2.2 Key aspects of economic development

Major Aspects of Economic Development in Nepal

Main Resources Required for Economic Development

Economic development in Nepal relies on a combination of natural and other resources to achieve sustainable growth and structural transformation. These resources include:

• Natural Resources: Water, land, forests, herbs, minerals, etc.
• Other Resources: Capital, technology, communication, transportation, education, health, market access, energy, irrigation, policies, planning, human resources (labor force), skills, etc.

Economic Objectives of the State

According to Article 50(3), Part 4 of the Constitution of Nepal, the economic objectives of the state are:

• Promote participation and development of public, private, and cooperative sectors.
• Achieve rapid economic growth and sustainable economic development through maximum mobilization of available resources.
• Ensure equitable distribution of achievements.
• Eliminate economic inequalities and build an exploitation-free society.
• Develop a self-reliant, independent, and progressive national economy.
• Develop a socialism-oriented, independent, and prosperous economy.

Analysis of Nepal's Economic Structure

The economy encompasses the overall system of production, distribution, exchange, and consumption within a country or region. It includes livelihoods, employment, trade, industry, services, agriculture, and income-expenditure activities. Nepal's economy is divided into three main sectors:

1. Primary Sector

• Includes agriculture, forestry, fisheries, and mining.
• Agriculture's contribution to GDP is declining, yet it remains a significant source of livelihood for many.
• As per the Economic Survey 2080/81, agriculture contributed 24.71% to GDP.
• Approximately 62% of households are engaged in agriculture, but traditional farming practices result in low production and productivity.

2. Secondary Sector

• Includes manufacturing industries, construction, electricity/gas/water, and hydropower.
• Development and expansion of this sector are essential for increasing income, production, and employment.
• Requires investment-friendly environments and enhanced industrial competitiveness.
• Contributes 12.91% to GDP, with manufacturing accounting for only 4.93%.
• Provides approximately 17% of total employment.
• Despite policies for industrial expansion, progress has been limited.
• Opportunities include industrial zones, startup loans, Nepal's BB- sovereign credit rating, and foreign investment.

3. Tertiary Sector

• Includes trade (wholesale and retail), hotels/restaurants, transportation, communication, storage, banking, financial intermediation, real estate, public administration, defense, education, health, and other social/personal services.
• Contributes 62.38% to GDP and accounts for a significant share of employment.
• The sector is expanding rapidly but is heavily reliant on import-based trade due to limited domestic production.

Over the past two decades, Nepal’s economy has transitioned from agriculture-based to service-oriented. While agriculture and industry contributions are declining, the service sector is growing rapidly. Sustainable economic development requires technological advancements, infrastructure development, and policy reforms in agriculture and industry.

According to the Economic Survey 2080/81, agriculture, industry, and services contribute 24.71%, 12.91%, and 62.38% to GDP, respectively. Over the past decade, the primary, secondary, and tertiary sectors have contributed an average of 26.07%, 13.42%, and 60.51% to GDP, respectively. Despite 62% of households relying on agriculture, its low productivity means only 45% of households produce enough food for the entire year.

Major Problems

• High Trade Deficit: In 2080/81, the trade deficit was approximately NPR 1,440 billion (25% of GDP), with imports at NPR 1,592 billion and exports at NPR 152 billion (import-to-export ratio: 10.45).
• High Unemployment and Poverty: Unemployment rate at 11.4%, absolute poverty at 20.23%.
• Foreign Employment: Over 6.4 million people in foreign employment, with remittances contributing 25.32% (NPR 1,445 billion) to GDP.
• Low Productivity and Investment: Low labor and capital productivity, with total investment at NPR 1,713 billion, averaging 33.93% of GDP over the past decade.
• Economic Imbalance: Government revenue of NPR 1,150.99 billion against expenditure of NPR 1,640.68 billion, leading to persistent budget deficits and increasing debt burden.

Main Risks

• Climate Change: With 62% of households dependent on agriculture, Nepal is highly vulnerable to climate-induced risks like floods, landslides, droughts, and pests, affecting production and productivity.
• Political Instability: Political and policy instability hinders an investment-friendly environment and foreign investment inflow.
• Foreign Aid Dependency: Reliance on external aid for infrastructure and services weakens domestic financial capacity and increases dependency.
• Financial Imbalance: Persistent trade and budget deficits risk macroeconomic instability. Nepal’s inclusion in the FATF grey list may create obstacles in international financial transactions.

