Nepalese economy is based on small subsistence farming. Agriculture has been playing a key role in Nepalese economy from the very beginning and more than 68 percent of the populations are still depended on the agriculture. However the contribution of agriculture sector on national GDP is 38 percent only. Till the date farmers followed traditional technologies in agriculture sector. Rice is the staple food. Maize, wheat, potatoes, sugarcane, and millet are also widely grown. Nepal is a major producer of medicinal herbs, which grow on the Himalayan slopes. Cattle, buffalo, goats, fishery and sheep are raised.
The industrial status of Nepal is in infant stage and most of the big business as well as the major exported products such as carpet, ready made garment and Pashmina are the major products, however such industries are depend on the imported raw materials. The Government has introduced, the Industrial Enterprises Act, Foreign Investment and Technology Transfer Act for the industrialization in Nepal.
From the very ancient, Nepalese markets are influenced from the neighboring countries especially from India and later from China. With the advent of democracy in 1951, the various efforts were made to establish trade relation with other countries as well as to increase the volume of trade. Nepal has agreements with sixteen countries. Nepal also has transit treaties with India and Bangladesh. However Nepal is trading with 72 countries of the world. Tourism, hydroelectricity, manpower, forestry and herbal medicine etc. are the highly potential areas of the development of Nepalese economy.
Since Nepal has practiced open market economy since 1992, it has obtained the membership of World Trade Organization (WTO) in April 2004. Similarly, considering the importance of regional trade, Nepal by virtue of being the founder member of SAARC has already accepted by joining of the SAFTA rules and regulations. With the conclusion of a Trade Treaty between Nepal and India in December 1996 the commodities produced and manufactured in Nepal can enter into Indian market without any duties and quantitative restriction.
Nepal is classified as least developed state according to its development indicators. Its per capita income is around US $ 750. High rate of population growth, with its related drawbacks is regarded as the main reason for this malady. Therefore economists insist that the poverty is pervasive.
Nepal is predominantly an agricultural country. Around 80-90% of the population resides in the villages. Agriculture provides employment either full time of part time to about 80% of the population. It is therefore very important for the development of this sector to assure the rising rural population of employment opportunities and an acceptable living standard. During the early years, as late as the mid – seventies, Nepal was a food exporting country.
The science has deteriorated and today Nepal has to import food. The share of agricultural gross domestic product (AGDP) has been decreasing over time. Considering this fact, the government has initiated the 20 years strategic plan. This is called the agricultural perspective plan (APP). Its primary purpose is to accelerate the growth in the agricultural sector. APP seeks the reuse the agriculture GDP from 2.96 (1995-96) to 4.88% by 2011-2015. Low productivity agriculture including subsistence agriculture remains the principal means of livelihood for four fifths of all working adults (1991) house hold agricultural holdings are getting smaller (2-third of all households operate less than one hectare of land) share of agriculture on agriculture has decreased from 66% t 38% in the last 20 years. This shows a significant change in the sectoral structure of the economy. Although there is a significant charge in the sectroral structure, majority of low-income workers continue to be attached to this sector. This shows that the sectoral structure shift has failed to address the key issue of poverty alleviation amongst the needy population, which has been the government’s priority.
The growth in the agricultural sector, which provides livelihood to the bulk of population, is much lower. Inequality of means of subsistence and income remains pronounced at regional, sectoral urban-rural, gender and social-ethnic levels. Thirty eight percent of the total population remains extremely poor and cannot meet their basis needs. Reduction of unemployment and improvement of living standard remains the key goal of government. Gender related development index (GDI), gender empowerment measure (GSM), human poverty index (HPI) show low level of capability and an unequal distribution in Nepal. All established poverty measures show that the various forms of poverty are both persistence and wide spread in nature.
Define assessments are difficult but the trends show the following:
- There is wide inequality in household lad ownerships it continues despite efforts to charge.
- High percentage of unemployment / under employment persists despite large migration for foreign employment.
- Much additional resources generated has been absorbed by urban – middle class.
- Redistribution policies are weak, rarely reaching beyond urban- peri-urban centers.
- Weakness in implementation of poverty alleviation program, present, thus affection outcome.
- Due to the reasons stated above, attainment of most MDG have remained slow.
- The lower plains with some penetrating among the hills. Many important towns and settlements in the hills are still not connected by road.
Agriculture is still mainly traditional with large number of farmers’ still practicing subsistence-farming system. Constraint in agricultural labour has been a major constraint in the bigger holdings with large number of labourers wither migrating to cities for better opportunities or going abroad to earn more than they can at home. Four major production area in the agriculture sector are (a) Cereal production (b) Cash crop (c) Production of other crops (Pulses, Fruits, Vegetables (d) Livestock (meat, milk, eggs, fish)
Area = 3353 thousand hectares
Production = 7767 (thousand metric tons)
Yield = 2.3 (metric tons /ha.)
