,686,5373,555,327

SingaporeChina

7,346,9194,315,803

9,039,1974,760,342

UK 808,751 1,070,737 Malaysia 4,818,356 4,009,640

Italy 566,557 530,869 Indonesia 2,877,654 3,976,734

Japan 492,833 474,247 Korea R 2,500,974 3,380,348

France 473,472 453,961 Thailand 3,278,165 2,988,929

Portugal NR 414,680 Saudi Arabia 3,654,905 2,363,956

Bangladesh

NR 411,335 Germany NR 2,278,356

Canada 305,978 383,651 Hong Kong 2,461,194 2,276,995

Switzerland

382,823 NR U.S.A. 2,525,603 NR

Belgium 295,140 NR U.K NR NR

Sub Total 44,702,804

46,984.544

Sub Total 90,401,673

10,881,2397

OtherCountries

2,683,984 3,599,778 OtherCountries

18,233,128

22,229,437

GrandTotal

47,386,788

59,494,322

Grand Total 108,634,801

131,041,834

Source: Nepal Rastra Bank & Trade Promotional Centre, 2002/03.* provisional

As shown in the above Table India is still major trading partner. Of the total,export to India amounting to Rs.26,913 million (52.2%) in FY 2002/2003 which wasRs.27,956 million in FY 2001/02. This shows export to India has been decreased byRs.1,043 million. In third countries export has been increased by 13,150 million.Similarly,import from India recorded to Rs.56,622 million in FY 2001/02 which increased toRs.73,737 million in FY 2002/03. In third countries import in FY 2001/02 was 45,758million and in FY 2002/03 it was Rs.60,633 million an increment of Rs.14,875million.

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Nepal continues to face trade deficit. The major reasons of trade deficit withIndia are as follows;- Tariff preference to Indian commodities.- Unlimited exchange facilities of Indian currency.- The production cost of exportable industrial products in Nepal is high and of lowquality than in India.- Lack of storage facility for agro products.- Lack of adequate transit.- Illegal/unauthorized trades in the border areas.

Similarly growing trade deficit with other countries is due to the followingreasons:- Increase demand of foreign goods in the market- Tariff and non-tariff barriers like volume control against Nepali products.- Failure to find new products and market.

4. Problems of Foreign Trade:(a) Land Locked:

Being landlocked country, Nepal needs unrestricted and free transit facilitieswith India, especially its nearest seaport is in Calcutta. According to internationalconventions, Nepal is entitled to get free transit facility like any other land lockedcountries getting in the world. However, experience is not always positive. Manytimes, Nepal had bitter experience in respect of transit facility.(b) Limited Items of Export and High Import:

Nepal exports limited items like woolen carpet, readymade garments, Pashmina andhandi crafts, whereas, it imports almost everything including luxurious goods. Tradersimport luxurious goods because of high profit margin.(c) Export of Primary Products:

Nepali exporters get low price because most of the products are of primary nature.The same products are imported after processing at high price. This has created ahuge deficit in balance of payment.(d) Different Tariff and Non-tariff Barriers:

The trading partners have adopted protective policy exercising tariff and no-tariffbarriers, from time to time. For instance, introduction of quota in the U.S.A. market

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has reduced export of readymade garments. Similarly, involvement of child labour hasreduced the export of carpet to European market.

The quota imposed on Vegetable Ghee has again limited its export to India.(e) Illegal Border Trade:

The unauthorized trade takes place through out the borders between India andNepal. Smuggling of goods is done both in export and import of goods. Personsinvolved in the illegal business enjoy high profit. This is a serious problem for both thecountries.

(f) Lack of Market Information:Businessmen lack adequate information about the requirement of foreign market.

The problem further increased by failure to find out new line of exportable productsand new market.(g) Lack of marketing images:

Another problem is lack of qualitative products. This has hindered thecontinuous export of quality of products.(h) Lack of suitable policy:

Liberal trade policy has increased the imports of goods tremendously, butexport has not improved. As the result trade deficiant is widening every year

13 BANKING1. Meaning of Bank.

The term "bank" referres to an organization, which exchanges one currency intoanother. The modern day’s banks are those institutions, which receive deposits frompeople and give loans and advances to its clients.

Bank can be classified into different kinds on the basis of work they perform.Mainly, there are three types of banks. They are Central Bank, Commercial Bank andDevelopment Bank.

