B.

E-BBA 3rd SEM

2016

Unit-2
Macroeconomic Environment
 Dimensions of the economy
 Major problems and challenges facing Nepalese economy
 Employment trends and labor market issues
 Migration and foreign employment
 Economic development plans
 Industry and agricultural sectors- performance and
emerging challenges
 Economic policies and reforms-industrial policy,
privatization policy, trade policy, tourism policy and
monetary policy
 Liberalization of the Nepalese economy and capital market
reforms
 Macroeconomic factors influencing competitive
environment in Nepal

Dimensions of the economy

Dimension of an economy refer to the facets of economy of a country. It reflect the economic
development of a country which is determined by several factors. The economic dimensions may
be analyzed through four dimensions which are interrelated and they are explained below:-

i) The economic dimension- It indicates the purchasing power and pattern of

consumption 0fthe people. There are several indicators to measure economic
performance of a country. Economic performance may be classified into internal and
external economic performance. The internal economic performance includes GDP,
income distribution, poverty level, personal consumption, saving, debt, and credit
availability, budget position, inflation, interest rate, fiscal and monetary policies.
Likewise the external economic policies performance is reflected by balance of
payment, exchange rates and foreign trade volume. The demand side performance is
reflected by per capita income and income distribution. Similarly supply side
performance is saving, investment, productivity and capacity utilization.

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ii) The socio-economic dimension- This dimension is composed of the quantity as
well as other characteristics of the people. The market for a business is determined
by the number of people as well as their purchasing, pattern and capacity. The size,
distribution, density, growth, age and gender mix, urbanization and migration of
population are some of the important socio-economic factors that affect business
decisions.
iii) The industrial and agricultural dimension- This dimension is related to
production of goods and services. This is related to the potential of an economy to
supply goods, service and raw materials to its citizen. The stronger the industrial and
agricultural base of the economy, the greater the potential to supply goods and
services to consumers, and industrial units in domestic as well as global markets.
iv) The economic development dimension-This dimension is being reflected in the
economic development plans which indicate overall socio-economic development
policies and strategies and the mechanisms of resource allocation in different sectors
of the economy.

Major problems and challenges facing Nepalese economy

The Economic Survey, 2011 has explained the current state of the economy and also highlighted
major constraints and challenges facing the Nepalese economy. Its summary is listed below:-

i) Nepal has achieved an economic growth rate of about 4 percent over a decade. In an
environment where our neighbours have been successful in achieving double digit
economic growth, Nepal could not achieve the rate as desired owing mainly to
political instability overshadowing the economic issues. Besides, fragile peace and
security situation, weak infrastructure including electricity, uneasy labor relations
also contributed to the cause. And all these, as in the previous years, prevailed as
major challenges to the economy for attaining the higher rate of economic growth.
ii) The structure of Nepal’s GDP is gradually changing. Contribution of the primary
sector as value addition to the economy is estimated to have come down to 36.2
percent from 37 in 2000-2001. Similarly, contribution of the secondary sector
isexpected to remain at 14.1 percent with a decrease of 2.8 percentage point over a
decade. In aggregate, it is observed that contribution of the agriculture sector has
decreased by 1.0 percentage over a period of last one decade.
iii) Rate of inflation continued to remain very high. The annual point-to-point aggregate
CPI rose by 10.7 as compared to 9.9 percent rise in the previous year. The annual
point-to-point change in prices of food and beverage category recorded a rise of 17.3
percent as compared to 5.3 percent rise in non-food and services category. With this
inflationary pressure, the cost of infrastructure would increase. Low economic
growth rate accompanied by continued double digit inflation has been adversely
affecting economic activities and the people’s livelihood.
iv) The outstanding foreign and domestic debts in monetary terms grew by 8.3 percent
totaling Rs. 409. 14 billion from Rs. 377.59 billion in the previous year.
v) The Balance of Payments is still in deficit despite some progress in the last fiscal year.
Such deficit had recorded a deficit of Rs. 19.12 billion at the end of 2010-11. There has

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been a large deficit in balance of payments as the transactions of current account and
financial account could not improve as expected.
vi) Overall condition f securities market has not been satisfactory. As compared to the
previous year, securities market indicators like NEPSE indicator, stock transactions
amount, and market capitalization have slid down. The NEPSE indicator, which
stood at 444.76 points last year further fell to 373.20 points in 2010-11. Similarly, the
value of capitalized market which stood at Rs. 344.45 billion in 2010 fell to Rs. 331.14
billion by Mid-2011. The amount of securities transactions also dropped byh almost
50percent. Thus, sustaining the confidence of investors towards the capital market
remains a challenge.
vii) Millions of youth are compelled to heading for overseas seeking employment due to
failure in creating employment opportunities within the country. Statistics for the
last years shows an average 250,000 people leaving the country annually for foreign
employment, and the number is on rise. This indicates a challenge of engaging the
youths in the nation’s development by creating employment opportunity within the
country itself.
viii) Migratory pressure on cities and secured locations with physical amenities has
created the problem of urban poverty. Addressing this problem from the desire for
physical amenities and rise in the post-conflict mobility of the people is a big
challenge.
ix) The country’s economy is gradually becoming consumption oriented due to
remittance income and other factors thereby causing hopeless plunge in savings and
investment rtes. This is another challenge of creating the foundation for economic
growth through enhancement of saving and investment levels by discouraging
unnecessary consumption.
x) Revenue mobilization has not been to the extent of the size of country’s economy.
xi) Value Added Tax, despite bearing scientific, transparent, broad scope and
investment-friendly characteristic, its effective implementation has yet too be
materialized. There is a suspicious of the practice of evading VAT by using fake
bill/vouchers.
xii) The level of capital expenditure in the country is not to the extent as desired.
Development projects, the precursor for raising the level of capital expenditure could
not be executed for reasons such as : delay in submission of regular budget, absence
of elected representatives in the local bodies, persistent delays in awarding contracts
and opposition of local people to development projects.

Latest edition

Nepal moved forward with its main objective: to protect past achievements and keep pushing
efforts to achieve its 2015 MDGs. The NPC, the apex body for national development and
resource planning, adopted the MDGs as its planning framework for guiding the entire national
development process. In this context, the issues of post 2015 development agenda are being
discussed and debated around the globe at various levels. This is the time for opening the

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discussions at the country level and following could be the opportunities and challenges for
Nepal in the context of post 2015 development agenda.

Stagnation in Infrastructure:

Poor reliability and access to power are the most serious infrastructure bottlenecks to
growth. Increasing access to electricity in a timely and cost-effective manner is one of the most
significant development challenges facing Nepal today. Efforts to reduce the 16-hour load-
shedding during the dry season have been unsuccessful. Ironically, Nepal has one of the largest
untapped hydropower resources in the world – an estimated 83,000 MW of hydropower
potential.