Area = 409 (thousand hectares)
Production = 4278 (thousand metric tons)
Yield = 10.5 (metric tons /ha.)
Production of other Crops (thousand metric tons)
Pulses = 271.3
Fruits = 548.0
Vegetables = 2038.1
Livestock Production (Thousand metric tons)
Meat = 214.8
Milk & Milk Product = 1274
Eggs (millions) = 590
Fish = 42.5
Honey = 2.5
The industrial sector in Nepal is classified into eleven different types as follows:
1. Manufacturing Industries: Industries which produce goods by utilizing or procession raw materials, semi processed materials, by products or waste products or any other goods.
2. Energy Industries: Industries generating energy from various sources like, water bio-gas, wind, sun, bio mass, oil, gas etc.
3. Agro-Forest based Industries: Businesses based on agriculture of forest products such as integrated sere culture and silk production. Horticulture and food processing, animal husbandry, dairy, poultry, fishery, tea, coffee gardening and processing, herb cultivation and procession, vegetable farming, vegetable seed production, vegetable processing, mushroom cultivati0n and processing, tissue culture, green house, honey production, flower cultivation, bee farming rubber farming, forest related businesses as lease hold forests and agro-forestry.
4. Mineral Industries: Mineral excavation and processing.
5. Tourism: Tourist lodges, hotels, motels, restaurant, resorts, travel agencies, skiing, gliding, rafting, cable car complex, pony trekking, trekking hot air ballooning, paragliding, golf course, polo, horse riding etc.
6. Service Industries: Workshop, printing press, consultancy services, ginning and bailing business, cinematography, construction business, public transport business, photography, hospital, aged homes, nursing homes, educational and training institutions, laboratory, air services, cold storage etc.
7. Construction Industries: Road, Rail, Ropeway, bridge, trolley bus, tramway, tunnels, flying bridge, industrial, commercial, residential complexes, construction and operation etc.
8. Cottage Industries: Traditional industries utilizing specific skills or raw material and resources, labour intensive and related with national tradition art and culture.
9. Small Industries: Industries with a fixed asset of up to thirty million Rupees.
10. Medium Industries: Industries with fixed asset between 30-100 Million Rupees.
11. Large Industries: Industries with fixed assed of over 100 Million Rupees.
The government of Nepal has given specific facilities and concessions to the Industries; some of them are listed below (2005)
- No cottage industry shall be levied value added tax, excise duty and income tax. If the honeybee industry is registered as such, it will get the government facility.
- Any industry established in the remote, undeveloped, under developed area of the country (The government has designated areas for these) will receive rebate of thirty five, twenty five and fifteen percent excise duty respectively for 10 years from date of operation. Exceptions are tobacco based, alcohol based industries.
- Fruit based, fruit processing and cider, wine industries with fixed asset up to 2 million rupees established in remote districts will get excise duty exemption for 10 years. Fruit based alcohol industries will get exemption for 5 years. The government can extend the exemption period for another 3 years if the case deserves.
- While calculating depreciation on fixed assets, industries shall be entitled to add one third to the rate of depreciation allowed under existing income tax laws.
- Permission may be granted for reduction of up t 50% from taxable income for the investment of any industry, on procession equipment, which has the objective of controlling pollution. Such remission may be lump sum or on installment basis within 3 years.
- After industry comes into production, certain percent of gross profit shall be allowed as deduction against taxable income on account of expenses related to technology; product development, efficiency improvement.
- The custom duty, excise duty on raw materials auxiliary raw materials etc. utilized by the industry in connection with its product during its production shall be reimbursed on basis of quantity of export.
- If the industry sells it product in the export promotion house, custom duty on raw materials, and sales / excise duty on product can be reimbursed if the case is genuine.
- If the industry sells its product within the country in any freight currency the excise duty and custom duty on such product produced will be reimbursed in quantity of the sold product.
- If intermediate goods are sold for export, duties on such intermediate goods could be reimbursed in genuine cases.
- No tax, fee, or charge of any kind shall be levied on machine, tool, equipment machinery and raw material to be employed by an export promotion industry as well as products of such industry. If the products are sold within the country, then appropriate charges will be made.
- The rate of customs levied on the basis raw materials, which are not produced in the country and are required for the production process may not be more than the rate.
- of import duty that may be levied on the import of industrial machinery, or ready made goods as is produced with the use f such raw materials.
- Forest based industry may be made available any forest on leave hold basis.
- No royalty will be charged if any industry generates electricity for its use.
- The government of Nepal may have notification published in the government gazette granting additional facilities to help promote export oriented industries.