Banks are important institutions for the economic development of any country.The banks help people to earn interest out of their savings and also provide loans andadvances to the people who want to undertake investment and operate their ownbusiness. The history of banking in Nepal commenced only after the establishment ofNepal Bank Limited in 1937 AD as a commercial bank. The Central Bank of the country- Nepal Rastra Bank was established in 1956 AD. The second commercial bank,Rastriya Banijya Bank was established in 1956 AD in the public sector. After that many

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other developmental banks were established. The Nepal Industrial DevelopmentCorporation (NIDC) was established in 1959 AD to provide finance to industries in thecountry. Similarly, a cooperative bank was established in 1963 AD which wasconverted into Nepal Agricultural Development Bank (ADB/N) in 1968 AD to financeagricultural sector.

The first joint venture bank, Nepal Arab Bank was established in 2041 BS, NepalIndosuez Bank in 2042 BS, change the name after owning it by Nepalis as NepalInvestment Bank in …, Nepal Grindlays Bank Limited 2043 BS, now Standard CharteredBank and Himalayan Bank Limited in 2049 BS.

After that number of other joint venture, banks came into existence. After therestoration of multiparty system and introduction of financial liberalization policy, thefinancial institutions and financial activities expanded in the country in the form ofcommercial banks, finance companies and cooperative societies.

There are 142 financial institutions, which have been granted permission from NepalRastra Bank to operate banking services in 2059 BS. In the same year there were 16commercial banks, 16 Development Banks, 5 Rural Development Banks, 53 FinanceCompanies, 18 NGOs and 34 cooperative societies including one women cooperativebank managed and run by women.

2. Nepal Rastra Bank (NRB).The Nepal Rastra Bank is the central bank of the country. A Board of Directors

manages it. The Chief or Head of the bank is called Governor. The Governmentappoints the Governor and other members of the Board of Directors. The Nepal RastraBank is responsible for implementation of the government policy relating to financialmatter. It was established in 1956 AD. The main functions of Nepal Rastra Bank are asfollows;

(a) Issuing of Nepali Currency Note:The Nepal Rastra Bank has monopoly of issuing currency notes. It started to issuenotes from 2016 BS. The bank also issues coins, which is minted in the Department ofMint. It has guaranteed to make payment of amount stipulated in the currency notes.The Bank has to keep security in the form of gold and foreign currencies against theissuance of currency note. The Bank has adopted proportionate reserve system forissuing the currency notes under which 50 percent of the reserve should be kept indomestic and 50 percent in foreign currencies, securities and gold. The Nepal Rastra

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Bank has issued currency notes of different denominations - Rs.1000 being thehighest and Rs.1 is the lowest.

(b) Bankers to the Government:All the offices of His Majesty's Government make financial transactions through NepalRastra Bank. The Bank keeps the cash balances of the government as it plays the roleof the banker to His Majesty's Government. It gives and receives payments on behalfof the government. Whenever the government needs large amount of money, it floatsloan to the public. The Treasury Bill and Development Bonds are a few of the examplesof the medium of government loan. The bank manages the public debt, payinginterest on the government securities and returns the amount when the loan getsmature.

(c) Bankers' Bank:Nepal Rastra Bank also acts as the banker to all banks in the country. All thecommercial banks of the country have to keep deposit with Nepal Rastra Bank asprescribed by it. The Bank fixes the interest rates for deposits with commercial banksin the country. As a lender of the last resort, it also provides refinance facility to otherbanks.

(d) Commercial Bank:All the commercial banks and finance companies are required to observe rules andregulations enforced by the Nepal Rastra Bank. It makes supervision of commercialbanks and finance companies and makes necessary recommendations for betteroperation of these institutions.

(e) Control of Credit:Nepal Rastra Bank controls credit by exercising various monetary measures inorder to maintain stability of internal price level and to promote economic growthin the country. In order to control excess credit supply, Nepal Rastra Bankexercises Bank rate policy, variable reserve ratio, open market operation and otherindirect methods.

(f) Controller of Foreign Exchange:The Nepal Rastra Bank keeps reserve of foreign currencies. Transactions of foreigncurrency have to be approved by Nepal Rastra Bank. Most of the commercial banks are

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authorized by the Central bank to deal with foreign currencies. The Nepal Rastra Bankfixes day to day exchange rates of foreign currencies in the country. Accordingly,commercial banks base their buying and selling rates of foreign currencies.