Poor physical connectivity has been another major challenge to Nepal’s development
efforts.  Its road density is one of the lowest in South Asia. Over one-third of the people in the
hills are more than four hours away from an all-weather road. In addition, 15 out of 75 district
headquarters are yet to be connected by road. The quality of the road network is also poor – 60
percent of the road network, including most rural roads, cannot provide all-weather
connectivity.

Foreign Direct Investment

Preoccupation with the prolonged political transition has overshadowed economic

issues. As a result, inadequate attention has been given to reforms that could improve the
investment climate, stimulate growth, and create more private-sector jobs.

Net Foreign Direct Investment (FDI) in Nepal averaged only 0.1 percent of GDP as
compared to an average of 1.9 percent for low-income developing countries. Investments in
Nepal are constrained by a challenging regulatory and legal framework for foreign investment,
poor governance and accounting practices, weakness in the domestic banking sector together
with lack of a swap market for the Nepali rupee, poor implementation of property rights, and
heightened political uncertainty. In addition, the country’s logistical limitations, absence of
supporting infrastructure, and the relatively smaller size of projects constrain investments,
especially in the manufacturing sector.

Agriculture

Given that productive agriculture is a crucial element of inclusive growth, enhancing the
efficiency of irrigation systems will continue to be critical to increase agricultural productivity,
incomes, and rural livelihoods beyond 2015.

Education

Increasing access to secondary education (grades 9-12) remains a major challenge, as

evidenced by the disturbingly low net enrollment rate of 24 percent at this level. More than half
of primary students do not enter secondary schools, and only one-half of them complete
secondary schooling. In addition, fewer girls than boys join secondary schools and, among those
who do join, fewer complete the 10th grade. While there has been substantial progress on health
indicators, malnutrition remains very high.  About 47 percent of children under 5 are stunted, 15
percent wasted, and 36 percent underweight.  Although there has been a declining trend for
these rates over the past five years, they remain alarmingly high.   

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Community Mobilization

Though it faces enormous challenges, Nepal is not without some significant assets. The
evidence is compelling that the strength behind development in Nepal is highly concentrated at
the community level. Success stories abound, from forestry user groups and women’s groups to
community-based programs in rural drinking water, rural roads, micro-hydropower generation
and community management of schools. Many of the truly community-owned efforts
demonstrated great viability even during the height of the conflict. Where a supportive
framework has been created for communities to undertake such activities, there have been
impressive development successes.

Vulnerability to Climate Change

Nepal is highly susceptible to climate change risks and ranks 11th in the world in terms
of vulnerability to earthquakes. Climate change is expected to intensify Nepal’s already
pronounced climate variability and increase the frequency of climate extremes such as droughts
and floods.

Generation of Employment

In its Least Developed Counties Report 2013, UNCTAD argues that the number of young
people of working age in Nepal is currently increasing by 550,000 a year (465,000 in 2005), and
by 2020 it will climb to 633,000 a year. The report recommends improving GDP growth via: the
generation of employment, particularly work that pays a stable living wage and has safe
employment conditions for investment to develop the capacities of economies to produce
broader varieties of goods, and goods of greater sophistication and higher value.

The report states that employment grew by 2.7% per annum during 2000-2012, higher
than the average population growth of 1.7% but below GDP growth of 4%. Sector-wise
employment breakdown shows the following: Agriculture accounted for 71% of total
employment, down from 75% in 2000. Industry accounted for 12% of Nepal's total employment
in 2013, up by 2% compared to 2000. Services accounted for 17% of employment in 2013, up by
2% compared to 2000.

Managing Remittances:

Regarding remittance inflows, which amounted to an estimated 25.5% of GDP in

FY2013, the government will have to urgently explore how to better channel remittance to
productive usage as almost 80% of it is used for daily consumption by households. Nepal cannot
ride against the tide and will have to learn to live with high and persistent remittance inflows.
The only option now is to leverage remittance to productive usage such as: (i) investment in
infrastructure (including energy); (ii) high value agriculture production; (iii) commercial
agricultural activities; (iv) industrial sector investment; and (v) high value service sector
activities, among others.

Rationalizing Recurrent Expenditure

Nepal’s recurrent expenditure is rising so fast that the impressive tax revenue
mobilization (15.3% of GDP in FY2013) is nearly equal to recurrent expenditures (15.2% of GDP
in FY2013). Nepal needs to rationalize expenditures as well so that unproductive and wasteful

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expenditure items and subsidies are properly addressed. Some of the measures may  include: (i)
timely and full budget; (ii) higher quantum of capital expenditure allocation and quality
spending as well; (iii) rationalization of recurrent expenditure by taking out unproductive
expenditure items from the Red Book; (iv) focused expenditure plan to address the binding
constraints to inclusive growth; (v) rationalization of subsidies, particularly fuel subsidies; (vi)
trimming the number of public employees, especially redundant staff hired without a specific
work plan and due to pressure from political leaders; and (vii) reforming, including privatizing,
the inefficient state-owned enterprises. Meantime, the tax net needs to be broadened instead of
increasing cumulative tax rate each year.

Meaningful Structural Transformation:

A meaningful structural transformation to sustain a high and sustainable growth would

require a strong industrial sector and high value added agriculture and services sector activities,
with an employment-centric strategy to absorb the surplus labor. To promote higher
productivity, high value-added production and high income generation, the agriculture sector
requires adequate and appropriate commercialization, provision of necessary infrastructure and
technology to link with the industrial sector, and promotion of agribusiness activities such as
agro-processing, storage, and warehousing, among others. Similarly, for high productivity and
value added services sector activities, there needs to be strong backward and forward linkages
with the industrial sector along with the narrowing of skills gap required in the market, increase
in R&D investment to promote innovation, and investment in education and health sectors to
boost the capacity of the economy to sustain progress and prosperity. This would partly position
and help sustain the industrial sector as an engine of inclusive growth.

Controlling High Inflation

With the government’s failure to clamp down on inflation, which is hovering above 8%
since FY2009, people have built up expectations that prices will not come down in the near
future (or say embedded expectations at a higher base). Inflation above 8% is becoming a ‘new
inflationary normal’. For comparison, inflation was as low as 2.4% in FY2001. High inflation
erodes people’s purchasing power, renders production uncompetitive, and discourages
investment. It also forces government and firms to revise up wages, irrespective of the gains in
revenue and productivity. In real terms, it makes people poorer in the absence of a proportional
rise in income.

Good Governance

Governance is a never-ending issue. Transparency International repeatedly ranks Nepal

as one of the most corrupt economies. According to the Enterprise Survey 2013, about 51.3% of
firms expected to give gifts to secure government contract. Also, there is hardly any crosscheck
on the quality of assets created with government (alternatively, tax payers') money. About 44.7%
of manufacturing firms identified corruption as a major constraint in 2013. Major public sector
reforms, along with strengthening of the anti-corruption body, are needed. Good governance
and transparency of financial transactions have to be exemplified right from the political parties’
level to the lowest rungs of government bureaucracy and the private sector.