Opportunities

• Hydropower: Nepal has a potential of 45,000 MW, with reservoir and small hydropower projects capable of enhancing energy self-reliance.
• Tourism: Nepal’s mountains, rivers, lakes, cultural heritage, and biodiversity offer significant tourism potential. In 2024, tourist arrivals reached 0.8 million, generating NPR 60 billion.
• Agricultural Modernization: Diversification, commercialization, modernization, mechanization, and infrastructure development (irrigation, roads, fertilizers, seeds) can boost production and productivity.
• Information and Communication Technology (ICT) and Digital Economy: Global demand for digital services and outsourcing presents opportunities for export-oriented IT and outsourcing sectors, creating jobs and foreign exchange.
• Industrial Development: Expansion of manufacturing and service industries can create employment. Policy and procedural simplification can attract foreign investment.

Solutions

• Policy Reforms: Promote exports and create a competitive environment through tax reforms, simplified regulations, and e-commerce policies. Simplify licensing and renewal processes and offer targeted incentive packages for agriculture, tourism, and manufacturing.
• Infrastructure Development: Focus investment on transportation, irrigation, communication, and electricity infrastructure.
• Education and Skill Development: Promote technical, entrepreneurial, and vocational training to foster youth entrepreneurship and innovation.
• Private Sector Empowerment: Provide concessional loans and incentives for small entrepreneurs.
• Foreign Investment Promotion: Ensure stable tax systems, policy consistency, investor-friendly laws, one-stop service centers, and institutional facilitation. Leverage knowledge, skills, experience, and capital of non-resident Nepalis for national development.

Agriculture

Agriculture involves utilizing land to produce essential food and non-food products, including crops, cash crops, livestock, fisheries, herbs, and medicinal plants. In Nepal, 62% of households are engaged in agriculture, contributing 24.16% to GDP (Economic Survey 2081/82), making it the backbone of the economy.

Current State of Agriculture in Nepal

According to the Seventh National Agricultural Census 2078:

• Households Engaged: 62%
• Total Arable Land: 2.218 million hectares
• Province with Most Agricultural Households: Koshi Province (Jhapa district)
• Agricultural Insurance: 4.4% of farmers
• Government Subsidies: 7% of farmers
• Irrigated Land: 59% (Economic Survey 2080/81)
• Households with Year-Round Food Sufficiency: 45%
• Main Crops by Area: Paddy, wheat, maize
• First Agricultural Census: 2018, conducted every 10 years

Characteristics of Nepal’s Agricultural Sector

• Subsistence and traditional farming systems (62% households, 24.09% GDP, only 45% food-sufficient).
• Monsoon-dependent, rain-fed agriculture.
• Low production and productivity.
• High population dependency.
• High number of landless farmers.
• Dual land ownership issues.
• Increasing land fragmentation and encroachment.
• Inadequate agricultural markets.
• Limited agricultural diversification.
• High hidden and partial unemployment.
• Dominance of food crops over cash crops.
• Limited access to agricultural insurance and credit.

Importance of Agriculture in Nepal’s Economic Development

• Improves economic status and reduces poverty.
• Creates employment and addresses unemployment.
• Ensures food self-sufficiency and access to food.
• Contributes significantly to national income.
• Increases revenue through agricultural product sales.
• Implements constitutional rights like food security.
• Reduces trade deficits by decreasing imports and promoting exports.
• Provides raw materials for industrial development.
• Promotes tourism through agricultural tourism.
• Conserves biodiversity and maintains environmental balance.
• Contributes to revenue through agricultural taxes and development fees.
• Supports Sustainable Development Goals (2016-2030).
• Prevents hunger, famine, and food crises.

Factors to Increase Agricultural Production

• Land Availability: Only 15% of Nepal’s land (2.218 million hectares) is arable, and fragmentation must be prevented through modern land use practices.
• Irrigation: Only 40% (880,000 hectares) of arable land has year-round irrigation; expand irrigation to all arable land.
• Advanced Technology: Provide improved seeds, fertilizers, pesticides, modern farming techniques, and trained manpower.
• Natural Disaster Prevention: Mitigate damage from floods, landslides, and erosion.
• Fertilizer Availability: Ensure easy access to urea, DAP, potash, etc.
• Subsidies and Credit: Expand agricultural subsidies, loans, and insurance.
• Policy Implementation: Strengthen implementation of budget and plans.
• Policy Reforms: Update policies, laws, and programs to suit contemporary needs.
• Climate-Based Farming: Promote agriculture suited to Nepal’s climate and geography.
• Agricultural Infrastructure: Develop agricultural roads, tools, and markets.
• Administrative Mechanisms: Enhance the effectiveness of agricultural projects and programs.

