UNIT 3:NEPALESE ECONOMY

LH 10
Economy of Nepal Planned economy and Mixed
Economy, Nepal's status in HDI, World Development
and Poverty status
Agricultural development status, its contribution
in national economy, challenges
Secondary and tertiary sector development status,
its contribution to national economy, challenges
Tourism in Nepal scope and challenges

Labor employment status, domestic and foreign

employment, challenges
ECONOMIC SYSTEM
Aneconomic system is a mechanism (also defined as
system or social institution) which deals with the
production, distribution and consumption of goods and
services in a particular society

Anorganizedway in which a state ornation allocates

its resourcesanddistributes goodsandservicesin the
nationalcommunity.

Theeconomic system is composed of people, institutions

and their relationships. It addresses the problems of
economics like the allocation of the resource,
unemployment, inflation,income level ,poverty etc.
Aneconomic systemis the combination of the
various agencies, entities that provide the
economic structure that guides the social
Types:

" Capitalism (Market Economy)

" Socialism (Planned economy)

" Mixed (Capitalism + Socialism)

 Capitalism is an economic system in which
the means of production are privately owned
and operated for profit, usually in
competitive markets.

In other words; An economic system in

which investment in and ownership of the
means of production, distribution, and
exchange of wealth is made and maintained
chiefly by private individuals or corporations.
 ADAM SMITH called the obvious and simple
system of natural liberty (Book: Wealth of
Nations).
Individuals (alone or with others) are free to
decide where to invest, what to produce or sell,
and what prices to charge. There is no natural
limit to the range of their efforts in terms of
assets, sales, and profits;
or the number of
customers, employees,
and investors; or whether they
operate in local, regional,
national, or international
markets.
 Capitalist
Centralized to
System
Decentralized system
(Adam Smith
Free flow of resources
Mercantile
System People strive for self
interest in free market
Production
Factors in Based on Demand &
Government Supply Forces
hands
Producer interest to
Export emphasis customer power
 Benefits of Capitalism
Provides Choice to customers
Provides valuable goods and

services
Capitalism actively rewards

positive traits like hard work

Similarly, it punishes negative

traits such as laziness and

theft
Narrows the gap between

common person and wealthy

Capitalist societies usually do

not have largeblack markets

Major limitations/
Criticism:
Downfall of work ethics
Encourages inequality in a

society
Business lobbying with

government
Human resource

exploitation
Results in great disparities

between income of people

owning the capital resources
and others
SOCIALISM
 Collective ownership and democratic control
of the material means of production by the
workers and the people

Socialism is a term applied to an economic

system in which property is held in common and
not individually, and relationships are governed
by a political hierarchy. Instead, individuals in
positions of authority make decisions in the name
of the collective group..

A p r i m a r y g o a l o f s o c i a l i s m i s s o c i a l
equality and a distribution of Wealth based
on ones contribution to society and an economic
arrangement that would serve the interests of
society as a whole.
Features of Socialism;
Social Ownership of means
of production
Existence of public sector
Decisive role of Economic
Planning
Production guided by
Social Benefits
Abolition of exploitation of
labor
Benefits of Socialism
i. Better salaries
ii. Stable Environment
iii. Eliminates poverty
iv. Better Products
v. Fulfills survival need
vi. Opportunity for citizens to
explore non-economically-
productive pursuits
 Criticism of Socialism
Distorted price signals

Suppression of

economic democracy
Slow Technological

advancements
Minimize self

management
Reduced incentives
BASIS OF CAPITALIST ECONOMY
DIFFERENCE
Resources Ownership Privately owned
Foundation belief competition brings out the best
in people
Earning of wealth everyone works for his own
wealth
Market Scenario Level playing field
Govt. interference Only in situations where laws
have been broken
Employees motivation Highly motivated on account of
proportional benefits
Demerit Few individuals/groups attain
powers, rest are exploited
SOCIALIST ECONOMY
State owned
cooperation is the best way
for people to exist
everyone works for wealth
which is distributed
equally to everyone
Private enterprises are
permitted in few
businesses only
Fully involved
Rarely motivated as
performance is not
rewarded
Hard work is not rewarded,
lazy employees also enjoy
equal level of benefits
MIXED ECONOMY
Any economy in which private corporate
enterprises and public sector enterprises
exist side-by-side, and decisions taken
through market mechanism are
supplemented by some form
of partial planning, is to
be described as a
mixed economy.
Provides a clear demarcation of the
boundaries of public sector and private
sector so that the core sector and strategic
sectors are invariably in the public sector.