PurushottamGhimire, Joint Secretary and Focal person of UNDESA, worked in National

Planning Commission Secretariat, Government of Nepal.  Ghimirecould be contacted via email:
purughimire@yahoo.com

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Employment trends and labor market issues

 Employment trend is a characteristic of employment that is consistent over a long period. Economic
transformation has been taking place in Nepal as the economy slowly moves away from the agriculture
sector to other sectors. There is the growing displacement of the labor force from the agriculture sector.
This transformation has various implications for the national economy. The emerging labor market trends
are as follows:-

 The people are giving up their traditional family occupations like cottage and small industries and
informal farming. They are now attracted towards new occupations. These displaced agricultural
workers thus need to be absorbed by other modern sectors.
 Due to shrinking employment opportunities in the rural areas, the population has now been
migrating to urban areas for employment. Some people are even migrating abroad for
employment.
 Immigration is also a factor that significantly influences the Nepalese population and labor force.
Over the past few decades, immigration has grown. This trend has an important impact on the
composition of the labor force.
 The impacts of economic transformation taking place in the country can be observed by the
development of new settlements along the highways. In many places, new townships have
developed generating new employment opportunities for people.
 With the rise in the literacy and educational level, the educated women are now seeking our
employment opportunities. They continue to join the Nepalese labor force in record numbers. This
trend provides business firms with more talent from which to choose.

Labor markets in Nepal are characterized by a small formal sector and a much larger informal sector. Due
to lack of education and skills, the bulk of the economically active population is engaged in manual and
unskilled type of work. Unemployment and underemployment is very high. Also most trained persons are
in urban areas and the rural areas have manpower shortage at all levels.

In Nepal, labor market regulatory frameworks are rigid and the quality of education is relatively lower.
These regulations include the Labor Act, 1992 which prohibits the dismissal of “permanent” employees
(i.e. all employees with more than 240 days of employment). In addition, minimum wages regulations
cover skills categories in firms with more than 10 employees, the mandatory of 10 % of profit to a workers’
benefit fund. Rigid regulatory framework has thus been affecting labor market and productivity in the
following negative ways:-

 There is disincentive for labor to be efficient and productive.

 Business firms are inclined toward the use of more capital-intensive system.
 There is disincentive for firms to invest in training and education of their work force.
 Business firms are inclined to employ Indian labor in highly skilled positions rather than Nepali
workers.
 Performance-related pay and incentive system cannot be implemented due to trade union
resistance.

Without labor market improvements, Nepal will find it difficult to increase competitiveness and formal
sector employment significantly.

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Migration and foreign employment

Over the years, labour migration for foreign employment has been a vital livelihood option for theNepali
population. While seasonal migration to India especially from certain areas of Nepal has had a long
history, the liberalized economy and political environment of the nation after the 1990s formalized labour
migration as an opportunity for employment. The lack of jobs and increasing income gaps acted as push
factors for the youth to explore foreign markets for employment opportunities.
Countrywide data show that Malaysia is the major destination for foreign employment followed by Qatar,
Saudi Arabia, and United Arab Emirates. These 4 countries contribute more than 95% of the foreign
employment to Nepalese people.
In the fiscal year 2013/14 alone, approximately half a million labour permits were issued for Nepalis,
mainly youth, taking up foreign employment (excluding those migrating to India or those using irregular
channels of migration). Volume of remittances received during the first nine months of the same fiscal
year was calculated close to 30 per cent of the country’s total GDP. The data collated from the
Department of Foreign Employment indicates that migratory patterns to be majorly of unskilled workers. A
staggering 74 per cent of migrant workers who received labour permits in the last fiscal year were
categorized as ‘unskilled’. The characteristic of low-skilled migration flow further stresses on the need to
analyse Nepal’s vocational and technical education situation. While migration for foreign employment
continues to experience a steady growth, there is a need to improve the quality of workers by enhancing
their technical and vocational skills in order to sustain the demand and supply of Nepal workers. This
requires an effective labour market information system which facilitates the possibility of matching the
demand for migrant workers and occupation with the skills of the workers.
However, the Government has made the following arrangements to advance loans and facilitate easy
remittance:
i) Foreign employment loan for marginally poor people from among affected by conflict,
disadvantaged, minorities and women. Arrangement is made for providing 80% of such loan
without any collateral.
ii) A provision for an insurance scheme of Rs. 500,000 to every person going to foreign
employment for the period of agreement has been made
iii) A foreign employment rehabilitation fund has been established for rescuing those victimized
in course of foreign employment
iv) Skill development and language training programs will be launched considering the demand
of national and international labor market. Priority shall be given to martyrs’ families, people
injured peoples’ Movement, handicapped, blind, women, conflict affected people and under-
privileged community
v) Money transfer institutions are being encouraged with the objective that the Nepalese
workers engaged in foreign employment could send their foreign currency earnings easily to
their family
vi) A commission of 15 paisa per US dollar is permitted to such money transfer agencies in the
private sector to encourage the inflow of convertible currency earned through foreign
employment.
vii) Policy decision has been made to allow opening of convertible currency account to agencies
licensed to conduct remittance transaction as per the prevailing rules.
viii) Policy provision has been made to allow opening branch/representative office (in India and
other countries) to Nepalese foreign employment services agencies.

Economic development plans

Economic development plans are also the sources of information for analyzing economic environment.
These plans provide very useful information to business firms. Most of these plans in a mixed economy

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are in the form of “indicative” plans. Under this planning, the government merely sets priorities and
targets. It then attempts by means of the usual fiscal and monetary tools to create favorable conditionsfor
business firms so that targets may be attained.

The era of planned development started in Nepal with the launching of the First Five Year Plan in 1956.
The process of implementation of planned development was, however interrupted twice thereafter. Still
the formulation and implementation of five-year plans has been a regular feature of the Nepalese
economy.

All the development plans gave emphasis on increasing the standard of living of the people by increasing
per capita income. Priorities were given to agriculture, industrial development and infrastructure building.
The plans also addressed several major economic issues like regional balance,employment, export trade,
technology, private investment, poverty alleviation, population control and so on.

Three-Year Plan, 2010-2013

Objectives and Targets

With the end of the long conflict, Nepal has now started to move slowly along the way of sustainable
peace. The Three-Year Plan is to lay the foundation of economic and social transformation for developing
a prosperous, peaceful and judicious Nepal The Plan aims at promoting employment and economic
growth and reducing poverty and inequality to support enduring peace and to make people experience
change directly to their life-style. Its long term vision included transforming Nepal from the status of least
developed country to a developing one.

