Economic Growth and Economic Development in Nepal
Development
Development is the aggregate of positive and qualitative changes across various aspects of society and the nation. It is a modern concept encompassing economic, human, social, and political development, which are the four primary pillars of development. These pillars are interrelated and interdependent.
Economic Growth
Economic growth refers to the quantitative increase in the production of goods and services within an economy over a specific period. It is measured by indicators such as:
- Gross National Product (GNP)
- Gross Domestic Product (GDP)
- Per capita income (with stable population growth)
- Investment levels
- Citizens' spending capacity
Economic growth is achieved through the efficient combination of production factors (capital, labor, land, and technology), fostering entrepreneurship, and optimal utilization of investments, leading to higher production levels than the existing economic state.
Prerequisites for Economic Growth
- Optimal utilization of capital, labor, land, and technology
- Development of entrepreneurial spirit among citizens
- Political will
- Geographical accessibility
- Good governance and procedural simplicity
- Adequate investment levels and favorable environment
- Sufficient development of physical infrastructure
- International connectivity
Characteristics of Nepal's Economy
- Agriculture-based economy
- Remittance-dependent economy
- Mixed and dual economy (liberal and welfare-oriented)
- Landlocked economy
- Dependent on foreign aid and grants
- Welfare-oriented economy
- Budget-controlled economy
- Import-oriented economy
Economic Development
Economic development is a multidimensional concept involving positive and qualitative changes in all aspects of human life and structural transformations in the economy. It aims to eradicate poverty, unemployment, and inequality within a growing economy. Sustainable economic development requires:
- Capital formation through savings mobilization
- Broad-based economic growth
- Scientific and practical education system
- Accessible and quality healthcare
- Abundant productive employment
- Nutritious food
- Clean environment
- Poverty reduction
- Equitable distribution
Economic development is measured through multidimensional indicators such as life expectancy, health, education, employment, poverty, and maternal and child mortality rates. While economic growth focuses solely on quantitative increases, economic development encompasses qualitative improvements and socio-cultural transformations.
Economic growth is a prerequisite for economic development but not the sole condition. Equitable distribution is the backbone of economic development.
Prerequisites for Economic Development
- Sustained, broad-based, and inclusive economic growth
- Structural transformation of the economy
- Significant investment in human capital formation
- Development of physical infrastructure
- Continuous investment in social infrastructure
- Good governance and effective service delivery
- Increased citizen awareness
- Equitable and fair distribution system
- Improvement in quality of life
- Quality and productive employment
- Quality education and community health systems
Interrelationship Between Economic Growth and Economic Development
Economic growth and economic development are closely interrelated:
- Economic growth is essential for laying the foundation for economic development.
- Economic growth contributes to national revenue through increased national income, enabling investments in employment creation and poverty reduction.
- Public expenditure on education, health, water supply, maternal and child health, and community education is funded through revenue, which depends on quantitative economic growth.
- Increased state investment in human capital leads to a skilled and healthy workforce, which further contributes to economic growth.
- A 1% increase in investment is estimated to contribute to 0.5% job creation.
- Thus, economic growth is the lifeblood of economic development, while economic development is the engine of economic growth.
Differences Between Economic Growth and Economic Development
| Aspect | Economic Growth | Economic Development |
|---|---|---|
| Definition | Quantitative increase in the national economy. | Qualitative and structural transformation in the economy. |
| Focus | Ignores distribution, leading to income inequality. | Emphasizes equitable distribution of growth benefits. |
| Achievement | Can be achieved in the short term through resource mobilization. | Requires long-term efforts for qualitative change. |
| Nature | Temporary and periodic. | Continuous and sustainable positive change. |
| Scope | Quantitative aspect of development. | Encompasses both quantitative and qualitative aspects. |
| Dependency | Possible without economic development. | Requires economic growth as a prerequisite. |
| Challenges | Challenging for developed countries due to resource saturation. | Challenging for developing countries due to the need for significant investment. |
| Timeframe | Can be rapid. | Requires long-term efforts. |
Nepal's Context
According to the Economic Survey 2081/82 BS, key economic indicators are:
- Sectoral Contribution to GDP: Primary (agriculture, forestry, fisheries, mining) 25.19%, Secondary (construction, energy, industry) 12.43%, Tertiary (services) 62.38%.
- Average Contribution (Past Decade): Primary 26.07%, Secondary 13.42%, Services 60.51%.