Thegovernment intervenes to prevent

undue concentration of economic power, and
monopolistic and restrictive trade practices

The rights of the individual are respected

and protected subject only to the
requirements of public law and order and
morality
Features
Resources are owned both by the
government as well as private
individuals. i.e. co-existence of both
public sector and private sector.

Market forces prevail but are closely

monitored by the government.

Monopoliesmay be existing butunder

close supervisionof the government.
Advantages

Producers and consumer have sovereigntyto

choose what to produce and what to consume

but production and consumption of harmful
goods and services may be stopped by the
government.

As compared to Market economy, a mixed

economymay have less income inequalitydue

to the role played by the government.

A mixed economy represents an achievable

balance between individual initiative and social

goals.
ECONOMY OF NEPAL
As per World Economic Outlook published by
International Monetary Fund (IMF) in April,
2016, global production that grew by 3.1
percent in 2015 is estimated to grow by 3.2
percent in 2016.
Likewise, economies of developed countries
that had expanded by 1.9 percent in 2015 is
projected to expand at the same rate as of
previous fiscal year
while economies of emerging and developing
countries that grew by 4.0 percent in 2015 are
estimated to rise by 4.1 percent in 2016.
Economies of two giant Asian
countries: India and China, which
rose by 7.3 percent and 6.9 percent
respectively in 2015, are projected to
grow by 7.5 percent and 6.5 percent
respectively in 2016.
 The devastating earthquake of April 25, 2015 and
subsequent aftershocks have resulted in the huge loss of
human lives, physical infrastructure and natural
resources. This took the lives of 8,969 people and injured
22,302 people. Similarly, about 17,000 large cattle and
some 40,000 small ones perished in the earthquake.
Likewise, about 779,582 government buildings and
private homes have been completely destroyed, while
302,774 received partial damages. Damage caused by this
devastating earthquake is estimated at around Rs. 706
billion. Of this, properties worth Rs. 517 billion were
destroyed while production damage is equivalent to Rs.
189 billion. As per the preliminary estimates of damages
rendered by the earthquake, the cost of reconstruction
and new constructions could be to the tune of Rs. 669.50
billion.
Economic growth of the country (at the
basic price) is estimated to remain at 0.77
percent in FY 2015/16.

GDP recorded a growth of 2.32 percent

growth rate in the previous fiscal year.

The economic growth rate in FY 2001/02

had recorded 0.16 percent, which once
again went below 1 percent in current
fiscal year for the second time.
 FEATURES OF NEPALESE
ECONOMY
Low per capita income
Dependency on agriculture
Low level of living
Lack of infrastructure
Underutilization of resources
Technological backwardness
Unequal income distribution
POVERTY
WHAT IS POVERTY

Poverty is the world at its worst

when people are deprived of basic
everyday things that we take for
granted like food, water shelter,
money, and clothes.
POVERTY IS A HORRIFYING
THING

HOW?
MAJOR TYPES OF POVERTY
Absolute poverty
Relative poverty
 ABSOLUTE POVERTY
A condition characterized by severe deprivation of basic
human needs, including food, safe drinking water, sanitation
facilities, health, shelter, education and information. It
depends not only on income but on access to social
services (United Nations, 1995)
This is a level of poverty in terms of the minimum
requirements necessary to afford minimal standards of food,
clothing, health care and shelter.
For the measures to be absolute, the line must be the same
in different countries, cultures and technological level.
In 2015, the World Bank defines extreme poverty as living
on less than US$1.90 per day.