Development Functions:In addition to the conventional functions, Nepal Rastra Bank performs followingdevelopmental functions also.

(a) Development of Banks and Financial Institutions:The Nepal Rastra Bank has established Banking Promotion Committee to developbanking facilities in the remote areas of the country. It provides compensation andinterest free loan to the branches of commercial banks operating in rural and remoteareas. It also provides training to the banking personnel to develop manpower forbanking development. For this, it has established banking training centers. It hasestablished Rastriya Banijya Bank and provided financial assistance to establish NepalIndustrial Development Corporation, Agricultural Development Bank, Nepal StockExchange and Credit Guarantee Corporation.

(b) Priority Sector Credit:Nepal Rastra bank has assisted to implement different credit programmes such aspriority sector credit and micro credit programme for women to develop cottage andsmall scale industries, to fulfill credit need of the women and poor people in thecountry. The programmes are implemented through branches of commercial banksand other institutions.

(c) Economic Study and Publication:Nepal Rastra Bank conducts research on various important issues in the country. Theoutcomes of such researches help to provide government and other concernedorganizations with the information to formulate economic policies in the country.Family Budget Survey, Agricultural Credit Survey, Industrial Survey and many otherstudies have been conducted by Nepal Rastra Bank. It publishes Economic Reviews,Economic Reports, Bulletin etc, which provide information on various aspects of Nepalieconomy.

(3) Commercial Banks:

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Nepal Bank Limited is the first bank in Nepal. It was established in 1937 ADunder Nepal Bank Act. It has authorized capital of Rs.10 million and subscribed capitalof Rs.2.5 million. The government has invested fifty one percent of the capital.Second commercial bank is Rastriya Banijya Bank, which was established in 1965 AD.The government owns it. Adoption of liberal economic policies allowed the entry ofmany new banks in Nepal with foreign collaboration. Nabil Bank (originally Nepal ArabBank), Nepal Investment Bank (originally Nepal Indosuez Bank), Standard CharteredBank (originally Nepal Grindlays Bank), Nepal Bangladesh Bank, Nepal Bank of Ceylon,SBI Bank, Himalayan Bank Limited, Bank of Kathmandu are few examples of foreigncollaboration commercial banks.

Functions of Commercial Banks.Borrowing from people and lending to the people are the primary functions of thecommercial banks.

1. Borrowing/Accepting deposits:Commercial Banks accept three types of deposits. They are (a) Fixed Deposit (b)Current Deposit and (c) Saving Deposit.

(a) Fixed/Time Deposit:Fixed deposits are those deposits, which are kept in bank's account for a specificperiod of time. Such deposits can only be withdrawn after a specific time period.The depositors get higher rate of interest in this kind of deposits. People depositmoney in fixed deposit for interest as well as safety. The fixed deposits in Nepalicommercial banks can be for 3 months, 6 months, 1 year, 2 years and above. Thecommercial banks provide 7.25 - 8.50 percent of interest for 1-year time depositand 7.50 - 9 percent for two years and above deposit. The rate of interest is notsame in all commercial banks.

(b) Saving Deposits:Saving deposits are made by the people whose main motive is to save money. Bankpays interest on deposits to its depositers. They can withdraw money according totheir needs keeping minimum balance with the bank. The minimum balance differsfrom bank to bank. The range of minimum deposits goes between Rs.5000 toRs.20,000. The banks pay 2 - 5 percent of interest on saving deposits.

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There is also facility of home saving account especially for children anduneducated people. The operating banks provide a box to the depositor and theydrop money whenever they have money. Banks open the box and deposit theamount in the bank on depositor's saving account.

(c) Current Deposit:The businessmen need money constantly. But, it is risky to keep large

amount of money with them. So they deposit their money in current depositaccount with bank and withdraw according to their requirement. The amountdeposited in this account can be withdrawn any time by drawing cheque withoutgiving any prior notice to the bank. Depositors do not get interest on this account,instead they require to pay some service charge to the banks. A minimum balancehas to be maintained to operate current account in the banks. The minimumbalance is different from bank to bank and ranges from Rs.10,000 to 25,000.Recently, people are not so much interested to save money in the banks due to

the negative interest on their deposits. Upper and middle-class people areattracted to buy shares.