Challenges in the Agricultural Sector

• Achieving self-sufficiency in agriculture.
• Reducing trade deficits through agricultural exports.
• Implementing constitutional food security rights.
• Ensuring full irrigation for arable land.
• Transforming consumption-oriented agriculture into a profitable business.
• Adopting climate-resilient agricultural systems.
• Retaining labor for agriculture to create employment and reduce poverty.
• Addressing dual land ownership and land fragmentation.
• Increasing production and productivity through modern seeds, fertilizers, and equipment.
• Ensuring investment security through agricultural insurance.

Problems in the Agricultural Sector

• Persistent traditional and subsistence farming systems.
• Increasing land fragmentation and non-agricultural land use.
• Climate change-induced issues like new diseases, excessive rain, or drought.
• Lack of diversification, mechanization, and commercialization.
• Insufficient agricultural infrastructure.
• Unequal land distribution and dual ownership issues.
• Lack of appropriate pricing and markets for agricultural products.
• Low support prices for agricultural produce.
• Shortage of knowledge, skills, technology, and labor.
• Low productivity due to challenging topography and climate.
• Inadequate storage and distribution systems.
• Lack of awareness about safe pesticide and fertilizer use.
• Failure to establish agriculture as a competitive, profitable, and respectable business.
• Insufficient irrigation and challenges in providing irrigation due to geography.
• Lack of effective government policies, studies, and research.

Solutions to Agricultural Problems

• Promote modernization, commercialization, diversification, and mechanization to increase productivity.
• Develop agricultural infrastructure for better farmer access.
• Halt land fragmentation and promote collective/cooperative farming.
• Develop climate-resilient agricultural systems.
• Transform existing policies, laws, and programs for agricultural modernization.
• Utilize agricultural technology and develop skilled manpower.
• Expand agricultural subsidies and concessions.
• Ensure fair pricing for agricultural produce.
• Establish robust agricultural markets.
• Arrange proper storage, processing, and distribution of agricultural products.
• Ensure easy access to fertilizers, pesticides, and other inputs.
• Develop agriculture as a competitive and profitable business to strengthen the national economy.

Long-Term Agricultural Development Strategy (2015-2035 / 2072-2092 BS)

• Increase production and productivity to support a self-reliant economy.
• Promote commercial agriculture.
• Create a competitive environment in the agricultural sector.
• Ensure fair pricing and accessible markets for farmers.
• Develop sustainable agriculture adaptive to climate change.
• Strengthen government-farmer collaboration.

Fifteenth Plan (Agriculture)

• Vision: A sustainable, competitive, and prosperous agricultural economy with food and nutrition security and food sovereignty.
• Goal: Transform agriculture into a competitive, climate-resilient, self-reliant, and export-oriented industry for inclusive and sustainable economic growth.
• Objectives:
  1. Increase agricultural production and productivity to ensure food and nutrition security.
  2. Develop agro-based industries to enhance employment and income.
  3. Promote commercialization and competitiveness to balance agricultural trade.

Sixteenth Plan

• Focus on increasing production, productivity, and competitiveness for structural transformation.

Efforts and Arrangements for Agricultural Development

Policy/Legal Arrangements

• Constitution of Nepal:
  • Right to Food (Article 36): Ensures food security and sovereignty.
  • Agriculture and Land Reform Policy (Article 51): Ends dual land ownership, implements scientific land reforms, and ensures fair pricing and market access for agricultural products.
• Other Policies/Laws:
  • Sixteenth Plan: Achieve an average productivity of 3.7 metric tons per hectare for major crops.
  • Long-Term Agricultural Development Strategy (2015-2035).
  • National Land Use Policy, 2072.
  • Agricultural Biodiversity Policy, 2063.
  • Land Act, 2021.
  • National Agricultural Policy, 2061.

Institutional Arrangements

• Ministry of Agriculture and Livestock Development.
• Ministry of Energy, Water Resources, and Irrigation.
• Provincial Ministries of Land Management, Agriculture, and Cooperatives.
• Local-level agricultural/poultry units.
• National Planning Commission.
• Nepal Agricultural Research Council.
• Agricultural Inputs Company Limited.
• Agricultural Knowledge Centers.