Industry and agricultural sectors- performance and emerging

challenges
The history of modern industrialization was started in 1936 with the establishment of Biratnagar Jute Mill.
After this Moran Cotton Mill 1941, Morang Sugar Factory 1946, Raghupati Jute Mill 1946 and Juddha
Match factory 1946 were other industries in Nepal. Industrial development in Nepal started getting
attention of the government only after the restoration of democracy in the country in 1950 and the
adoption concept of planned economic development. The industrial sector of Nepal can be overviewed as
under:-

1. Manufacturing industries- The manufacturing sector in Nepal is very small. It comprises a

relatively narrow range of industries. Some of them are:
i. Food, beverages and tobacco
ii. Textiles
iii. Building materials
iv. Packaging
v. Plastic

The contribution of manufacturing units to the national economy and employment generation is
not very significant and their contribution to the GDP is decreasing every year since 2000.

2. Export-oriented Industries-The main export commodities of Nepal are carpets, garments,

leather products and handicrafts. A brief description of these industries are listed below:-

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i. Carpet industries- Carpet is the biggest item of export from Nepal to Germany, USA,
Switzerland and countries of the world. Most of the carpet industries survive in Nepal
based on imported raw materials. However, the point of attraction is that the labor
intensive technique is basically implemented in the working process of carpet products.
Thus carpet industries are the productive sources of employment generation in Nepal.
ii. Garment industries- The readymade clothes also occupy the significant place in the
export management of Nepal. Except some hurdles, Garment industries are also the
appropriate platform to provide employment opportunities to common workers.
iii. Pashmina Industries- The woolen products of pashmina wool are also exported from
Nepal to the different countries of the world. Pashmina industry also occupies the
significant place in the income employment generation within the Nepalese economy.
iv. Handicraft products- The handmade artistic cottage and handicraft products are also
contributors to export management of Nepal. The revenue is generated in Nepal through
the export of these products. However, the commercialization of this sector is yet to be
developed in Nepal.
v. Leather and leather products- Leather is one of the major exportable items from
Nepal.USA, Japan, Pakistan, Italy and Netherlands are the major export market for
Nepalese leather and leather products.

3. Import-substituting Industries-The import-substituting industries are listed below:-

i. Pharmaceutical industry-On the basis of the huge natural vegetation and precious
herbs, pharmaceutical industries are established as the import substituting industries of
Nepal. The evidences show that 28% of total medicine consumption is produced inside
the Nepalese economy. 2% of life saving medicines are imported from third world and
almost 70% medicines are imported by Nepal from India. Thus the pharmaceuticals
industry have saved the payment of foreign currency equivalent to 28% medicine
consumptions in Nepal.
ii. Electrical and electric goods- On the basis of imported raw materials, the electrical
appliances are also produced inside the country as the import substituting goods in
Nepal. Moreover, the general electrical products are also produced for the household
consumption in Nepal. If other business houses are also promoted in electrical sector,
thenit would be a perfect import substituting industries of Nepal.
iii. Other import substituting industries-
a. Cement industry
b. Paper industry
c. Sugar industry
d. Iron industry
4. Service sector- The major service sector are tourism, transport, construction, trade and services
and financial and consultancy services. These industries have a significant place in the national
economy in terms of employment, capita investment and scope of activities. It accounts for 52 %
of the GDP.

Performance of Industrial Sector

The performances of industrial sector are explained as under:-

1. Capital investment- Capital is the lifeblood for the establishment of industry. The amount of
capital investment is one indicator of the performance of industrial sector in the country.

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Uptofiscal year 2013/14, the highest capital investment is found in energy sector follower by
production oriented sector and service sector.
2. Employment Generation- Employment is one of the most important indicators of economic
performance of a country. Industrialization is viewed to be important due to employment
generation. In Nepal, total number of employment generation upto fiscal year 2013/14 from
industrial sector remained 4,94,407.
3. Foreign Investment- Foreign investment is very important for industrialization in the country.
Nepal has adopted policy to attract foreign investment. A total of 305 industries obtained license
for foreign investment in the fiscal year 2013/14 which was lower by 3.78 % than preceding year.
4. Capacity utilization- According to a report by NRB covering the first six months of the fiscal year
2014/15 the average capacity utilization of the industrial sector is 51.3 %. The highest capacity
utilization is with tea industries and lowest is rice industry.
5. Contribution to GDP- The contribution of the industrial sector in the GDP is decreasing over the
years. It was 16.08% in 2006/07. However, it decreased to 14.46 percent in the fiscal year
2013/14. .
6. Growth rate- The growth rate of industrial sector averaged 3.29 % from fiscal year 2005/06 to
fiscal year 2013/14. The growth rate in fiscal year 2013/14 is found convincing i.e. 6.19%.
However, the average is not satisfactory and the reason behind this is political instability, lack of
industrial infrastructure etc.

Agriculture Sector

Agriculture sector is the largest backbone of the Nepalese economy. Still around 80% of Nepalese
population is tied up with agriculture. The contribution of this sector to the GDP is about 33%. Nepal’s
major exports of agricultural commodities are:-

 Mustard and linseeds

 Ghee
 Pulses
 Flour
 Ginger
 Oilcake
 Raw jute
 Cardamom
 Vegetable ghee
 Tea
 Medical herbs
 Paper and paper products

India remains the most important partner in agricultural trade, accounting for 80 percent of Nepal’s
agricultural exports. However Nepal suffers from deficit in agricultural trade. Its features are:-

 Nepal’s agricultural sector has remained stagnant over the past few decades.
 The production of fruits, vegetables, milk, milk products, poultry, tea, fish and cash crops has
been gradually increasing over the years.
 Livestock sector has become an important economical component of the Nepalese agriculture.
 Nepal’s higher agricultural processing costs compared to those of India put burden on agriculture.

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Emerging challenges or Problems

Following are some of the challenges or problems of Industrial and agricultural sector in Nepal:-