Data: Ferreira et al 2015

Chart by Kenny and Sandefur.
 David Gordons paper of Indicators of
poverty and hunger for UN, further defines
absolute poverty as the absence of any two
of the following eight basic needs:
Food

Safe drinking water

Sanitation facilities

Health

Shelter

Education

Information

Access to services
 Living in absolute poverty is harmful and can
endanger your life!
 RELATIVE POVERTY
Relative poverty refers to individuals or
groups lack of resources when compared with
that of other members of the societyin other
words, their relative standard of
living (Oxford Dictionary of Sociology -1994)
Relative poverty is the condition in which
people lack the minimum amount of income
needed in order to maintain the average
standard of living in the society in which they
live.
This is defined relative to the members of a
society and therefore differs across countries.
Relative poverty changes over time.
 7 TYPES OF POVERTY
ECONOMIC POVERTY Lack of monitory demands
for providing themselves with food, cloth and shelter
BODILY POVERTY Lack of property physical health
and access to health living conditions
MENTAL POVERTY Lack of thinking, access to
education and knowledge
CULTURAL POVERTY Lack of coming together in a
society
SPIRITUAL POVERTY Lack of feeling of
brotherhood/togetherness
POLITICAL POVERTY Lack of understanding of
how the system works
SOCIETAL POVERTY Lack of social connectivity
CAUSES OF POVERTY
o Lack of education
o Natural disasters Hunger & Malnutrition
o Lack of money Limited access to quality
o No opportunities health care
provided Insufficient access to
o Over population sanitary water
Poverty is also Limited education
caused by DRUGS
& ALCOHOL as
some people spend
HUMAN DEVELOPMENT INDEX
TheHuman Development Index(HDI) is a
composite statistic oflife expectancy,education,
andper capita incomeindicators which are used
to rank countries.

A country scores higher HDI when

thelifespanis higher, theeducationlevel is
higher, and theGDP per capitais higher.

TheHDI was developed by the Pakistani

economistMahbub ul Haq,
 HUMAN DEVELOPMENT
Human development is defined as the process of enlarging
people's freedom allowing them to lead a healthy life, having
decent standard of improved living and guaranteed human rights.

It values capabilities related to health, education, long life

nutrition as ends in its self and it sees income as the means to
achieve these.

It is a summary composite, statistic index that measures a

country's average achievements in three basic aspects of human
development: health, knowledge, and a decent standard of living
which are used to rank countries into four tiers of human
development
COMPONENTS OF HDI
TOP 10 HDI RANKINGS
 HDI OF NEPAL
Nepal has graduated to medium human development grouping
in the United Nations Human Development Index (HDI),
indicating Nepalese are growing healthier, becoming more
educated and earning more.
Nepal secured a score of 0.558 in HDI in 2015, as against
0.548 in 2014, says the Human Development Report 2016
published by the UN.
In the same course of development and with this score, Nepal
secured 144th position in the HDI among 188 countries surveyed
by the UN. This ranking is same as that of the previous year. The
slight improvement in the score also helped Nepal to escalate to the
medium human development group from the low human
development group.
 HDI OF NEPAL
The 2014 Nepal National Human Development Report had
found wide variations in HDI values across population
groups in Nepal.
The Newar people have the highest HDI value, 0.565. Close
on the heels are Brahmins and Chhetris, with HDI value of
0.538. This was followed by Janajatis, with HDI value of
0.482, Dalits HDI value is 0.434 and Muslims HDI value is
0.422.
The variations in HDI values are even significant within
these groups, depending on where they live. The highest
inequalities are in education, and this may have pronounced
long-term effects on capabilities later in life.
HDI AND ITS COMPONENTS
 LIMITATIONS
Limited evaluation of human development.
HDI does not measures qualitative factors such as
cultural identity, gender opportunities.
Purchasing power parity value used to adjust GNI data
change quickly and can be inaccurate or misleading.
No replicate on quality of life factors, such as
empowerment movements or overall feelings of
security.
Focuses on long term development without considering
nature and ecosystem.
AGRICULTURE
DO YOU KNOW?
Agri
Seri
Pisci
Viti Culture
Horti
 Agriculture
The science and art of cultivation on the soil,
raising crops and rearing livestock . It is also
called farming.
Sericulture
Commercial rearing of silk worms . It may
supplement the income of the farmer
Pisciculture
Breeding of fish in specially constructed tanks and
ponds .
Viticulture
Cultivation of crops .
Horticulture
Growing vegetables ,flowers and fruits for
commercial use .
PHYSICAL AND HUMAN FARM INPUTS
FEATURES OF NEPALESE
AGRICULTURE
Subsistence farming

Monsoon-based agriculture
Low productivity
Lack of crops diversification:
Primitive farming
High population pressure on
agriculture
In current fiscal year 2015/16, real
Gross Domestic Production (GDP) of
the country is estimated to rise by 0.77
percent against its growth rate of 2.32
percent in the previous year.

