This document summarizes the key economic structures and dimensions of Nepal's economy. It outlines the main sectors (primary, secondary, tertiary), their contribution to GDP, and expected growth rates. The primary sector includes agriculture, forestry and fishing. The secondary sector includes manufacturing and construction. The tertiary sector or service sector makes up the largest portion of GDP at 57.6%. It also discusses economic indices like GDP, income distribution, savings and investment rates, trade issues, employment, privatization policies, and challenges faced by industries in Nepal.

1. Chapter 4
Economic Environment

2. Economic structure
• Composition of size and rate of growth of its
population, income level and distribution of it, natural
resources, agricultural and manufacturing activities, the
magnitude of its service sector, openness of the
economy and the degree of urbanization
• Basic economic structures of Nepalese economy are;
- Primary sector: agriculture, forestry, fishery and mining
- Contribution on GDP is 28.2%
- Gross value added of agri & forestry expected to
expand by 2.7% ( because of increase in production of
agricultural products)
- Gross value addition of fishery & mining is expected to
increase by 7.4% & 10.5%. Contribution to GDP is 0.5 &
0.6% respectively.

3. - Secondary sector: Manufacturing, construction,
electricity, gas and water.
- Contribution to GDP estimated to be 14.2%
- Annual average contribution is 14.4%
- Production of manufacturing sector is estimated to
be increased by 8%. Annual average growth is 3%
- Estimated GVA of construction sector is 10.6%
- Contribution to GDP is 7.6%
- Estimated GVA of gas, electricity & water is 20.5%
- Contribution to GDP is 1.2%

4. • Tertiary sector: service sector of economy
- Contribution to GDP is 57.6%
- Annual average contribution is 52.4%
- Wholesale & retail sector contribution to GDP
13.3%
- Hotel and restaurant sector 2%
- Transport and communication sector 8%
- Financial sector 6.3%
- Real estate and business service sector 11.4%
- Public administration & defense 2.9%
- Education and health sector 7.2% & 1.7%
respectively
- Other community, social & personal service 4.9%

5. Dimensions of Economy
• Economic dimensions
- Shows economic performance of the country
- Internal economic performance is reflected by GDP,
income distribution, poverty level, personal
consumption, saving, debt, inflation, interest rate,
fiscal and monetary policy.
- External economic performance is presented by
balance of payment, exchange rates, foreign trade
volume etc
- Economic dimension indicates the purchasing
power and pattern of consumption.

6. - The economic dimension is classified as
demand side and supply side performance.
- Demand side performance is presented by per
capita income and income distribution
- Supply side performance is presented by
saving, investment, productivity and capacity
utilization.

7. • Socio- economic dimension
- Indicates demographic features
- The market for a business is determined by
the number of people and their purchasing
pattern and capacity.
- The size, distribution, density, growth, age and
gender mix, urbanization and migration of
population are some factors

8. • The industrial and agricultural dimensions
- Relates with production of goods and services
- It reflects the potentials to supply goods and
services to the consumers and raw materials
to the industries.

9. • The economic development dimensions
- Reflects pattern of economic development of
the country
- The direction and priority of development of
different sectors
- It is reflected in devt. Plans
- Plans determine the devt. Policies and
strategies along with resource allocations.

10. Industrial sector
• Manufacturing
• Agro and forest based
• Energy-based
• Mineral
• Tourism
• Service
• Construction

11. Contribution to the economy
• Contribution to the economy
• In 2018, agriculture contributed around 27.6
percent to Nepal's GDP; 13.5 percent came from
the industry and 57.6 percent from the services
sector.
• Overall growth rate of value added ( % of GDP) 13.5.

12. Contribution to Employment
• Rural based industries provided employment to
rural people
• Female workforce is heavily concentrated on
carpets, rugs, wearing apparels.
• Industrial enterprises are more labour intensive
• The industrial units in KTM valley provided
employment to 33.42% of the total employment
• Industries all together provided 48%
employment.