Programmatic Arrangements

• Prime Minister Agriculture Modernization Project.
• President Farmer Award (since 2072).
• One Village One Product Program.
• Improved Seed Distribution Program.
• Breed Improvement Program.
• National Pride and Large-Scale Irrigation Projects.
• Agricultural Insurance, Subsidy, and Loan Programs.
• Various skill and training development programs.

Industry

Industry involves utilizing human skills, capabilities, and technology to produce goods and services. It encompasses the processing of raw materials and the protection of intellectual property. The industrial sector significantly contributes to trade, employment, and income generation, utilizing local resources, skills, and technology to create jobs and promote export-oriented production.

Current State of Industry in Nepal

According to the Economic Survey 2080/81:

• Industry contributes 13% to GDP.
• 11 industrial estates established, with 10 currently operational.
• Seven new industrial estates under development across provinces.
• Approved foreign investment: NPR 478.85 billion.
• Ease of Doing Business Report 2020: Nepal ranks 94th with a score of 63.2.

Sixteenth Plan (Industry)

• Focus on increasing production, productivity, and competitiveness.

Special Economic Zones (SEZ)

SEZs are designated areas for intensive industrial activities, focusing on export-oriented goods and services. They offer integrated industrial services, standardized infrastructure, and incentives like income tax exemptions, VAT exemptions, and customs duty waivers. Bhairahawa SEZ is fully operational, while Simara and Panchkhal SEZs are under construction.

Single Point Service Center

Established to provide all industry-related services, exemptions, and processes from a single location, including:

• Industry registration, expansion, and closure.
• Investment and labor approvals.
• Visa facilitation.
• Environmental assessments.
• Infrastructure development coordination.
• Foreign exchange approvals.
• Permanent account number issuance.

Hedging

Hedging stabilizes foreign exchange rates for foreign loans under the IMF’s Special Drawing Rights (SDR) to minimize exchange rate risks. The Hedging Regulation, 2079, includes:

• Eligible Projects: Hydropower projects (≥100 MW), transmission lines (≥220 kV, >30 km), metro/monorail (>10 km), toll roads/flyovers/tunnels (>50 km), airports, and projects in health, agriculture, education, tourism, IT, and urban development (>NPR 2 billion).
• Hedging Fees: Determined based on exchange rate risks, inflation, equity-debt ratios, and loan repayment periods.
• Fee Responsibility: Borne by the project/business as per tripartite agreements; the government may cover a portion for national priority projects.
• Hedging Institutions: Designated by the Ministry of Finance, typically infrastructure or commercial banks with government stakes.
• Hedging Duration: Based on loan size, repayment period, and interest rates.

Mining and Extraction

• Cement Industry: Nepal has a capacity of 15 million tons annually with 26 cement industries, achieving self-sufficiency and exporting cement.
• Iron Ore: Dhaubadi Iron Company established to extract 108 million tons of iron ore in Nawalparasi.
• Petroleum Exploration: Ongoing in Dailekh under a Nepal-China agreement.

Industrial Business Act, 2076

Aims to create an investment-friendly and competitive industrial environment, promote import substitution and export, and maximize resource utilization. It categorizes industries as:

• By Investment and Nature:
  • Micro Industry: Fixed capital ≤ NPR 2 million, ≤9 workers, annual turnover < NPR 10 million, engine capacity < 20 kW.
  • Cottage Industry: Labor-intensive, traditional skills, engine capacity ≤ 50 kW.
  • Small Industry: Fixed capital ≤ NPR 150 million (excluding micro/cottage).
  • Medium Industry: Fixed capital NPR 150-500 million.
  • Large Industry: Fixed capital > NPR 500 million.
• By Product/Service Nature: Energy-based, manufacturing, agro/forest-based, mineral, infrastructure, tourism, IT/communication, and service industries.

Importance of Industry

• Meets citizens’ needs through goods and services.
• Creates employment and reduces unemployment.
• Reduces poverty.
• Increases revenue and drives economic indicators.
• Promotes international trade and foreign exchange earnings.
• Protects local skills and intellectual property.
• Enhances living standards through rapid economic development.
• Promotes innovation and technology adoption.
• Utilizes local raw materials and natural resources.
• Ensures market access for agricultural products.
• Produces quality goods for global markets.
• Promotes Nepal’s identity internationally.
• Diversifies occupations and encourages commercial production.
• Prevents brain, muscle, and capital drain.
• Maximizes resource mobilization.
• Leverages demographic dividends through workforce engagement.
• Reduces trade deficits through import substitution and export promotion.