Production of Agriculture sector is

expected to grow by 1.3 percent in FY
2015/16 against its growth of 0.8
percent in previous fiscal year
PROBLEMS OF AGRICULTURAL
DEVELOPMENT
Pressure of population on land:
Use of old technique:

Lack of agricultural credit:

Lack of marketing facilities:

Lack of irrigation facilities:

Lack of agricultural research:

There are other problems of agriculture in Nepal

such as lack of improve seeds and fertilizers, lack
of transportation facilities, lack of storage
facilities, defective government policy.
 REMEDIAL MEASURES

Control of population growth:

Technical improvement:
Provisions of adequate credit:

Marketing and storage facilities:

Development of irrigation facilities:

Effective government policy:

Thereare other remedial measures such as provides

improved seed & fertilizers, adequate agricultural
research, development of transportation &
communication, promotion in agro-based industries
etc.
INTRODUCTION TO TOURISM
Tourism has developed an important part
of the economic foundation of many
countries.
Growth rate of services sector faster than
any other.
Definition by WTO

Tourism defined as the activities of

persons traveling to and staying in place
outside their usual environment for not
more than one consecutive year for leisure,
business and other purpose
 WHAT IS TOURISM?
Four different perspectives of tourism can be identified:

The tourist: The tourist seeks various physical experience and

satisfactions. The nature of these will largely determine the destinations
chosen and the activities enjoyed.

The business providing tourist goods and services: Business people

see tourism as an opportunity to make a profit by supplying the goods and
services that the tourist markets demand.

The government of the host community or area: Politicians view

tourism as a wealth factor in the economy. Their perspective is related to
the income their citizens can earn from this business. They also consider
the foreign exchange receipts from international tourism as well as the tax
receipts collected from tourist expenditures, either directly or indirectly.
The government can lay an important role in tourism policy, development,
promotion and implementation.

The host community: Local people usually see tourism as a cultural and
employment factor.
TOURISM CATEGORY
Tourism can be divided by four category:
1. International tourism
1. Inbound tourism: Visits to a country by
nonresidents
2. Outbound tourism: Visits by residents of a
country to another country
2. Internal tourism : Visits by resident and non
residents of the country of reference
3. Domestic tourism : Visits by residents of a
country to their own country
4. National tourism : Internal tourism plus
outbound tourism
 PURPOSES OF TRAVEL

Business VisitingFriends or
" Primary activities Relatives
Conventions " Primary activities
Consultations Socialising
Inspection Dining in
Home entertainment

" Secondary activities

Dining out " Secondary activities
Recreation Dining out
Shopping Physical recreation
Sight seeing Shopping
Sight-seeing
Urban entertainment
 PURPOSES OF TRAVEL
Otherpersonal Pleasures
business " Primary activities
" Primary activities Recreation

Shopping Sight-seeing

Religious visit Dining out

Medical

appointment " Secondary activities

Convention

" Secondary activities Business

Dining out Shopping

Component of
Tourism & Tourism
Management
The component of
tourism including:
a. The Tourist
b. The Host
c. Natural
resources and
environment
d The Built
Environment
a. Cultural
b. Infrastructure
c. Technology
d. Information
e. Governance
 COMPONENT OF TOURISM &
TOURISM MANAGEMENT
e. Operating sectors of the Tourism industry
a. Transportation
b. Accommodation
c. Food services
d. The attraction
e. The events
f. Adventure and Outdoor recreation
g. The entertainment
h. Tour operator
i. Travel agent
 BENEFITS OF TOURISM
Tourism brings both economic and non-economic
benefits and costs to host communities.
The benefits including:
a) Provides employment opportunities, both
skilled and unskilled, because it is labor-
intensive industry.
b) Generates a supply of needed foreign exchange
c) Increase income
d) Creates increased gross national product
e) Reinforces preservation of heritage and
tradition
f) Develops an infrastructure that will also help
stimulate local commerce and industry
g) Can be develop with local product and resources
h) Spreads development
 COSTS OF TOURISM
The costs including:
a) Develop excess demand for resources
b) Create social problems
c) Degrades the natural physical
environment and create pollution.
d) Degrades the cultural environment
e) Increase the incidence of crime,
prostitution and gambling
f) Commercialize culture, religion and the
arts
g) Creates conflict in the host community
h) Contributes to disease, economic
fluctuation and transportation problems
Tourism in Nepal
"Nepal for Many Reasons
In all the Seasons "
BACKGROUND

Nepal Area 147,181 sq. km

Unique geographical position and altitude variation.