2. Providing Loan:The second major function of commercial banks is to provide loans to the

needy borrowers against the security of gold, silver, stocks of goods and otherassets. Before, commercial banks used to provide only short-term loans. Ascommercial banks take deposits on one-hand and advances loans from the other, itwould not engage its fund in risky loans. While providing a loan, commercial banksshould adhere to the principles of banking. That is to say, it should keep sufficientliquid assets to meet the demand of depositors and provide loan to reliableborrowers to make profit. The banks deal with other people's money that meansdepositors' money. Thus, it will survive as long as it can obtain trust and good willof the depositors. Any small rumour of bank's financial problem spoils the bank'sbusiness and credibility. Thus, banks must be very careful while providing loans toborrowers.

Types of Loan:(a) Loan and advances:

The banks give loans and advances to individual, business firms, andinstitutions for various purposes. The banks provide loan against sufficient

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securities of gold, silver, government and non-government first class securities,which are easily saleable without losing value. Banks sometimes provide loan on apersonal basis without security. Banks also provide loan against export bill. Suchloan is known as advances.

(b) Overdraft:The banks provide overdraft facilities to known customers which are usually

business and trading houses. Overdraft means the facility of drawing more moneythan what is deposited in the current account. Borrower needs to pay interest tothe bank only on the amount of over draft. For example, a depositor has onlyRs.50,000 in the account, but requires Rs.1,00,000/- to conclude a business deal.When a depositor gets the overdraft facility, s/he is allowed to withdrawRs.1,00,000/- from the bank. This facility depends on the discretion ofcommercial bank's policy of lending.

(c) Cash Credit:Cash credit is given against collateral of gold, silver and goods, shares, debenturesetc

(d) Discounting Bills:Commercial banks also provide loans by discounting bills. The banks discount Billof Exchange. It purchases bills at market price, which is generally lower than thewritten price. Upon maturity, the bank gets the amount written in the bills and therate of interest. In this way, bank makes profit by discounting bills. Banks alsopurchase Treasury Bills, which is a short-term loan to the government. Usually, thematurity date of a Treasury bill is 3 months.

(e) Investment:Banks also invest on government securities, in shares and stock of other

banks and financial institutions as well as purchase property. For instance, NepalBank Limited has invested on Nepal Insurance Company Limited, Standard CharterBank, Nepal Grameen Bank of all five development regions, Rastriya Bima Sansthan,etc. Commercial banks generally do not undertake long term investments.

3 Agency Functions:

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These functions are known as secondary or agency functions. Banks collectcheques, bills of exchange, promissory notes of customers on behalf of its clientsand make payment of insurance premium, rent, income tax etc. The banks alsopurchase and sell shares and debentures in the stock exchange. The banks remitthe money of clients within the country as well as throughout the world throughdemand draft, fax messages, telex messages, mail payment services and SWIFTservice.

4 Contingent functions:Apart from the above mentioned functions, commercial banks perform many

useful functions to the community. It provides safety vaults or lockers in whichclients can keep their valuable documents and expensive jewelry in safe custody.Commercial Banks deal with foreign exchange. It issues letter of credit, creditcards, and travelers' cheques with the approval of Nepal Rastra Bank. They publishannual bulletins to provide information on the economic situation of the country.Banks also issue references to person/s or institutions about their economicconditions, which is required by other institutions to know about the individuals orcompany's financial status. Usually, students aspiring to study in a foreign countryget certification of finances verifying their economic condition from the banks.These banks also do government transactions with the permission of Nepal RastraBank.

According to the directives of Nepal Rastra Bank; Nepal Bank Ltd. and RastriyaBanijya Bank provide production credit for rural women (PCRW) and Micro Credit forWomen (MCPW). Under this programme designated commercial banks provide loan towomen for income generating activities against group liability. PCRW programme isoperating in 67 out of 75 districts. Similarly, micro-credit project for women isoperating in 12 districts and 5 municipalities. In MCPW; for the first time, 95 NGOshave been involved in group formation, training and delivery of bank credit as socialintermediation. Both PCRW and MCPW have been successful in meeting the need ofpoor women. Besides group loan, commercial banks also make investment onintensive banking programmes such as Gobar Gas Programmes, LivestockDevelopment Programme, Community Irrigation Programme and other womendevelopment programmes.

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14 PUBLIC FINANCE

1 Definition:The word "Public" refers to public authorities, which are both local and central

authorities while the word "Finance" refers to money. Thus, public finance deals withincome, expenditure, public debt and debt management. From the study of publicfinance, we understand why government imposes tax and how and where it spendsmoney. It is a branch of economics dealing with the identification and appraisal of theeffects of the government's financial policies. It analyzes the effects of governmenttaxation and expenditure on the economic situation of individuals, institutions andalso on the economy as a whole.