1. Political instability- The long lasting political instability has been a major reason of slow
industrial development in Nepal. The political instability has resulted in policy instability as well as
other political risk factors.
2. Lack of scientific means, transportation and communication- Nepal is basicallymountainous
country and due to difficult geographical disadvantage the raw materials for industrial
development and agriculture development are not easily transported to the desired agricultural
and industrial spots. Similarly produced products are not easily carried out to different markets of
Nepal. The hurdle of transportation has increased the cost and the problem for the industrial as
well as agricultural development of Nepal.
3. Government policy and regulations- The state regulations governing the industries in Nepal
are found to be complex. Similarly, the industrialists perceive the income tax and VAT regulations
to be difficult.
4. Lack of energy- Lack of adequate energy for the smooth operation of industrial sector has been
another notable problem of Nepalese industrial development. The massive load shedding has
been a major reason of poor productivity of industrial sector in Nepal.
5. Lack of security- Lack of security has been a major problem of Nepalese industrial sector.
Crime, theft, forced donation, kidnapping are being common in Nepal. The level of industrial
security is low in Nepal. It has adversely affected the industrial development in Nepal.
6. Quality of product- The quality of major exportable goods is not as per the standard. The
institutional capacity for verification of such quality is not at international standard.
7. Low capacity utilization- The medium and large scale industries are unable to produce the
commodities with the best or full of their capabilities. E.g. the Mega Electricity Production House
of Nepal- Kulekhani Hydroelectricity Project only utilizes 30% of its capacity due to multiple
reasons. It has also damaged the quality of industrial development in Nepal.
8. Poor quality of technological advancement- The foundation of the technological development
is very weak in Nepal. Nepal still basically depends on the imported technology. Consequently
the cost of industrial product unnecessarily increases in Nepal.
9. Lack of capital and FDI- The huge amount of capital is needed to promote and build up the
foundation of industrial development in a country like Nepal. But due to the poor economic status
the internal capital arrangement is very poor in Nepal. Likewise, due to political instability, the FDI
is not attracted towards Nepal. Both these components are equally responsible for poor industrial
development in the country.
10. Labour regulation and unions- Some of the provisions of labour unions are perceived
unfavorable by the Nepalese industrialists. Some of them are: make the workers permanent after
working 240 days of their working, taking prior consent of department of labor to lay off or fire
workers. The roles of labor unions are also not found constructive towards maintaining a
favorable industrial relations.

Economic policies and reforms-industrial policy, privatization policy,

trade policy, tourism policy and monetary policy
Various economic policies and reforms of Nepalese economy are listed below:-

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A) Industrial Policy, 2010- Industrial development is the life line of the economic development of a
country. There is huge prospect for the economic development in Nepal through the industrial
prosperity in the country. The government of Nepal therefore formulated the industrial policy of
2010 to minimize poverty in Nepalese economy.
The major components of Industrial policy, 2010 in Nepal can be represented as follows:-
1. Vision-
a. Income Employment Generation- To make remarkable contribution in the National economy
through broad based sustainable industrial development by the help of PPP(Public Private
Partnership) for the poverty alleviation in Nepal.

2. Main objectives:- The current Industrial Policy focuses on:-

a. Income Employment Generation- To increase the growth of industrial production along with
income employment generation through enhancement in the qualitative and competitive products
in Nepal.
b. To increase industrial production- To increase contribution of industrial sector production for
balanced national and regional economic development of Nepal, the industries of different sectors
should be promoted in the country.
c. Industrial Entrepreneurship- To establish industrial entrepreneurship as a suitable and reliable
means of utilizing the available resources of Nepal through the latest technology.
d. Strong foundation for industrial development- The current industrial policy attempts to laydown
the strong industrial foundation by the help of mega investment in the industrial sector of the
country. The mega investment of capital should be supported by the domestic and foreign
investment.
e. Intellectual Property Rights (IPR)-To protect the healthy development of industrial sector the
intellectual property rights such as copy right, trademark, industrial design, patent and layout
design of integrated circuit must be protected in Nepal.
3. Policy:-
a. Technology based- The industrial development of Nepal should be based on the technological
advancement rather than the labor and capital foundation.
b. No work no pay- The current industrial policy introduces as innovative policy that if the workers do
not perform their policy, employer will not pay wage to them.
c. Special package- The current industrial policy develops a special facility for the industrial
development in the form of SEZ (Special Economic Zone) and EPZ (Export Promotion Zone)
d. Domestic raw materials- The current industrial policy attempts to promote the domestic raw
materials based industrial growth in Nepal.
e. Easy technical and financial cooperation- The current industrial policy expresses the
commitments of the government to provide the soft loan to the industrial sector. It also attempts to
provide the technical advice to the industrialist and create the environmental friendly industrial
development in the country.
f. Industrial security- The current industrial policy attempts to provide the industrial security forces
through various facilities, control room for the protection of industrial development from unwanted
and unsocial elements.
g. NRN (Non-Residential Nepalese)- The current Industrial Policy 2010 opens the door for Non-
Resident Nepalese to promote the involvement of capital for the industrial development of Nepal.
NRN is also supposed to provide the technical assistance to protect intellectual property of Nepal.

B. Privatization Policy-

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Privatization is the process of transferring of ownership, property or business from the government to
the private sector. The main objective of privatization is to increase efficiency of such enterprises and
offer better services to customers. In Nepal altogether 30 public enterprises have been privatized till
the date.

Butwal Power Company, Nepal Telecom, Nepal Lube Oil, Nepal Bitumin and Barrel Industry,
Bhaktapur Bricks Factory, Nepal Bank Limited, Raghupati Jute Mill, Biratnagar Jute Mill, Balaju
Textile Industry etc

The Privatization Policy was specified for the first time in Nepal, in the Sixth Plan. In 1989, a
Privatization Cell was created in the Ministry of Finance to plan and implement privatization program.
After that in 1991, policy paper on privatization was issued by the Government whichlaid down the
policies, modalities and administrative mechanisms for privatization of public enterprises. Finally in
1994, the Privatization Act came into force.

The Act defines the term Privatization as, “the participation of private sector in the management of
enterprises or selling it or giving on lease or transferring of government ownership to private sector,
employees or desirous groups either partially or fully in such an enterprise.”

The main features of this Act are listed below:-

1. Formation of privatization of committee- A Privatization Committee is formed to organize the

privatization of enterprises under the chairmanship of the minister or state minister of finance.
The committee may invite chief of the enterprise, labor representatives and any distinguished
economist in the meeting.
2. Powers, functions, and duties of the Committee- The powers, functions and duties of the
committee are as follows:-
a. To recommend, programs and priorities of privatization
b. To conduct study or research in order to formulate privatization programs
c. To evaluate the enterprises and recommend to the government
d. To remove hindrances faced in privatization
e. To follow-up the decisions and agreements relating to privatization
f. To constitute sub-committees, as may be necessary
g. To perform other works if necessary
3. Process of privatization- The process of privatization has been specified as under:-
a. Sale of shares
b. Formation of cooperatives
c. Selling assets of the enterprise
d. Leasing out the assets of the enterprise
e. Involving private sector in the management of the enterprise
f. Adopting any other modalities considered appropriate by the government on the basis of the
recommendation of the committee
4. Evaluation of the proposal- The proposal of privatization is evaluated on the following basis:-
a. Attractive price;
b. Management of the enterprise without changing its nature;
c. Retention of the services of present workers and employees;
d. Enhancement of the employment opportunities;
e. Managerial experience and;

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f. Expansion of the enterprise and business by preparing a good business plan and making
additional investments
5. Settlement of dispute- If any dispute arises, it is resolved through mutual consultation among
concerned parties.
6. Continuity of the present workers- The Governments may ensure the continuity of service of the
present workers of the enterprise to be privatized
7. Liquidation of enterprise-
a. The government can dissolve wholly owned enterprise by publishing a notification in Nepal
Gazette.
b. All arrears due to the enterprise liquidated are recovered as government dues.
c. The government may transfer the assets and liabilities of the enterprise liquidated to any
other body.
d. If all liabilities of the enterprise could not be fully settled from the assets of enterprise, the
residual liabilities can be settled according to the existing laws.