Elevation : Lowest Kechana Kalan (60m) to Top of the

world Mt. Everest (8848m) with in 150km.

Wild variation of ecosystem, bio-diversity, wildlife,

thundering rivers, forested hills, frozen valley.

10 UNESCO heritage sites.

10 out of 14 8thousander, more that 200 peaks and

mountains.
10 national parks, three wildlife reserves, six

conservations areas and one hunting reserve

NEPAL - Heaven for travelers, trekkers &

mountaineers.
BACKGROUD TREKKING IN NEPAL
Trekking is walking through village, trails,
mountains, valleys for pleasure or enjoyment.
Popular trekking trails of Nepal is basically
originated by trade and commerce in ancient
time. Route used by local villagers to move from
one village to another.
4 different types of trek : Hiking, Backpacking,
Teahouse & Camping.
Popular season : Spring (Mar, Apr, May) &
Autumn (Sep, Oct, Nov)
 POPULAR TREKKING AREA OF NEPAL

ANNAPURNA REGION - Circuit, Santaury, Gorepani,

Jomsom Muktinath, Upper Mustang
EVEREST REGION - Base camp, Dudh Kunda
LANGTANG REGION - Helambu, Gosaikunda, Ganesh
Himal
DHAULAGIRI - Circuit, Basecamp.
MANASLU - Rupi Nala, Circuit.
DOLPO - Upper & Lower, Shey Phoksundo
RARA, ROLWALING, JUMLA, HUMLA,
KANCHENJUNGA, GAURISHANKAR
ADVENTURE
Mountaineering, Trekking, Rafting, Kayaking,
Sports, Golf, Paragliding, Jungle Safari, Bungee
Jumping, Mountain biking, Special interest tours

OTHERS
Spiritual, Pilgrimage, Sports, Health &
meditation, Agro tourism, Sustainable Tourism,
Community Tourism, Village Tourism,
Entertainment & Leisure Tourism
 Other Adventures

www.welcomenepal.com
 RECOMMENDATION
Political situation directly affects tourism industries, so political situation
should be stable and peace.

To increase tourist traffic in constant manner, increase in publicity and

promotional activities.

Infrastructure development : Hotels, amusement parks, Roads &

highway etc, Airport & aircrafts.

Nepal government have to conscious about present scenario of tourism

and formulae law, rules, regulations on timely manner.

Tourism organization, Government should focus on alternative

destination places exploration around major trails.

Skill full man power development, training facilities, quality

management.
 BUSINESS SECTORS
Primary Sector
" The extraction, harvesting, and conversion of land.
" Using natural resources as factors of production.
Agriculture, fishing, mining, forestry and oil

extraction.
Less economically developed countries rely heavily on
farming.
In more economically developed countries, rely on
machines and automation.
" As economies develop, there is less reliance on the
primary sector in terms of employment and national
output.
 SECONDARY SECTOR

" They are involved in using raw materials and

other resources for the manufacturing of
products.
" Construction firms
" Pharmaceutical companies
" Clothes manufacturers
" Publishing firms
" Electronic manufacturers
" Energy production companies
 Bringing growth in domestic production is imperative
for Nepals economic prosperity. Neither import
substitution nor export promotion is possible in absence
of domestic production growth and trade deficit cannot
be reduced either.