Every government is required to maintain internal law and order and protect thecountry from foreign aggression. Besides these essential functions, the governmentalso requires to provide public utilities and social services to the people. Classicaleconomists believed that the government should not interfere in the economicactivities of the people. But, after the Second World War the importance of governmentactivities has increased. Especially in developing countries, the government has to playa crucial role in providing social services such as education, health, sanitation andeconomic services like transport, communication, electricity and drinking water. Theenormous financial resources required to perform all these functions are obtained fromtax and other sources.

2 Sources of Government Revenue:The income of His Majesty's Government of Nepal (HMG/Nepal) can be divided

into tax revenue and non tax revenue which are given below:Tax Revenue:

Tax is the most important source of income for the government. Tax can bedivided into direct tax and indirect tax.

Sources of HMG/Nepal Revenue Rupees inmillion

Heading 1999/2000 %

Tax Revenue 33152.2(100.00)

Customs 10813.3(32.6)

Tax on consumption and product of goods and services 13387.4(40.4)

Revenue from Land ownership Registration 1015.9(3.1)

Tax on property, profit and income 7935.6(23.9)

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Non Tax Revenue 9741.6(100.00)

Charges, fees, fine and forfeiture 386.3(4.00)

Receipt from sale of commodities and services 2428.9(24.9)

Dividend 2507.5(25.7)

Royalty and sale of fixed assets 563.3(5.8)

Principal and interest payment 3751.0(38.5)

Miscellaneous items 104.6(1.1)

Source: Economic Survey 2000/2001.Note: The figures in parenthesis indicate percentage of total tax and non-tax revenue.

Tax Revenue:The major sources of income of HMG/N are tax revenue. During the FY

1999/2000, 77 percent of income was obtained from tax revenue. The main sources oftax revenue are as follows:a. Customs: The main sources of customs income are import tax, export tax andIndian excise refund and others. During the FY 1999/2000, 32 percent of tax incomewas from custom duties.b. Tax on consumption and product of goods and services:

This includes entertainment tax, value-added tax, hotel tax, air flight tax, roadand bridge maintenance tax. etc. These taxes constitute the highest revenue at40.4 percent of the total tax revenue to the government.

c. Revenue from Land Ownership Registration:House and land ownership registration and land revenue tax constituted 3.1percent of the total tax revenue of HMG/N in FY 1999/2000.

d. Tax on property, profit and income:It constitutes of income tax from public enterprises, semi-public enterprises,private corporate bodies, individuals, remuneration, urban house and land tax,vehicle tax, tax on interest, etc. Nearly 24 percent of the income to HMG/Ncomes from these taxes.

Non Tax revenue:The main non-tax income of the HMG/N is as follows:

a. Charges, Fees, Fines and Forfeiture:Under this heading, the main sources of revenue of HMG/Nepal are firm

registration, arms registration, vehicle license, judiciary, administration, penalty andforfeiture. Nearly 4 percent of non-tax revenue of HMG/N comes from these sources.

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b. Receipt from the sale of commodities and services:The government also earns income from services and sale of various goods and

services like education, electricity, postal services, forest, transport, drinking water,irrigation, etc. Nearly 25 percent of non-tax revenue is obtained from the sale ofcommodities and services.c. Dividend:

The HMG/N also earns revenue through dividend. The main sources of dividendare financial institutions, trading companies, industrial undertakings, service sectorsetc. The income of about 26 percent of non-tax revenue comes from dividends.d. Royalty and sale of fixed assets:

The HMG/N earns royalty from mining, minting and others. Out of the totalnon-tax revenue about 6 percent revenue, comes from royalty and sale of fixed assets.e. Principal and Interest payment:

Of the total non-tax revenue the highest percentage of 38.5 came fromprincipal and interest payment.f. Foreign aid:

Foreign aid consists of grants and loans. Grant is free of cost while loan has tobe repaid with interest. Thus, loan is a burden not only for the present generation butalso for future generations if it is not utilized properly and productively.

Foreign aid is not included in the government revenue. HMG/Nepal has beenreceiving foreign aid from different countries. The total foreign aid received both frommultinational and bilateral sources in the FY 1999/2000 stands at Rs.20,448.0 millionout of which Rs.12,860.2 million was in grants and Rs.7,587.8 million is in the form ofloan. Foreign aid in the form of grant is gradually decreasing.