Opportunities for Industrial Development

• Stable constitution and focus on economic prosperity.
• Federal structure enhancing local governance.
• Political consensus on economic prosperity.
• Improving investment-friendly environment.
• Improved ranking in Doing Business Report.
• Policy and procedural simplifications.
• Strategic location between two large markets (India and China).
• Availability of affordable labor.
• End of long-standing conflict and sustained peace.
• Rapid development in ICT.
• Membership in WTO, BIMSTEC, etc.
• BIPPA and DTAA agreements with various countries.
• Resolution of energy crises.
• Abundant natural resources.
• Prioritization of industry in budgets and plans.

Problems in the Industrial Sector

• Lack of entrepreneurial mindset.
• Limited capital mobilization in productive sectors.
• Absence of a one-stop service system for industries.
• Non-competitive and low-quality industrial products.
• Lack of diversification in mineral-based products.
• Weak private sector presence in cottage and small industries.
• Limited use of modern technology and equipment.
• Open borders facilitating informal trade.
• Preference for import trade due to liberal policies.
• Insufficient industrial infrastructure despite energy improvements.
• Lack of long-term policies and effective implementation.
• Outdated laws and regulations.
• Ineffective execution of budget and plan priorities.
• Failure to revive sick industries.
• Shortage of raw materials.
• Inability to compete in globalized markets.
• Limited internal market size.
• Increasing brain, muscle, and capital drain.
• Shortage of skilled managers and entrepreneurs.
• Poor labor relations.
• Weak international market presence for Nepali products.
• Limited technology transfer and innovation.
• Weak economic diplomacy.
• Inability to enforce “no work, no pay” principles.

Solutions to Industrial Problems

• Address legal and policy weaknesses.
• Create an investment-friendly environment to attract private, non-resident Nepali, and foreign investors.
• Protect and promote traditional skill-based industries.
• Safeguard national industries.
• Establish and strengthen an industrial security force.
• Enhance economic diplomacy.
• Provide special provisions for women entrepreneurs.
• Encourage private sector participation in industrial village development under OVOP Policy, 2063.
• Promote export-oriented industries and expand SEZs.
• Offer special facilities for micro, cottage, and small industries.
• Revive and reconstruct sick industries.
• Adopt “no work, no pay” principles.
• Enhance coordination among industrial institutions for procedural consistency.
• Provide tax exemptions, energy facilities, and incentives to motivate private sector industrial development.

Policies Affecting Industrial Development

• Monetary Policy
• Supply Policy
• Privatization Policy
• Small and Medium Enterprises Development Policy
• Fiscal Policy
• Exchange Rate Policy
• Trade Policy
• Sick Industry Rehabilitation Policy
• One-Stop Service Policy

Efforts and Arrangements in Nepal

Policy Efforts

• Constitution of Nepal: Prioritizes protection and promotion of national industries, skills, labor, and raw materials (Article 51).
• Fifteenth Plan (Industry):
  • Vision: Sustainable, employment-oriented, and high-return industrial development.
  • Goal: Increase the industrial sector’s contribution to the national economy.
  • Objectives:
    1. Increase industrial production and GDP contribution.
    2. Enhance competitiveness and promote exports while managing imports.
    3. Create an investment-friendly environment to boost domestic and foreign investment and employment.
• Other Policies/Laws:
  • National Intellectual Property Policy, 2073
  • Commerce Policy, 2081
  • Foreign Investment Policy, 2071
  • Supply Policy, 2069
  • Industrial Policy, 2067
  • Industrial Business Act, 2076
  • Foreign Investment and Technology Transfer Act, 2075
  • Special Economic Zone Act, 2073
  • Environmental Protection Act, 2076
  • Labor Act, 2074
  • Patent, Design, and Trademark Act, 2022
  • Copyright Act, 2059
  • Foreign Exchange (Regulation) Act, 2019
  • Hedging Regulation, 2079

Institutional Arrangements

• Ministry of Industry, Commerce, and Supplies
• Department of Industry
• Department of Commerce, Supply, and Consumer Protection
• Department of Mines and Geology
• Nepal Standards and Metrology Department
• Company Registrar’s Office
• Cottage and Small Industry Office
• Provincial and local governments
• Private associations

Other Programs

• Youth Entrepreneurship Program
• Poverty Alleviation through Small Industry Development
• Cottage and Small Industry Development Program
• Mineral Exploration and Development Program
• Small Business and Youth Self-Employment Program
• Industrial Investment Promotion Program

Industrial Policy, 2067

• Adopts an open and liberal industrial system.
• Protects local skill-based industries while promoting other industries.
• Promotes inclusive industrial development with good labor relations.
• Protects cottage and small industries and rehabilitates sick industries.
• Protects industrial intellectual property.
• Classifies and defines industrial businesses.
• Establishes an Investment Board chaired by the Prime Minister and an Industrial Promotion Board chaired by the Industry Minister.