13. Major industries
• Agriculture – Coverage 35%- GDP contribution
27.6%
• Industries_ ,, ,, 20%- ,, ,, 13.5%
• Service_ ,, ,, 45% ,, ,, 57.6%

14. Agriculture and associated problems
• Traditional farming
• Lack of proper irrigation system
• Lack of transport and market
• Unscientific and undemocratic distribution of
land
• Over pressure of manpower
• Poor economic condition
• Lack of research activities.

15. Industrial sector & associated
problems
• Lack of capital
• Lack of infrastructure
• Scarcity of raw material
• Limited market
• Landlocked position
• Lack of industrial security
• Lack of availability of skill
• Frequent change in policy
• Lack of protectionist policy
• Primitive technology

16. Service sector and associated
problems
• Professional and computer
• Communication services: courier, telecom,
motion picture production
• Engineering services
• Distribution services: wholesale, retail
• Educational services
• Financial
• Health related
• Tourism & travel
• Transport

17. Problems
• Infrastructure
• Quality of service
• Safety and security
• Shortage of skilled manpower
• Problem of pollution

18. Industrial sector constraints
• Govt. & Policy
- Widespread Corruption
- Administration of tax law: expect turnover rise
every year
- VAT administration: obtaining refunds
- Smuggling of goods
- Lack of security

19. • Demand side problems
- Inadequate demand: textile, metal, paints
- Growing competition with cheap Chinese products
- Fluctuation of demand
- Less protection from govt.: Govt. purchase

20. • Infrastructure
- Cost of electricity
- Infrastructure problems
- Frequent closure of highways
- Cost of trucks: syndicates
- Less cargo flights
• Labour legislations

21. Economic Indices
• GDP: 27.278 billion, GDP growth: 6.5%, GDP by
sector( Agriculture; 65%, Industry; 14% and service
21%
• Income distribution: shows market potential and
standard of living.
• Realistic estimation of demand is made through it
• Realistic estimation is made based on household
income, middle income family, trend in income
growth, concentration of income, variation in
income distribution
• Gini coefficient( income inequality measurement) in
Nepal (.32), rural .31 & urban .35.

22. • Rate and growth of GNP: GDP+ foreign income
transferred to country
- GNP is used to measure size & growth of economy
- Growth rate of economy refers to rate at which GDP
is increasing
- GDP grows depend on available resources with pace
of time ( capital + Labour) and efficiency of factor of
production
- Nepal’s Gross National Product was reported at
29.257 USD bn in Dec 2018. This records an
increase from the previous number of 25.472 USD
bn for Dec 2017.

23. • Per capita income: Shows purchasing power of
people
- One of the lowest per capita & lowest among
SAARC countries.
- Per capita GDP at constant prices is Rs. 812.2 in 018
and per capita GNP is $877 and estimated to be $
1012 in 018/19.
- Regional difference in per capita is significant
• Rate of saving and investment: Higher consumer
savings would positively contribute to debt & credit
availability.
- Higher saving---- Low interest rate--- more
investment

24. - Survey revealed ;
Inequality widening, significant portion of household
lie below poverty line, Saving propensity lie on level
of income, more loan on informal sector by shau,
mahajan , most household borrowing for
consumption purpose, remittance contributed to
investment.
• Foreign trade structure & related issues:
- Export has been declined
- Share merchandise export to total trade 28.2% in
2004/5 , now 6.9%
- In last five yrs export of merchandise increased by
0.5% and import by 17%.