Methods of Privatization

Methods of privatization are listed below:-

a. Assets sale- Here the state sells the production, services units and other assets in the
competitive market to the private sector through public auctions. Bhrikuti Paper Factory,
Harisiddhi Brick and Tile Factory Limited, Bansbari Leather and Shoes Factory Limited are some
of the public enterprises which used this method of privatization.
b. Business Sales- This is the transfer of total ownership of a public enterprise to the private sector.
It involves transfer of total assets of the public enterprise to the private sector. Some of the Public
Enterprises (PE) privatized under this method along with assets sales method wereBhrikuti Paper
Factory, Harisiddhi Brick and Tile Factory Limited, Bansbari Leather and Shoes Factory Limited
are some of the public enterprises which use used this method of privatization.
c. Share sales- This method of privatization involves the transfer of shares to the general public,
employees and private organizations. A number of methods may be applied for sale of shares.
They are:-
 Block sale of shares
 Public offering of the shares
 Sales of shares to the employees
 Sales of shares to investment fund

Nepal Film Industry Limited, Balaju Textile Industry, Nepal Telecom Company etcwere privatized under
this method.

d. Management Contract- Here, management rights of the enterprises are transferred for a
temporary period, in return for a price and exclusive of property rights. The management
company is provided the right of operation and control of the enterprise. Its main objective is to
enhance the efficiency and productivity of the enterprise. This method of privatization was used in
Biratnagar Jute Mills Company Limited.
e. Lease assets- This is transfer of the benefitting rights of the assets to the private sector known as
contractor for a specific period and in return for a price. The contractor pays a certain fee to the
government against the use of property. This method was to privatize Bhaktapur Brick Factory,
Lumbini Sugar Factroy and Nepal Rozin and Turpentine Limited.
f. Others- Liquidation and renting are the other methods of privatization.

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C. Trade Policy, 2009-The foreign trade development is an essential component to promote the quality of
economic development in a national economy. Nepal is committed to maintain trade and development
after receiving the membership of WTO in 2004. At the regional level Nepal is also the member of
SAPTA, SAFTA, BIMSTEC. The Trade Policy, 2009 focuses on the following main components:-

1. Main objective-

a. Poverty alleviation- To support the economic development and poverty alleviation inititative through
enhanced contribution of trade sector in the national economy

2. Strategy:

In order to achieve main objectives, the trade policy 2009 adopts the following strategies:-

a. To create a conducive atmosphere for the competitive trade at international level by declining the
cost on the hand and increasing the market share on the other
b. To reduce the trade deficit through the export promotion activities in the days to come
c. To increase employment opportunities through the labor intensive activities within the country
d. To mobilize the available resources of the country in balancing the domestic trade and foreign
trade of Nepal

3. Policies:
a. Professional capacity- The role of professionalism of the government and private sector will be
enhanced to promote the trade and development in Nepal.
b. Decline in transaction cost- The Trade Policy 2009 focuses to decline the unwanted rising
transaction cost of the import substituting and export promoting products of Nepal.
c. Development of physical infrastructures- The domestic infrastructures in the industrial estate for
the import substituting and export promoting industries will further be developed in Nepal.
d. Intellectual Property Right- The Trade Policy, 2009 attempts to develop the institutional network
of intellectual property right with the different developed trading partners of Nepal.
e. SEZ and EPZ- To promote trade and development, Trade Policy, 2009 attempts to establish the
Special Economic Zone (SEZ) and Export Promotion Zone (EPZ) at 5 different places of Nepal
(including Biratnagar as well) .
f. Look East policy- The Trade Policy 2009 attempts to create an environment to promote the
exportable and the import substituting items towards Asian countries.
g. Special Focus Area- The Trade Policy 2009 attempts to focus on the identification of those areas
and those commercial products through which Nepal can have the comparative advantage in the
field of international trade.
h. Proper Implementation- The various components and commitments of Trade Policy should be
implemented honestly and effectively in the favor of the business and economic development of
Nepal.

The entire objectives strategies and policies of trade and development, 2009 help us to conclude that
if the theoretical perceptions are properly exercised and implemented, Nepal can have maximum
possible in minimizing the trade deficit in the days to come.

D. Tourism Policy- Nepal is known in the world for its natural beauty and highest peak of the world in
the world Tourism Map. Nepal is also projected as “Destination Asia”. Infact the varieties of hills,

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mountains, snow covered alpine regions, natural beauty of the country, rich bio-diversity, multi-ethnic,
language religion, varieties of socio-cultural heritages, different religiouscentres and such other
components have promoted the potential of tourism development in Nepal. Tourism Policy 2009
focuses on the following components:-

 Objectives:
1. Integration with national economy-To develop tourism sector as an important source
of income Employment Generation through the integration with the development of
national economy
2. Rural Tourism- To diversity tourism development in rural areas of those places which are
connected with centres of natural beauty and religious places
3. Improvement in natural, cultural and tourism environment- The current industrial policy
focuses on the improvement of natural environment of the nation along with the proper
maintenance of cultural values to develop and expand tourism industry in Nepal.
4. Good image in international community- To maintain the healthy image of Nepal as the
‘peace loving country in the world’, tourism industry is the good platform to protect and
maintain good image and reputation of Nepal in international community.
 Areas of Tourism: The current Tourism Policy 2009, has defined the following segments as
areas of tourism:-
1. Tourism of natural beauty
2. Mountaineering and trekking tourism
3. Adventure tourism
4. Business tourism
5. Cultural and religious tourism
6. Sports tourism
7. Health tourism
8. Agro Industries tourism
9. Educational tourism
 Policies:
1. Private Sector Commitment- To promote private sector’s participation in infrastructure
building for the tourism development in Nepal.
2. Domestic Tourism-To increase the internal tourism specially at different religious
centres of the country.
3. Infrastructure Development: The government of Nepal should focus on the qualitative
infrastructure development such as roads, airways connectivity, electricity, drinking
water, accommodation settlement and such other components of infrastructure at
different tourist spots of the country.
4. Religious Tourism-Due to the attraction of birth place of Lord Buddha, East Asian
Buddhist countries tourist fromJapan, South Korea, Thailand and even from North China
regularly visit Nepal to observe religious value of holy place of Nepal. Religious centres
should be developed upto International Standard.
5. Competitive Tourism- the Tourism Policy 2009, focuses on the competitive strength of
tourism sector in such a way that the maximum privileges can be given to the foreign
tourist at the lowest composition of cost maintaining the normal profit margin. It will help
to win the tourism sector’s development in comparison to other countries of South Asia.
6. Service Sector Development- The tourism sector development needs to focus on the
service sector management specially in the field of mountaineering, trekking, message
oriented philosophy and religious speech of Lord Buddha and such other components of

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services sector can be developed as supplementary component of tourism development
in Nepal.
7. Integrated civil Aviation-The domestic air service of Nepal is not very much famous in
Western community. It has discouraged the inflow of tourism activities of western tourists
in Nepal. The Tourism Policy 2009 attempts to integrate the civil aviation (air service) of
Nepal upto the international standard.