3. Government Expenditure:Since the great depression of 1930s, public expenditure in the countries all over

of the world have increased tremendously. The main causes of growth in publicexpenditure are the growth of public enterprises, increased expenditures in socialsecurity, increased urbanization, increase in price level, war, growth of population, etc.Nepal is not an exception to these causes.

The public expenditure can be classified into two groups, i.e. RegularExpenditure and Development Expenditure.(a) Regular Expenditure:

The total regular expenditure in FY 2000/2001 is Rs.34036.0 million. Regularexpenditure consists of social services, economic services, loans and investment,

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loan repayment and interest, etc. The amount of regular expenditure made indifferent areas is given in the following table.

Regular and Developmental Expenditure of HMG/N, 2000/2001.Rupees in

million.

Heading Regularexpenditure

Developmentexpenditure

Constitutional Bodies 431.5 26.6

General Administration 4070.4 108.1

Revenue Administration 339.2 ---

Economic Administration andPlanning

130.7 28.6

Judicial Administration 276.0 ---

Foreign Service 672.6 ---

Defense 2994.8 ---

Social Service 8327.9 12406.2

Economic Service 2224.8 18648.6

Loan and Investment 39.2 ---

Loan Repayment and Interest 10032.8 ---

Miscellaneous 4496.1 531.1

Total 34036.0 31749.2

Source: Economic Survey, 2000/2001.

The main heading of regular expenditure are as follows:1 Constitutional Organs: Consists of constitutional organs of the country which

includes His Majesty and the Royal Family, the State Council, the ParliamentSecretariat, the Supreme Court, the Office of Commission for Prevention ofAbuse of Authority, the Office of Auditor General, the Public Service Commission,the Election Commission, the Office of Attorney General, the Office of JudicialCouncil, etc.

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2 General Administration: includes expenditure of the Council of Ministers, HMGSecretariat, District Administration, Police, Jail Administration Office, etc.

3 Revenue administration: includes land revenue, customs, excise, tax, andrevenue tribunal.

4 Economic Administration and Planning: includes planning, statistics, ControllerGeneral's office, and metric measurement.

5 Judicial Administration: includes court and court for prevention of misuse ofauthority.

6 Foreign Service: includes all the services relating to Foreign Service.7 Defense: includes expenditure on defense.8 Social Service: expenditure includes expenditure on education, health, drinking

water, local development and other social services.9 Economic Service: includes expenditure on agriculture, irrigation, land reform,

survey, forestry, industry and mining, transport and communication, electricityand other economic services.

10 Loan and Investment: includes expenditure on loan and investment.11 Loan Repayment and Interest: It includes expenditure on payment of loan and

interest.12 Miscellaneous expenditure: includes travelling expenditure of dignitaries and

government delegations, hospitality, pension, allowances, gratuity, emergencyhelp, etc.

(b) Development Expenditure:The total development expenditure in FY 2000/2001 was Rs.31749.2 million.

The main areas of development expenditure are as follows:1 Constitutional Organs: It includes the Commission for Abuse of Authority, the

Office of Auditor General and the Public Service Commission. In Fiscal Year2000/2001 Rs.26.6 million has been spent for constitutional organs.

2 General Administration: it includes expenditure on administrative reform.Rs.108.1 million was set aside for this in the Fiscal Year 2000/2001.

3 Economic Administration and Planning: Expenditure on planning and statisticsinclude Rs.28.6 million in FY 2000/2001.

4 Social Services: expenditure on education, health, drinking water, localdevelopment and other social services constituted of Rs.12406.2 million in theFiscal Year 2000/2001.

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5 Economic Services: It includes expenditure on agriculture, irrigation, land reform,survey, forestry, industry, mining, transport and communication, electricity, etc.About 58 per cent of the total development expenditure was made on economicservices in Fiscal Year 2000/2001.

6 Miscellaneous: Rs.531.1 million was spent on miscellaneous activities.

15: ECONOMIC PLANNING

1.Meaning of Planning:"Strictly speaking all economic life involves planning... to plan is to act with a

purpose to choose and choice is the essence of economic activity"-Lionel Robbins.

According to Dickinson's definition "Economic planning is making of majoreconomic decision of what and how much is to be produced and to whom it is to beallocated by the conscious decision of the determinate authority on the basis ofcomprehensive survey of the economy as a whole."