Commerce/Trade

Commerce or trade involves buying and selling goods, services, or intellectual property for profit. It is a backbone of economic growth and development, integrating the national economy with domestic and international markets. Trade is divided into internal and external categories. According to the Economic Survey 2080/81, the export-import ratio was 9.8, with a trade deficit of NPR 929 billion.

Importance of Commerce/Trade

• Generates income through the sale of goods and services.
• Expands manufacturing and export-oriented industries.
• Promotes new technologies and scientific innovations.
• Utilizes local natural resources.
• Creates employment opportunities.
• Protects and mobilizes local labor, skills, capital, and technology.
• Promotes and commercializes local products.
• Contributes to GDP.
• Increases revenue collection.
• Facilitates imports of essential goods for better lifestyles.
• Enhances international reputation through exports.
• Supports sustainable and broad-based economic growth.
• Balances supply and demand.

BIPPA and DTAA Agreements

• Bilateral Investment Protection & Promotion Agreement (BIPPA): France, Japan, UK, Mauritius, Finland, India.
• Double Tax Avoidance Agreement (DTAA): India, Norway, Thailand, Sri Lanka, Mauritius, Austria, Pakistan, China, South Korea, Qatar, Bangladesh.

Strengths of Nepal’s Commerce Sector

• Political stability and constitutional framework.
• Resolution of armed conflict.
• Policy, legal, and structural arrangements.
• Improved Doing Business ranking.
• Increased foreign investment commitments.
• Growing non-resident Nepali investment.
• Adoption of open economic policies (privatization, liberalization, globalization).
• Export trade incentives (zero customs duty).
• Regular and systematic market monitoring.
• Power Trade Agreements with India and Bangladesh.
• Membership in WTO, SAARC, BIMSTEC, WB, IMF.
• Three-pillar economic policy (government, private, cooperative sectors).
• Prioritization of trade reforms in budgets and plans.
• Establishment of SEZs for export promotion.

Reasons for Nepal’s Trade Deficit

• Export of raw materials and import of finished goods.
• Inability of Nepali products to compete internationally, leading to industrial decline.
• Limited large-scale investments, leaving natural resources underutilized.
• Increasing imports of luxury goods.
• Prolonged energy crises affecting industries.
• Limited expansion of technology-based goods and services.
• Political instability and lack of investment-friendly environment.
• Inadequate development and protection of national industries.
• Focus on goods trade, neglecting services and intellectual property.
• High trade costs due to landlocked status.
• Open borders with India leading to customs evasion and revenue leakage.
• Lack of easy access to international markets.

Efforts and Arrangements for Trade Development

Policy Efforts

• Constitution of Nepal: Eliminates black marketing, monopolies, artificial shortages, and anti-competitive practices; promotes fair trade and consumer protection (Article 51).
• Other Policies/Laws:
  • Commerce Policy, 2072: Identifies 26 goods and 7 services as export-potential items.
  • Supply Policy, 2069
  • Nepal Trade Integration Strategy, 2073
  • Industrial Business Act, 2076
  • Safeguards, Anti-Dumping, and Countervailing Act, 2074
  • Export-Import Control Act, 2013
  • Customs Act, 2064
  • Bank and Financial Institutions Act, 2063
  • Public Procurement Act, 2063
  • Foreign Investment and Technology Transfer Act, 2075

Institutional Efforts

• Ministry of Industry, Commerce, and Supplies
• Department of Commerce, Supply, and Consumer Protection
• Board of Trade chaired by the Commerce Minister
• Trade Promotion Institute
• Dry ports and customs offices
• Private associations and cooperatives
• Provincial and local governments

Problems in the Commerce Sector

• Inability to attract domestic and foreign investment.
• Inability to compete internationally in terms of price and quality.
• Exporting raw materials and importing finished goods.
• Low investment in manufacturing industries.
• Poor labor relations affecting production.
• Persistent and growing trade deficits.
• Weak coordination due to limited commercial attachés.
• Inability to control carteling, black marketing, and monopolies.
• Excessive import of luxury goods.
• High trade costs due to landlocked status.
• Lack of trade diversification.
• Customs evasion and revenue leakage due to open borders.
• Insufficient physical infrastructure.
• Failure to identify goods with comparative advantages for import substitution and export.