Question related to it:

How do you examine or highlight the Tourism Policy 2009 of Nepalese economy?

E. Monetary Policy- Monetary Policy is a macro economic policy. It is the management of

money and credit supply including the interest rate policy of Central Bank. This policy is
formulated and implemented by the Central Bank to achieve macro economic objectives like
price stability, economic growth, balance of payment stability, full employment etc.

According to Shapiro,“Monetary policy is the exercise of the Central Bank’s control

over the money supply as an instrument for achieving the objective of economic
policy”.

The objectives of monetary policy are as follows:-

 To stabilize the price level since fluctuations in prices brings uncertainty and instability to the
economy
 To increase investment for full employment
 To have rapid economic growth with stability
 To maintain equilibrium in the balance of payments

Instruments of Monetary Policy

Instruments of Monetary Policy

Quantitative Instrument Qualitative Instrument

1. Bank rate policy 4. Fixing margin

2. Open market requirements
operations 5. Consumer credit
3. Variation in the regulation
reserve ratios 6. Publicity
7. Credit rationing
8. Moral persuasion
9. Directives

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Monetary Policy, 2016/17 (Current Monetary Policy of Nepal)

NRB, the central bank of the country released the Monetary Policy for the
Fiscal Year 2016/17. It mainly focuses on harmonizing with the goals and
priorities adopted by the budget as well as the national and international
economic outlook. It also focuses on ramping up capital flow towards the
productive sectors such as agriculture, energy, tourism, small and cottage
industries as well as to the poor.
Economic and Monetary Targets
The main targets of the monetary policy 2016/17 are;
 No cash for transaction above Rs. 3 million
 Targeted inflation below 7.5%
 7% interest spread imposed on micro finance
 20% mandatory lending for the commercial banks to the productive
sector unchanged
 Hiked the minimum 12 % of the productive sector lending on
agricultural and energy sectors to 15%
 No policy on educational loans on certificate guarantee
 The cash reserve ratio for the BFIS unchanged
 BFIS will have to allocate at least 1% of their profit for corporate
social responsibility
 BFIS will have to allocvate at least 3% of staff expenses for training
and capacity development
 BFIS not required to get permit from NRB to open branch n area
except inside metropolitan, sub-metro-politan and municipality
 ‘Board Directors Education Program’ for the board of directors of
BFIS to strengthen corporate governance and risk management
 Necessary arrangements to launch ‘bank accounts for all Nepali’ and
distribute social security allowance from banking system
 The Statutory Liquidity Ratio (SLR) fixed by the Central Bank for
BFIs remains unchanged
 The restriction on opening new BFIS is continued.

Liberalization of the Nepalese economy and capital market

reforms

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Liberalization is an important component of the LPG policy and programs
of the global economy. It is the gradual process of lessening government
regulations and restrictions in the economy. In the liberalized economy,
governments are not directly involved on the economic activities rather
they are left for private sector to operate. Here, the role of the government
is of the motivator and facilitator. The major function of the government is
to create the conducive environment for the growth of private sector.
Liberalization policy is based on the assumption that private sectors are
more efficient than government. In Nepal, the liberalization policies were
implemented from 1990 with emphasis on privatization and open market
policies. Different acts and policies were promulgated and implemented as
a liberalization process, some of which are Industrial Policy, 1992 and
2010, Foreign Investment Policy 1992, Labor Act, 1992 and Tourism
Policy, 2008.
Requirements of Liberalization
Liberalization is the life breathing element for the economic development
of modern economy including Nepal as well. The liberalization policy is
needed to be adopted by a country like Nepal due to following
requirements and reasons:-
I. Reduction in Economic Burden of State- In the case of liberalization,
the government motivates the private sector in the production
management and the government declines its share of economic burden
in the production and other management of the country. Thus, the
unwanted economic burden of the state is declined by the liberalization
policy all over the world.
II. Role of government as facilitator- In the age of liberalization, the
government should perform the role as the facilitator and the
government should also perform the basic role of motivator, promoter,
regulator and executor as well.
III. Abolishing license requirements- Liberalization demands abolishing
license requirements in most of the industries. The Industrial
Enterprise Act, 1992, has specified some industries requiring
permission. They are industries related to security, currency, tobacco
etc. Most of the other industries do not require license.
IV. Increased role of private sector- Liberalization emphasizes the
increased role of private sector in the economy. The role of the
government decreases. The theme of liberalization states that the

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private must be encouraged with proper control of the government as
the regulator.
V. Freedom in business decision- Under liberalization, business enjoy
freedom in decisions regarding expansion or contraction of business. A
business house should be given freedom by the state to produce those
commodities which fulfills requirements of the society and also the
government should only be watchful that the unwanted goods and
services should not be produced by the private sector to earn profit.
VI. Removal of restriction- Liberalization requires removal of restriction on
the movements of goods and services within and between countries. It
requires elimination of tariff, para-tariff and non-tariff barriers.
VII. Reduction of tax rate- Under liberalization, the government gradually
reduces tax rate to encourage private investment.
VIII. Simplification of foreign trade- Under liberalization, foreign trade
procedures are simplified through procedural simplification, facilitation
and institutional strengthening.
IX. Facilitate FDI and technology transfer-Liberalization requires free flow
of capital and technology between countries. In Nepal, Foreign
Investment and technology Transfer Policy, 2015 has made several
provisions to facilitate FDI and technology transfer.
X. Current account and capital account reform-Liberalization requires
reform in current and capital market. Current account reform includes
making the foreign exchange convertible. Capital account reform
involves maintaining accounts in convertible currency.

Internal and External Liberalization in Nepal

Liberalization can be viewed from two perspectives. They are:-

1. Internal Liberalization-
a. Financial sector reform-:
 Banking sector is opened for foreign investment.
 The commercial banks are allowed to accept current and fixed
deposits on foreign currency.
 Deregulation of interestrate management in which commercial
banks are allowed to determine and change interest rate
according to market situation.
 Restructuring of Nepal Bank Limited and RastriyaBanijya Bank.