25. • India -Increased export of Cardmom, JUTE,
THREAD/YARN GINGER AND MEDICAL HERBS
• Chine- Pashmina, handicrafts, woolen carpets,
garments
• Import from India: petroleum products, vehicles
and their parts, machines, cement etc
• China: Machinery, communication equipments, T.V.
and parts readymade garments and raw silk
• Other countries: Gold, silver, polythene, machinery,
parts and medical equipments and tools
• Trade deficit increased by 26.7 % in 2017-18
• Balance of payment deficit Rs. 24.7 billions (historic
record)

26. Issues and challenges in Nepalese
Foreign Trade
• 5 lakhs people entered in the labour market every
year.
• 4.3 million youth ---- abroad
• Skilled 1.5%, Semi-skilled 24% & non-skilled 74.5%
people are in foreign employment
• About 1,000 youths flies abroad for work
• Issues are; Lack of training, lack of protection to
Nepalese, less priority to regulate foreign
employment, voilence against women

27. Privatization policy
• Initiated in sixth plan
• 1985, 12 PEs were planned to privatize but failed so,
govt decided to sell share of financial PES at
premium prices
• In 1989, Privatization cell was created in Ministry of
Finance for developing plan and programs
• A paper was produced in 1991including policies,
modalities and administrative mechanisms
• In 1994, privatization Act

28. • Procedures as per Act;
- Formation of privatization committee on the
chairmanship of finance minister
- Committee conducts study, evaluate, remove
problems, formulates privatization programs and
recommends schemes to the govt.
- Committee may appoint experts
- Govt. may privatize in any mode
- May call proposals
- Priority is to be given to Nepalese
- Disputes- consultation- arbitration

29. Practices
• Bhrikuti paper Assets & business sale
• Harisiddhi ,, ,,
• Bansbari ,, ,,
• Nepal Film Ind. Share sale
• Balaju Textile ,,
• Raw hide collection & processing ,,
• Nepal Bitumen & Barrel ,,
• Nepal Lube oil ,,
• Nepal Foundry Factory ,,
• Raghupati Jute ,,
• Nepal Bank ,,

30. • Nepal Tea Devt corporation share sale
• Biratnagar jute mill MGMT contract
• Nepal Jute devt. Co Liquidation
• Tobacco devt co ,,
• Agriculture project service centre ,,
• Himal Cement Ind ,,
• Cottage Handicraft sales Emporium ,,

31. • Effect of Privatization
- Increase production
- Product diversification
- Improve in technology
- Reduce financial losses
- ,, ,, burden of govt.
- Increase investment of private sector
- Increase in quality of goods and services

32. Industrial Policy, 2010
• Nepal is a member of WTO, SAFTA, BIMSTEC and its
connectivity with the world
• Require to enhance productivity and demonstrate
expertise to gain competitive advantages
• To cope with the challenges posed by globalization,
meet mandatory compliances of international
agreements , increase the role of private sector
providing conducive environment.
• New Act came into use entitled as Industrial policy
2010.

33. Objectives of IP, 2010
• Increase export of industrial product along with
growth in national income and employment
through enhancement of quality and competitive
industrial products and productivity
• Increase contribution of industrial sector in the
balanced national and regional devt. By mobilizing
local resources, raw materials, skills & means.
• Establish industrial entrepreneurship as sustainable
and reliable sector by utilizing latest technology and
environment friendly production process

34. • Create strong basis of investment having
developed productive manpower and
managerial capacity required for industrial
devt thereby establish Nepal as an attractive
place for investment in South Asian Region
and in the world as well
• Protect industrial intellectual property rights

35. Trade Policy, 2015
• It replaced the earlier commerce policy 2008 and
help reduce trade deficit through the utilization of
opportunities provided by world trade system
maintaining harmony, enhancing supply related
capacity, increasing production and productivity.
• The policy envisaged to constitute Board of trade at
central level in the participation of private sector for
formulating policies.
• Convert Trade Promotion Centre into autonomous
Trade Promotion Academy
• Policy consists possible 26 items of goods & 7
services.

36. Objectives of TP, 2015
• To enhance supply related capacity, reduce
trade deficit by increasing exports of value
added and competitive goods and services
• To increase access of goods, services and
intellectual property to the regional and global
markets.

37. Employment Policy , 2005
• The state is responsible for building environment
that enables life that is full of dignity, exploitation-
free , minimum social and professional security by
ensuring access to income generating employment
opportunities
• For the purpose, it is essential to maintain balance
between the labour market elasticity, productivity
and social security.
• This Labour and Employment Policy, 2005 is
promulgated in response to the felt need for
attaining the goal of alleviating poverty through
the creation of employment.