Economic planning is necessary for various reasons. Some reasons areequitable distribution of wealth, elimination of class conflict, elimination of economicinstability, to avoid wasteful competition, to achieve optimum allocation of resourcesand prevent artificial shortage of goods.

2.Planning in Nepal:In Nepal planned approach of economic development started only after 1951 AD.

In 1952 AD, a separate Ministry of Planning and Development was formed for plannedeconomic development in Nepal. However, planning in the real sense started after theimplementation of the First Five Year Plan in 1956 AD under Planning Commissionwhich was also established in 1956 AD. A brief description of economic planning inNepal is given below.

1 First Five Year Plan (1956-61 AD):The First Five Year Plan of Nepal was iniated in 1956 AD. The objectives of the

plan were to increase production, employment and living standards of the majority ofthe people. The targeted amount of expenditure was Rs.33 Crore. But only

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Rs.21,44,00,000 was spent during the plan period. The plan had given top priority tothe development of transportation. Apart from some progress in social services andrural development, nothing remarkable was achieved during the plan period.

2 Three Years Plan (1962-65 AD).After the first plan, there was no plan for a period of one year. A plan holiday

was observed. This period was devoted to review the first plan. The objectives of thesecond plan were to increase national income, to stabilize the economy, to increaseemployment opportunities and to ensure social justice. This plan was also termed aspreparatory plan because this plan was devoted to developing infrastructure neededfor the formulation and implementation of planning in future.

2 Third Five Year Plan (1965 – 70 AD).The objectives of the plan were to increase the GDP by 19 per cent, to increase

agricultural production by 15 per cent, to develop transportation, generate hydroelectricity in public as well as private sectors, to increase foreign trade and diversify it.The estimated total outlay of plan was Rs.250 Crore of which Rs.174 Crore was setaside for the public sector, Rs.52 Crore for the private sector and remaining Rs.24Crore for the Panchayat sector. About 91 per cent of the financial target was fulfilledduring the plan period. However, physical target was not met. The plan's target was toraise national income by 19 per cent. However, achievement showed only 2.2 per centgrowth of the GDP.

3 Fourth Five Year Plan (1970-75 AD).The objectives of the Fourth Plan were to increase agricultural as well as

industrial production, to develop transport, communication and hydro electricity, tomaximize the use of manpower resources, to control population growth and toestablish a society free of exploitation. The total estimated outlay of the plan wasRs.354 Crore of which Rs.225 Crore was allocated for the public sector, Rs.87 Crore forthe private sector and Rs.12 Crore for the Panchayat sector. About 41 per cent of thetotal outlay was set aside for transport and communication development, 26 per centfor agricultural development, 18.4 per cent for industry, commerce, electricity andmining. The GDP growth during the plan period was 2.65 per cent.

4 Fifth Five Year Plan (1975 – 80 AD).The main objectives of the Fifth Plan were:

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- to increase the production of basic commodities;- to maximize the use of the labour force; and- to establish regional balance in the economic development.

The main policies adopted to fulfill the set objectives were reducing excessivedependency on foreign aid by mobilizing internal resources, investing in lessdeveloped areas and increasing the production of basic goods, using labour intensiveproduction process in agricultural production, controlling the general price level,encourage private sector participation in industrial production, increasing foreign tradeand diversify it, provide agricultural credit and inputs through institutional sources.Out of the total outlay, the outlay for the public sector was Rs.617 Crore, Rs.209 Crorefor the private sector and Rs.93.1 Crore was allocated for the Panchayat sector. Of thetotal public sector outlay 29.8 per cent was allocated for agricultural development,23.2 per cent for transport and communication development and 22.4 per cent wasallocated for industry, commerce, electricity and mining. The growth of GDP was 2.2per cent during the plan period.

6. Sixth Five Year Plan (1980 – 85 AD).The main objectives of the Sixth Plan were to attain a higher rate of growth,

increase employment opportunities and meet the minimum basic needs of the people.In order to achieve these objectives, the main policies adopted during the plan periodwere to give priority in the development of cottage and small-scale industries, todevelop the agricultural sector and to encourage development of export trade andtourism. The total outlay of the plan was Rs.3394 Crore. 60 per cent of thedevelopment expenditure was to be met from foreign assistance mainly in the form ofgrants. Out of the total development expenditure, 31 per cent of the expenditure wasset aside for agriculture, irrigation and forest. Another 26 per cent went to industryand mining and 17 per cent expenditure for the development of transport andcommunication.