| Indicator | 2080/81 (Actual) | 2081/82 (Estimated up to Falgun) | Remarks |
|---|---|---|---|
| Economic Growth | 3.67% | 4.61% | |
| Economy Size | 6107 billion NPR | ||
| Agriculture, Industry, Services (% of GDP) | 24.71, 12.91, 62.38 | 25.16, 12.83, 62.01 | Contribution to GDP |
| Gross Domestic Savings | 6.22% | 6.55% | Remaining used for consumption |
| Total Fixed Investment (1470 billion NPR) | 60.9% private sector | - | |
| Revenue Collection (All Tiers) | 1150.99 billion NPR | 92% federal, 8% provincial/local | |
| Consolidated Expenditure (Current, Capital, Financial) | 56.1, 27.3, 16.6% | ||
| Federal Expenditure, Revenue, Debt (% of GDP) | 24.41, 16.27, 42.64 | ||
| Foreign Employment | 6.4 million+ | ||
| Tourism | 0.8 million (60 billion NPR income) | ||
| Average Stay (2024) | 13.3 days | ||
| Daily Expenditure | 40.8 USD | ||
| Current Account | 310 billion NPR surplus | ||
| Foreign Exchange Reserves | 2409 billion NPR | ||
| Banks and Financial Institutions | 107 | 20, 17, 17, 52, 1 | |
| Forest Area (Forest and Shrubs) | 46.08% | ||
| Approved Foreign Investment | 4766 billion NPR | ||
| National Food Security Reserve | 10,510 MT | ||
| SAARC Food Security Reserve | 18,510 MT | ||
| Electricity Installed Capacity | 3602 MW | ||
| Electricity Access | 99% | ||
| Electricity Import, Export | 929, 1775 GWH | ||
| Internet Subscriber Density | 144.23% | ||
| Digital TV | 72% | ||
| Roads (Paved, Gravel, Unpaved) | 36,132 km | ||
| Health Insurance Coverage | 49.2% of population | ||
| Basic Education Net Enrollment Rate | 94.1% | ||
| Retention Rate (Up to Grade 8) | 86.5% | ||
| Basic Drinking Water Access | 96.85% | ||
| High/Medium Drinking Water Access | 28.50% | ||
| Sanitation | 95.6% | ||
| Social Security Beneficiaries | 3.7 million | ||
| Women in Civil Service | 29.2% | ||
| Diplomatic Relations | 183 countries | ||
| Productive Capacity Index (PCI) for SDGs | 40.4% | LDCs avg: 30.9, DCs avg: 46.8 |
In the 2024 triennial review, Nepal met the per capita GNI criterion for the first time, qualifying for graduation to a developing nation status by meeting all three required criteria.
Economic Indicators in Nepal
- Gross Domestic Product (GDP): Total value of goods and services produced within a country in a fiscal year.
- Gross National Income (GNI): Sum of GDP and net income from abroad.
- GNI Per Capita: GNI divided by total population.
- Economic Growth Rate: Increase in the economy's size compared to the previous year.
- Human Development Index (HDI): Measures per capita income, life expectancy, literacy rate, etc.
- Poverty Index: Population below the poverty line (absolute and multidimensional).
- Unemployment Rate: Full and partial unemployment.
- Infrastructure Development: Access to telephone, internet, roads, etc.
- Gini Index: Measures income inequality between rich and poor.
- Balance of Trade: Indicates economic health through export-import balance; low exports and high imports suggest weak industrial and investment conditions.
- Other Indicators: School enrollment rate, social empowerment index, maternal mortality, child mortality, fertility rate.
Problems in Economic Growth and Development in Nepal
- Lack of investment-friendly environment in industries and factories.
- Legal complexities, strained labor relations, and bureaucratic hurdles discouraging domestic and foreign investment.
- Limited employment opportunities.
- Low investment in domestic production and innovation.
- Large portion of remittances spent on consumption, limiting domestic capital formation.
- Lack of entrepreneurial spirit among citizens.
- Insufficient knowledge of information and technology for production.
- Inability to reduce multidimensional poverty due to inequitable distribution of development benefits.
- Inadequate education, health, and employment opportunities, limiting improvements in literacy and life expectancy.
- Geographical disparities in development due to insufficient infrastructure.
- Inability to utilize demographic dividends for domestic production, with a focus on foreign employment.
- Labor shortages in the country.
- Low investment in health and education, limiting skilled manpower production.
- High maternal and child mortality rates.
- Weak human development due to rural poverty (24.66%) and ineffective rural service delivery.
Challenges in Economic Growth and Development in Nepal
- Achieving rapid economic development through high, sustainable, and inclusive growth.
- Reducing geographical disparities in development.
- Creating national income and quality employment opportunities.
- Building capable and robust human capital through increased investment.
- Ensuring equitable distribution to reduce the gap between rich and poor.
- Increasing investment in education, health, and rural development.
- Creating productive employment opportunities.
- Utilizing remittances productively to develop the national economy.
- Focusing investment on human development.
- Adopting institutional and legal reforms for effective service delivery.
Solutions to Address Problems in Economic Growth and Development
- Ensure policy stability, political commitment, and institutional reforms.
- Formulate and implement effective, need-based policies and plans.
- Conduct continuous monitoring and scientific evaluation.
- Increase public and private investment in production and employment sectors.
- Enhance the effectiveness of poverty alleviation programs.
- Ensure policy stability in production, distribution, and job creation.
- Increase investment in human development.
- Create an investment-friendly environment and adopt policies to attract foreign investment.
- Promote social justice and good governance through government initiatives and citizen vigilance.
- Foster entrepreneurial spirit and enhance technical knowledge among citizens.
- Emphasize innovation and increase investment in information technology.
- Implement clear policy reforms for structural economic transformation.
- Improve agricultural production and productivity through modernization, scientific methods, and diversification.
- Provide government support and promotion for small and cottage industries, and facilitate production and distribution processes.
- Promote commercialization and innovation in education through a scientific education system.
Conclusion
Economic growth and economic development are integral dimensions of human development. Without them, human development remains an abstract concept. High, sustainable, and inclusive economic growth, facilitated by foreign loans, foreign investment, and domestic savings mobilization, is essential for significant progress in human development. However, relying solely on economic growth without equitable distribution and investment in human development is insufficient. Some oil-producing and refining Arabian countries exhibit high per capita income and economic growth but lag in economic development. In contrast, Scandinavian countries with lower economic growth have achieved higher economic development through equitable distribution and significant investment in human development. Therefore, Nepal's current need is to achieve high, sustainable, and inclusive economic growth alongside structural economic transformation and investment in human development to attain optimal economic development.