Byfirst eight months of current fiscal year 2015/16, a

total of 6,328 industries having fixed capital of over Rs.
30 million have been registered under Department of
Industry. Industries where about Rs. 10.84 billion has
been invested is estimated to have provided
employment to 512,159 individuals. The shares of
large, medium and small industries have averaged 13
percent, 23 percent and 64 percent respectively.
 By midFebruary of the current fiscal year 2015/16,
the number of newly registered industries stood at
219 with a total investment of Rs. 42.69 billion
generating employment to 9,567 individuals.
The investment amount dropped by 54 percent in FY
2014/15 for failing to invest in the same ratio
The recent statistics reveals that about 41 percent of
the total industries are productive oriented by their
nature until mid-February of current fiscal year
2014/15. This is followed by service sector industries
and tourism industries. Mines related industries
have their nominal presence while forest related
industries account for 6 percent.
CHALLENGES
Landlockedness

Inadequate infrastructure
Poor resource endowment

Poor access to finance

Labor problems

Inconsistent government policies

Tax related problems

Poor storage capacity and quality of service

Depreciating Nepalese currency

Mismanagement
 TERTIARY SECTOR

" They are involved in providing services

to their private and corporate customers.
" Retailing
" Education
" Travel and tourism
" Entertainment
" Insurance
" Transport
" Banking and finance
" Healthcare and catering
 CHALLENGES
Inadequate infrastructure
Human resource shortage

High cost

Poorly equipped airports and institutional

capacity
Pollution ,poor safety

Low quality products

Lack of surplus

Poor supervision and specialization

Weak legal and accounting environment

Low level of skills and human concern

competition
 Labor Relations is the relationship between
management and labor, especially with respect to the
maintenance of agreements, collective bargaining,
etc.
Employer is a person or institution that hires
employees or workers. Employers offer wages or a
salary to the workers in exchange for the workers
work or labor.
Employee is an individual who was hired by
anemployer to do a specific job.

Note: The employee is hired by the employer after

an application and interview process results in his or
her selection as an employee.
Types of employment

Full-timeand part-time employees

Casual employees

Fixed term and contract

Apprentices and trainees

Commission and piece rate employees

 Foreign employment is indeed the most significant
motivation for international migration from Nepal in the
twenty-first century. More than 3.8 million permits to
work abroad (excluding India) were issued by the
Government during the 1993/942014/15 fiscal years,
which represents almost 14 per cent of the current
population
Subsequently, there has been a huge increase in the
inflow of remittances, from 58.6 billion rupees (NPR) in
2003/04 to NPR589.5 billion in 2014/15. Remittances
contributed a 10.9 percentage share of the gross domestic
product (GDP) in 2003/04 and 27.7 per cent in 2014/15.
The remittance flow, therefore, is a major contributor to
development financing in Nepal.
The international demand for Nepali labour is
huge. As many as 1.2 million jobs were available
in 27 countries, according to the pre-approval
granted by the Department of Foreign
Employment in 2014/15. The surge in the outflow
of labour migrants in recent years, especially to
Gulf Cooperation Council (GCC) countries
A total of 2,723,587 labour permits were issued
by the Department of Labour and Employment
from 2008/09 through 2014/15
Nepali labour migrants have obtained permits
to work in as many as 142 countries over the past
seven fiscal years (2008/092014/15)
.
 The3.8 per cent decrease in 2014/15 from the previous
year is attributed to the earthquake that hit Nepal in
April 2015

Asa result, there was a 48 per cent decrease in the

issuing of labour permits in the last quarter of 2014/15,
when compared with the same period in 2013/14

The top-ten destinations for male migrants over the

seven-year fiscal period: Malaysia (34.1 per cent among
all men), Saudi Arabia (19.8 per cent), Qatar (19.7 per
cent), United Arab Emirates (9.3 per cent), Kuwait (1.9
per cent), Republic of Korea (1.3 per cent), Bahrain (0.8
per cent), Oman (0.5 per cent), Japan (0.2 per cent) and
Afghanistan (0.1 per cent).
CHALLENGES
Although the attraction for foreign employment
is increasing everyday, employment is not safe,
secured and managed well.
Skilled and trained manpower appropriate to
the nature and requirement of foreign demand
are not available. So, people are going to foreign
countries as unskilled or semi-skilled work
force.
Foreign countries are getting on one hand cheap
labor and on the other Nepalese working abroad
are not getting rights and honorable jobs.
 Various foreign employment services are in
operation without government permission.
Brokers are taking advantage of the simple and
innocent people and cheating them badly. It is a
pity that even those who have gone through
resistered agencies and also having required
skill, training and knowledge are not getting
good jobs and salary.
Not only this, there are many instances when
such labour forces have returned prematurely
not having required qualifications, ability, skills
and knowledge suitable for these jobs offered.
This is indeed a big and serious challenge.
ALL THE BEST MY DEAR
STUDENTS