38. Objectives of EP, 2005
• To pave the path of sustainable economic devt
creating investment friendly environment by
offering productive and full employment for entire
workforce
• To augment ( increase size) productivity by
eliminating forced labour practices and establishing
congenial labour relation through the introduction
of international labour standard
• To make labour market safe, healthy, competitive
and open by developing a social security system.
• To eliminate child labour

39. • To enhance the prospect of employment and
self employment by developing high quality
multi-skilled HR
• To ensure equal access of women, dalits,
indigenous nationalities and the displaced
people to employment
• To make labour and employment
administration smart, up-to-date, efficient and
effective

40. Tourism Policy, 2008
• Nepal is a major tourist destination due to
unique natural beauties, rich bio-diversity,
multi-ethnicity, variety of language and
religions and historical and cultural heritage.
• For the diversification and expansion of
tourism business, a policy has been
formulated and implemented i.e. Tourism
policy.

41. Objectives of TP, 2008
• To develop tourism as an important sector of the
national economy by developing linkage between
tourism and other sectors.
• To diversify tourism down to rural areas so as to
improve employment opportunities, foreign
currency earnings, growth of national income and
regional imbalances
• To improve natural, cultural and human
environments of the nation in order to develop and
expand the tourism industry

42. • To maintain a good image of the nation in the
international community by providing quality
service and a sense of security
• To develop and promote Nepal as an attractive
tourist destination.

43. Characteristics of TP, 2008
• Emphasis on promotional activities
• Emphasis on rural , community based tourism and
home –stays
• Priority to internal tourism
• Diversification, growth and expansion of tourism:
Business tourism, sports tourism, mountaineering,
trekking, rafting, casino, cinema tourism, adventure,
educational, cultural, religious, health and
agricultural tourism.
• Development of air services
• Leading role of pvt. Sector in tourism devt.

44. • Focus on HR devt. For tourism devt.
• Emphasis to environmental protection for tourism
devt.
• Extensive use of IT & data in tourism mgmt
• Focus on tourist security and crisis management
• Recognition to tourism as industry
• Focus on congenial relationship between mgmt &
labour
• Reforms in legal, administrative, managerial and
structural aspects
• Formation of Tourism Coordination Committee,
crisis mgmt committee
• Activation of Tourism Council ( chaired by P.M.)

45. Economic Policy Reforms
• Internal Reforms: create a sound market oriented
financial system for macroeconomic stability and
private sector led economic growth
a. Financial sector reform:
- Banking sector is opened for foreign investment
- Banks are allowed to accept current and fixed
deposits in foreign currency
- Deregulation of investment rate regime - allowed
to fix interest
- Restructuring of Nepal Bank & RBB

46. b. Fiscal reforms: include tax reform, strengthening
financial system, deregulation of interest rate and
convertibility of Nepalese currency
- Introduction of VAT
- Introduction of export duty drawback and bonded
warehouse
- Private sector is allowed to borrow money from
foreign source
c. Monetary policy reform: Deregulation of interest
rate, determination of foreign currency exchange
rate and privatization of PEs
d. One window policy:

47. e. Removal of subsidies
f. Public sector reform: not setting of new PEs.
g. Insurance sector reform: Private sector is allowed
to enter in insurance business
h. Capital market reform: The foreigners are allowed
to invest in stock market
• External Reforms
a. Reform in trade sector:
- change from import substitution industrialization
policy to export led economic growth strategy.
- Import is freed to assist export
- Reforms is promoted by Industrial Enterprise Act
1992 ( with amendment 2017) & FITTA, 1992

48. - These two acts fully made current account
convertible and capital account partially convertible
b. Reforms in foreign exchange
- Current account reform: Fx market is converted to
floating system but pegged with Indian currency
- Capital account reform: Nepalese and foreigners are
allowed to purchase assets and stock market