Solutions to Commerce Sector Problems

Policy and Legal Measures

• Remove legal complexities.
• Formulate contemporary policies to promote trade.
• Attract foreign investment through economic diplomacy.
• Utilize international relations for economic prosperity.

Structural Reforms

• Enhance the role of the Ministry of Commerce.
• Strengthen the Investment Board and Board of Trade.
• Ensure coordination among trade-related institutions.
• Establish and review necessary organizations.

Programmatic Reforms

• Improve trade processes and simplify border procedures.
• Implement incentives and concessions for export promotion.
• Utilize and manage natural resources effectively.
• Protect and promote traditional skill-based products and trade.

Tourism

Tourism involves travel for study, religious, cultural, business, entertainment, adventure, or natural beauty appreciation purposes. It is categorized as domestic or international. Tourism development creates significant employment and foreign exchange earnings. In Nepal, tourism is a high-potential sector due to its natural and cultural diversity.

Current State of Tourism in Nepal

According to the Economic Survey 2080/81:

• Tourist Arrivals (2022): 1,014,882
• Average Stay: 13.2 days
• Daily Expenditure: USD 41
• Top Source Countries: India, USA, UK, Australia, Bangladesh, China

Potential of Tourism in Nepal

• Natural and Cultural Assets:
  • Mount Everest and eight 8,000m+ peaks.
  • Rivers, lakes, waterfalls, and valleys.
  • Geographic diversity (58m to 8,848m elevation).
  • 142 ethnic groups, 124 languages, and cultural heritage.
  • 10 UNESCO World Heritage Sites, including Pashupatinath, Muktinath, Janaki Temple, Lumbini, Boudhanath, and Swayambhunath.
• Biodiversity:
  • 118 ecosystems, 10 Ramsar wetlands, 6 conservation areas, 12 national parks, and wildlife reserves hosting tigers, elephants, deer, pheasants, and crocodiles.
• Other Factors: Affordable and safe stays, hospitality culture, national priority, and emerging eco-tourism and agro-tourism.

Importance of Tourism

• Increases national income.
• Creates employment and reduces unemployment.
• Supports cottage and small industries.
• Earns foreign exchange and improves economic indicators.
• Promotes exploration and conservation of tourist sites.
• Preserves national heritage.
• Enhances Nepal’s global identity.
• Facilitates idea exchange.
• Promotes cultural and archaeological heritage.
• Enhances national pride and international reputation.
• Drives physical and social infrastructure development.

Problems in the Tourism Sector

• Lack of tourism infrastructure (transport, water, electricity, communication, hotels).
• Irregular and unsafe air services.
• Limited exploration, development, and conservation of tourist sites.
• Environmental pollution in tourist areas.
• Lack of tourism-friendly behavior.
• Inadequate communication and promotion.
• Poor coordination between government and private sectors.
• Insufficient facilities and security for tourists.
• Limited focus on religious, rural, and eco-tourism.
• Past political instability and negative global perceptions.
• Shortage of trained manpower.
• Lack of coordination among tourism institutions.
• Weak implementation of tourism policies.
• Legal, structural, and procedural complexities.
• Inadequate global promotion of Nepal’s tourism.
• Failure to attract private investment in tourism infrastructure.
• Damage to natural, cultural, and religious sites due to earthquakes.

Solutions to Tourism Sector Problems

Policy and Legal Reforms

• Revise existing laws, policies, and procedures to develop tourism as an industry.
• Implement Sun Set Laws for effective policy execution.
• Create policies to attract private investment in homestays, hotels, and infrastructure.

Institutional Reforms

• Enhance coordination among tourism-related institutions and businesses.
• Strengthen collaboration between the Ministry of Culture, Tourism, and Civil Aviation, Tourism Department, and local governments.
• Develop organizational structures to avoid duplication.
• Integrate tourism organizations with ICT for effective service delivery.

Infrastructure Development

• Develop hotels, restaurants, and homestays.
• Expand and secure air services.
• Improve road transportation.
• Construct other physical infrastructure.

Conservation and Promotion

• Explore, conserve, and promote religious, cultural, and natural sites.
• Enhance global promotion and information dissemination.

Programmatic Arrangements

• Declare and implement Nepal Visit Years effectively.
• Organize national/international events in literature, religion, sports, and arts (MICE Tourism).
• Offer tourism packages for visitor convenience.
• Conduct diverse entertainment programs for tourists.