7 Seventh Plan (1985 – 90 AD).The objectives of the plan were similar to the Sixth Plan. They were to increase

production at a faster rate, increase productive employment opportunities and meetbasic minimum needs of the people. The policies adopted to achieve the objectiveswere to accord highest priority to agriculture sector, forest development, soilconservation, water resource development and the development of industry, tourism

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and trade. Another important policy was to control population. The estimated totalexpenditure was Rs.5041 Crore. Out of the total Rs.2700 Crore was allocated to thepublic sector and Rs.2141 Crore to the private sector. Of the total expenditure; 34.3per cent was set aside for agriculture, irrigation and forest; 14.4 per cent for transportand communication, 29.8 per cent for social services and 21.5 per cent to industry,mining and social services. Out of the total public expenditure, 70 per cent ofexpenditure were met from external sources and remaining 30 per cent from domesticsources. This plan had targeted to increase national production by 4.5 per cent perannum.

8 Eight Five Year Plan (1992 – 97 AD).After the restoration of multi party system, there was no economic planning for

two years. Many remarkable changes took place. The private sector was givenimportance through liberalization and privatization policies by the government. Themain objectives of the plan were to achieve sustainable economic growth, reducepoverty and reduce regional imbalance in economic development. The mainprogrammes during this plan period were intensive development in agricultural sector,development of rural infrastructure, development of energy, human resourcedevelopment, creation of employment opportunities, population control, exportpromotion and diversification, industrial development and tourism promotion.

The total fixed capital investment was Rs.17033.2 Crore; out of whichRs.10919.3 Crore was to be made from the private sector and Rs.6113.9 Crore fromthe public sector.

9. Ninth Five Year Plan (1997 – 2002 AD).The only objective of the Ninth plan was to alleviate poverty consistent with 20

years long term development prospective plan.Agriculture and forest have been given first priority followed by water resources,

human resources and human development, industrialization, tourism development,international trade and physical infrastructure development.

The total development expenditure of the plan was Rs.18,958.0 Crore. Of thetotal expenditure; 33.30 per cent has been allocated to social service, 27.0 per cent toagriculture, irrigation and forest, 18.70 per cent to electricity and 17.54 per cent ontransport and communication. Similarly, 1.54 per cent has been allocated to trade andtourism, 0.84 per cent to industry and 0.85 per cent to miscellaneous activities.

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Evaluation of Ninth Plan:During the plan period people below poverty line is reduced to 38 per cent as

against target of 32 per cent. Forty nine per cent of the people aged over 15 becameliterate as against 70 per cent target. Similarly, primary level school admission reachedto 80.4 per cent against the target of 90 per cent. Infant mortality rate per 1000 is64.2 as against target of 61.5. Likewise maternal mortality rate reached to 415 per100,000 as compared to target of 400. A little more than 71 per cent of the populationhas got the access of drinking water. The target was to provide drinking water facilityto 100 per cent people. These are some of the achievement in terms of humandevelopment.

Current Tenth Plan (2002-2007)Poverty is wide spread in the country. Rural people are poorer than urban people.

People are more affected by poverty in remote areas. The Tenth Plan’s sole objective isto reduce poverty from 38 per cent to 30 per cent at the end of plan. In order toachieve it, His Majesty’s Government has formulated a four-pillar poverty reductionstrategy. They are economic growth and its equitable distribution, human development,social justice and good governance.

The main targets for human development are to raise literacy rate to 63 per cent,reduce infant mortality rate to 45 per thousand, raise life expectancy to 65 years,increase drinking water facility to 85 per cent of the population, electricity to 55 percent and telephone facility to almost to all village development committee. To reduceoverall poverty employment opportunity will be generated in key sectors.In order to achieve target main priorities areas are

(a) high, broad and sustained economic growth;(b) development of social and rural infrastructure;(c) targeted programme;(d) good governance.The total outlay of the current plan is Rs.60,982.3 Crore. Out of which

Rs.16,973.6 Crore will borne by public sector and Rs.44,008.7 Crore in private sector.Out of total outlay 13.84 per cent has been set aside for agriculture, 86.16 per cent fornon-agriculture sector. In non-agriculture sector, highest percentage of 21.53 per centhas been set aside for social service followed by 20.05 per cent for the development oftransport and communication.

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