49. Monetary Policy , 2018/2019
• The objective is to achieve a high economic growth rate
with a target of 8% growth.
• Major highlights
-Inflation rate is targeted at 6.5% and below
- Fx reserves to be maintained sufficient to cover the
imports of goods and services at least for 8 months
- Achieve economic growth rate of 8%
- Internal loans have been prospected to grow by 22.5%
- Limit the growth rate of private sector loans to within
20%
- Expansion of refinancing window from Rs. 25 billion to
35 billion

50. - Commercial banks can borrow in Indian currency
from foreign banks under the foreign borrowing
facility
- CRR to 4% for commercial and 5% to devt. Banks
- Commercial banks must float 15% of the total loan
portfolio to the energy and tourism sector
- Credit rating of borrowers that utilize credit of 500
million and above
- Margin call only if stock price plunge over 20% of
the collateral value
- Deprive sector lending: A class bank: 5 %, B
class:4.5%, Class C: 4%.

51. - Presence of commercial banks must in every
local unit and the deposit collected in the
remaining 116 local units provided relaxation
form CRR and SLR calculation for the next
three years from 2018/19.

52. Economic Planning
Current three year plan’s impact
assessment
• Plan has come to guide to represent the basic rights
of the people
• The background and the value as well as principles
of welfare state have been included
• Responsibility of compensating losses of blockade
and earthquake
• Has to promote industrialization and advancement
by making agriculture professional, constructing
physical infrastructure & increasing trust.

53. • Increasing private, public and cooperative
investment by making devt. Administration
more efficient, utilizing resources
• Reducing poverty rapidly by providing
equitable distribution and social security.
• Strengthening the public expenditure mgmt
and increasing the overall good governance.

54. Challenges of Current Plan
• Transform traditional agriculture into business
oriented structure
• Minimizing possible risk against natural disaster
• Constructing and developing infrastructure and
interrelating rural-urban development
• The guarantee of providing the flow of public
service
• Maintaining transparency, accountability and
integrating with development
• Developing regional and local areas

55. Opportunities of current plan
• Increase in the quantity of active population
• The opportunities of using physical and other
infrastructures
• Active cooperation of private and cooperative
sector
• Partnership with international agencies
• Attraction of NRN
• Chances of expanding tourism and other business
sectors in rural areas with the help of middle class
people.

56. Targets of current plan
• Increase national economy growth by
increasing employment, export promotion
and import substitution

57. Objectives of current plan
• To increase the contribution of industrial sector to
GDP by increasing production of this sector
• To create employment opportunities by increasing
domestic and foreign investment in industrial sector
• To reduce trade deficit by increasing the export of
industrial goods
• To transform socio-economically by reducing
poverty through high economic development,
productive employment generation and national
income distribution.

58. Strategies
• Increase output through transformation of
agricultural sector and expansion of tourism,
industries as well as small & middle businesses
• Building infrastructure for the development of
energy, road and air transportation, information
and communication, rural-urban and trilateral
connections
• Promote high and sustainable human development
by emphasizing social development & security
• Promote good governance by economic , social and
governance reforms & fair central public service

59. Targets of 14th plan
Indicators Position at FY
2016/17
Target of 14th
plan by FY
2018/19
Annual growth rate% 0.77 7.2
Agriculture sector% 1.33 4.7
Non-agricultural sector % 0.63 8.4
Pre capita GDP ( Rs. In ‘ 000) 79.37 116.5
Population below poverty line % 21.6 17
Human development index 0.54 0.57
Gender empowerment index 0.56 0.58
Life expectancy ( in Years) 69 72

60. Emerging business environment in
Nepal
• Technological advancement
• Increase private investment in core business
• Growing urban population
• Rising educated customers
• Changing role of government
• Rising economic agenda : constitution emphasized
to private sector for economic agendas
• Integration with the world economy
• Shifting socio-cultural values

61. • Shifting towards service industry
• Workforce diversity
• Emergence of consumerism