Efforts and Arrangements in Tourism

Policy Efforts

• Constitution of Nepal: Promotes eco-friendly tourism through the identification, conservation, and promotion of historical, cultural, religious, and natural heritage (Article 51).

Institutional Efforts

• Ministry of Culture, Tourism, and Civil Aviation
• Tourism Department and Tourism Promotion Board
• Tourist Police
• Nepali embassies abroad
• Private associations and Non-Resident Nepali Association

Programmatic Efforts

• Eco-tourism, village tourism, homestays
• Mountain climbing, trekking, rafting, mountain biking
• Jungle safaris, bird watching, hot air ballooning
• Greater Janakpur Area Development Program
• Pashupati Area Development Program
• Lumbini Area Development Program
• Manpower development programs
• Pokhara declared as tourism capital
• Visit Nepal Years (1998, 2011, 2020), Pokhara Visit Year (2007, 2025), Lumbini Visit Year (2012)

Tourism Policy, 2065

• Long-Term Vision: Develop Nepal as an attractive, scenic, and safe tourism destination through conservation and promotion of natural, cultural, biological, and man-made heritage.
• Goal: Increase national income and improve living standards through sustainable tourism activities.
• Objectives:
  • Diversify and expand tourism to create self-employment, linking eco-tourism and rural tourism to poverty alleviation.
  • Explore, conserve, and promote Nepal’s tangible and intangible heritage to establish it as a major tourism destination.
  • Develop accessible, safe, and reliable air and land transportation for tourism growth.
  • Ensure sustainable use of natural resources and environmental conservation during tourism infrastructure development.

Foreign Employment

Foreign employment involves working outside one’s home country, utilizing knowledge, skills, and expertise to earn income remitted to the home country. The Foreign Employment Act, 2064, defines it as employment abroad (excluding India). It involves the systematic movement of a country’s labor force to foreign labor markets.

Current State of Foreign Employment in Nepal

According to the Economic Survey 2080/81:

• Labor Permits Issued (up to Falgun 2080): 5.969 million (6.2% women).
• Major Destinations: Malaysia, Qatar, Saudi Arabia, UAE.
• Open Countries (Institutional): 111
• Worker Deaths (up to Falgun 2080): 694
• Safe Migration (SaMi) Program: Operates in 43 districts and 161 local levels.
• Working-Age Population (15-59 years): 62% (National Census, 2078).
• Welfare Programs: Inclusion of migrant workers and families in welfare initiatives.

Reasons for Foreign Employment

• Lack of sufficient employment opportunities due to limited industrial and business development, with ~500,000 youths entering the labor market annually.
• Increasing poverty and unemployment rates.
• Lack of employment-oriented and vocational education systems.
• Failure to modernize, mechanize, and commercialize agriculture.
• Low wages in Nepal.
• Lack of skills and expertise.
• Inadequate resource mobilization.
• Limited large-scale infrastructure development.
• Lack of investment-friendly environment and security.
• Lack of a culture valuing labor.
• Growing aspirations for quick wealth and material comforts.
• Open international labor markets.
• Inability to utilize remittances productively, forcing repeated migration.

Arrangements for Foreign Employment

Constitutional Provisions

• Labor and Employment Policy (Article 51): Ensures exploitation-free, safe, and regulated foreign employment, guarantees workers’ rights, and promotes the use of remittances, skills, and technology in productive domestic sectors.

Policy and Legal Arrangements

• Foreign Employment Act, 2064
• Labor Act, 2074
• Foreign Employment Policy, 2068

Institutional Arrangements

• Ministry of Labor, Employment, and Social Security
• Department of Labor
• Foreign Employment Tribunal

Other Arrangements

• Open countries for institutional migration: 111; individual efforts: 178.
• Bilateral labor agreements with 12 countries.

Conclusion

Economic development in Nepal hinges on leveraging natural and human resources across agriculture, industry, commerce, tourism, and foreign employment. While agriculture remains the backbone, its productivity is hampered by traditional practices and limited infrastructure. The industrial sector, despite potential, faces challenges like low investment and outdated policies. Commerce struggles with trade deficits, while tourism holds immense potential but requires infrastructure and promotion. Foreign employment supports the economy through remittances but highlights the need for domestic job creation. Strategic policy reforms, infrastructure development, and private sector engagement are critical to achieving sustainable, inclusive, and equitable economic development in Nepal.