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 Formulation and implementation of Nepal Rastra Bank Act, 2002

A.D. (2058 B.S), Debt Recover Act, 2002 and Banking and
Financial Institution Act, 2006 in Nepal
b. Fiscal Reform:-
 Introduction of VAT
 Introduction of export duty drawbacks and bonded warehouse
 Private sector is allowed to borrow the money from the foreign
sources
 Imposition of VAT
c. Monetary Policy:-
 Deregulation of interest rate policy
 Deregulation of foreign exchange rate determination policy
 Privatization of public owned enterprises
d. One window Policy- This has been brought to facilitate and provide
concessions to the businessmen.
e. Removal of subsidies- The government is gradually reducing the
subsidies provided to different sector of the economy.
f. Public sector reform- The government has the policy f not setting up
new public enterprises.
g. Insurance sector reform- The private sector is allowed to open
insurance business as a part of liberalization program.
h. Capital market reform- The foreigners are allowed to invest in the
stock exchange. The security exchange is in the process of privatization.
2. External Liberalization
a. Reform in Trade sector-The connectivity of international trade of
Nepal with different trading partners can be recognized as the basic
component of the external liberalization of the country. Infact the
import substitution industries and export promotion business houses of
external liberalization can only support the group strategy of Nepal.
Consequently, a liberal Trade Policy 1992, FDI and IT policy 1992 and
current account along with the capital account of the balance of
payment are made perfectly convertible.
b. Reform in foreign exchange
c. Reform in capital account

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Effects of Liberalization in Nepal

The effects of Liberalization in the Nepalese economy can be examined under

following headings-:

1. Growth of private sector- After Nepal adopted the policy of liberalization,

the private sector is found to grow tremendously. And also the government
consistently motivates the private sector to take the leadership in the
production management of primary, secondary and tertiary sector of the
country.
2. Rise of financial sector-A major structural change in financial sector
policies, regulations and institutional developments was made in 1980s.
Nepal has made significance progress in developing commercial banking
system in the country since then and already 35 commercial banks are
operating their financial services in the Nepalsese economy. The private
sector bank, collaborated bank and even foreign banks are also providing
their banking facilities to the Nepalese customers within the countries.
3. Increase in FDI- The huge impact of liberalization is observed in the inflow
of FDI towards Nepal. The mega hydro electricity projects, industrial sector
of manufacturing industries and such other sector have promoted billions
of dollars as FDI in Nepal. It will have positive impact in income
employment generation in Nepal.
4. Rise of multinationals- With the liberalization of economy, the number of
multinationals in Nepal has increased rapidly. The different MNCs like
cocacola, pepsi along with Aarti strips, Standard Chartered Bank and some
of the investors in hydro electricity management and such other business
organizations of multinational companies are already rendering their
services in Nepal.
5. Rising trade deficit- The external liberalization of economy has been a
reason of rocketing trade deficit in the country. Due to open economy the
import has increased in Nepal at cumulative proportion but the export of
the country remains stagnant or it increases by a nominal proportion.
Consequently, there is the huge deficit in the foreign trade of Nepal and it
is because of liberalization.
6. Development of money market and capital market- Due to the
liberalization policy of the government the money market is properly

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developed in Nepal. But the capital market is not developed according to
the expectation of the role of the government. Consequently the long term
investment sector like industrial sector remains backward in Nepal.
7. Changing role of government – With liberalization of the economy, the role
of the government is gradually changing to facilitator, motivator, promoter,
executor from the regulator. The government is gradually shifting to
developing infrastructures for economic development.
8. Changing market place scenario- With liberalization, Nepalese market is
greatly occupied by the imported goods. The demand for two wheelers,
mobile set, television sets, refrigerators, vacuum cleaner and fashion items
are increasing day by day. Hence, Nepalese market place scenario is
changing rapidly.

Capital market reforms

A capital market is a place that handles the buying and selling of securities. This
is the ideal place where both the governments and companies can raise their
funds. The capital markets of all the countries have undergone a number of
reforms in the past. Capital market reform enables the capital markets to
embrace new ideas and techniques affecting it. Capital market liberalization is
one such capital market reform that is adopted by various countries to strengthen
their economy. The concept of capital market is not restricted to the share and
bond trading in the developed capitalist countries only but is equally influenced
by the capital markets of developing and under-developed countries as well.
Now, the economic or financial change in one country can affect the capital
market of other country in real time. Almost all the countries are now exposed to
the inter-country trades and inter-country investments. The use of internet and
electronic media has added some more feasibility to the practice. Exchange of
information is fast and accurate with internet. Another advantage of this system
is that it brings the entire world in a single place. The capital market is one of the
industries that enjoys the maximum facility of the internet service.

Macroeconomic factors influencing competitive environment in

Nepal

1. Increase of private investment in core industries:Nepal's core

industries such as electricity, communication, transportation etc. were
conducted only by the government. But now the government has adopted
open door policy in all the sectors including these sectors except those
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related to defense and very important basic needs. This has paved the way
towards industrialization. As a result private investment in hydro power,
communication and other sectors is increasing.
2. Appearance of multinational companies:Nepal has adopted the
policy of open market and economic liberalization. It has forwarded special
policy to attract foreign investment. So, the foreign investor have entered
Nepal through multinational companies. Now hotels, banks, hydro power
projects, nursing homes, finance companies etc are being run in joint
venture with the members of WTO. Globalization has begun to influence
Nepal's business environment.
3. Rising informed and educated custsomers: In Nepal, the education
level of the people is increasing. Education enhances income and
determines consumer behavior. The informed customers exert (put) direct
or indirect pressure to the business for enhancing productivity and value.
4. Changing role of government- With liberalization and globalization
the role of the government is changing to facilitator from regulator. The
intervention of the government in the economic activities is gradually
decreasing over the years. The government has brought private sector
friendly laws and policies.
5. Use of modern technologies-The level of technology adopted by the
Nepalese business organizations is increasing over the years. The
manufacturing industries like cement, iron, food etc have started using
moder computer based technologies. The use of IT is increasing in
Nepalese service sectors. Use of technology prepares the Nepalese business
organizations to face competition at national as well as global level.
6. Integration to the world economy- Nepal has been following
liberalization policy since 1990. It has become the member of the regional
organizations such as SAARC and BIMSTEC. It also got the membership of
WTO. All these benefits Nepal in terms of market expansion.The open
market policy by the government has supported the trade diversification.
7. Shifting socio-cultural values- The socio-cultural values are found to
shift significantly over the years. Nepalese socitiesare found to be affected
by the western culture and values. Western festivals are getting popularity
in Nepal.
8. Shift towards service industry- In Nepal this sector is found to grow
significantly over the years. The banks, insurance companies and other
financial institutions have grown up rapidly over the years. Similiarly,
other service sectors as hospitals, schools, colleges etc have also grown up
in recent years.
9. Workforce diversity- This is also increasing in Nepalese organizations.
It is due to changing population dimensions. The workforce is being
diverse over the years due to age, gender and ethnicity. Diversity is viewed

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positively due to cost reduction, marketing, creativity and flexibility. Etc

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