Unit 2:

Macroeconomic Environment
TMC -BBA FOURTH SEMESTER- SECTION ‘A’
COURSE INSTRUCTOR- PRERANA
MAHARJAN
 Dimensions of an Economy:
 Dimensions of an economy refers to the facets(aspect) of economy of a
country. They reflect the economic development of a country which is
determined by several factors. Some of them are: demographic forces,
income level, income distribution, growth of agricultural & industrial
activities, development of service sector, level of employment, rate of
inflation, urbanization, globalization. These factors collectively determine
the soundness of an economy.
 The economic dimensions may be analyzed through four facets or
dimensions which are inter-related. They are explained below:
1. Economic Dimension
2. Socio-economic Dimension
3. Industrial & Agricultural Dimension
4. Economic Development Dimension
1. Economic Dimension:
The Economic dimension indicates the economic performance
of a country. Economic performance may be classified into:
Internal & External economic performance.
 The Internal economic performance includes gross domestic
products, income distribution, poverty level, personal
consumption, saving, debt, inflation, interest rate, fiscal
policy, monetary policies, etc.
 The External economic performance is reflected by balance of
payment, exchange rate & foreign trade volume.
 The economic dimension indicates the purchasing power &
pattern of consumption of the people.
2. The Socio-economic dimension:
The socio-economic dimension indicates the demographic features which
affect the economy directly or indirectly. It 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 &
capacity. The size, distribution, growth, age, gender, urbanization, migration
of the population are some of the important socio-economic factors that
affect business.
3. The Industrial & Agricultural Dimension:
Industry is related to production of goods & services. It is the secondary
sector of Nepalese economy. On the other hand, agriculture is the primary
sector of the economy. The industrial & agricultural dimension of an
economy reflects the potentials to supply goods & service to the consumers
& raw material to industrial units.
4. The Economic Development dimension:
The pattern of economic development of a country largely
depends on the system of national planning. The direction &
priority of the development of different sectors are reflects
by the development plans. They also portray(describe) the
development policies & strategies along with the
allocation(utilization) of resources in different sectors of
the economy.
 Major Problem & Challenges Facing
Nepalese Economy:
 Nepal is one of the poorest countries in the world. Besides a number of efforts for
the development of the country, the expected result has not been achieved due to
a number of problems & challenges. Following are the major challenges &
problems facing Nepalese Economy:
1. Development of Agriculture:
Modernization & commercialization of agriculture by increasing production &
productivity through an arrangement of agricultural inputs such as improved seeds,
fertilizers, irrigation, technology, skilled human resources is a challenging job/ task
in Nepal.
2. Employment Opportunity:
It is a challenging task to reduce dependency on foreign employment by creating
employment opportunities at home & reaping(obtaining) demographic dividend by
developing human resources as per the national needs & demand.
3. Resource Management:
There is a challenging task of economic development including
macroeconomic stability by creating the foundation for the mobilization of
resources as well as the availability, equitable distribution of resources
through out country.
4. Industrial Development:
There remains a challenge of increasing domestic production through
industrial infrastructure, decent labour relation, energy availability & the
production of quality goods & products.
5. Concerntration of investment:
It is a challenge to achieve high & sustained economic growth by
concentrating investment on the key drivers of growth: agriculture,
tourism, hydroelectricity & infrastructure.
6. Control inflation:
There remains a challenge of containing inflation rate within desired limit by
effectively managing supply through market monitoring & price information
system as well as managing the storage & distribution system of all the goods
including petroleum products.
7. Reconstruction Works:
Timely completion of reconstruction works by ensuring budget for the
development of modern settlement & the reconstruction of earthquake
damage private buildings, schools, health post, cultural heritages, public
buildings, social infrastructures has been a challenge.
8. Reduce dependency on foreign aid:
Reducing dependency on foreign aid for country’s development finance by
enhancing the development capacity & utilizing foreign aid for national
benefits is a challenging task.
 Employment Trends:
 With the increase in cost of living & desire of better facilities, people see for
employment. It is the main source of livelihood for people. Employment
condition is one of the indicators of economic development of a country.
 In Nepal, labour force is also grually shifting from agricultural sector to
other sectors mainly in service sectors. This has a large implication in both
social as well as economic development of the country.
 The employment trend in Nepal may be mentioned under the following
headings:
1. Rural Migration:
People are moving from rural to urban areas in search of new & better
employment. Urban areas provide big market where people can sell their
skill. People can also engage in different industries.
2. New Employment Opportunities:
Economic development of the country has also provided new
opportunities for the people. Construction & renovation activities have
provided job opportunities for local people.
3. Shift from traditional oppucations:
People are also gradually shifting from traditional occupation to new
job opportunities. They are giving up informal framing & old family
business like cottage & small industries & moving to new & modern
businesses.
4. Increase in skilled manpower:
With the increase in level of education, people desire jobs that match
their qualification. Training & education build skilled human resource,
& there is a high demand of technical manpower in industrial & service
sector.
5. Fair treatment:
Nepalese organizations today consist of diverse workforce. People
with different religion, cast, culture, race & skill work in an
organization. It is also very important that the organizations treat
their employees equally & provide a fair treatment. Workers should
be provided with growth & opportunities, they should be satisfied.
6. Increase in foreign employment:
In recent years, there is significant increase in foreign employment.
People move to different countries where they get good earning.
Foreign countries demand labour force from Nepal which opens door
for foreign employment. Remittance from foreign country is one of
the major contributors of Nepalese GNP(Gross National Product).
 Labour Market Issues:
 Labour is one of the factors of production. It makes other factors of production
functional and dynamic.Labour market is a market where workers seeking jobs
& employers(owners) interact each other. It refers to the supply & demand for
labour. In labour market, the employers compete each other to hire talented
workers.
 The labor market determines the allocation (distributing) of labour & its costs.
It is one of the important aspects of national economy. There are many issues
governing labour market in Nepal. Such issues may be highlighted through the
following points:

1. The first issue is of National Manpower Planning. Despite the planned

development experiences of more than six decades, we do not have a manpower
plan which clearly spells out the demand and supply situation of human resource
in the country. This lacking misses the interface between education and labour
market, making our education system ineffective.
2. The second issue which is also related to the first one is about equipping
the manpower with skills required for the local and global markets. The
available data reveals that most of our labour force is unskilled. Even many
of the school and college graduates are lacking required skills for the
contemporary labour market. This skill gap has necessitated the imports of
skilled and expensive foreign labour and, in the meantime, exports of large
number of cheap domestic labour force to the Gulf and Malaysia.

3. Thirdly, developing labour market information system has also been a

critical issue in the Nepalese labour market. The lack of such a system
undermines the efficient and effective labour market operation and the
productivity of the whole economy. Workers are unaware of job availability
while the employers are unaware of labour availability.
4. The fourth issue is about fixing labour laws and regulations. Since this
issue is related to labour governance, it affects the smooth mobilization of
labour and determines the productivity of labour. There is a
persistent(constant) need to carry out a host of labour market reforms.

5. The fifth issue is related to ending informality. Only four per cent of
Nepal’s labour force works in the formal sector. Informal sector is largely
characterized as lacking descent working conditions such as social
security, minimum wage and occupational safety and health. Under such
a situation, Nepalese labour force cannot contribute much to the national
economy, rather a situation of disguised exploitation prevails (powerful).
Work must be liberating and freedom-giving to realize the essence of
human development. Only formalisation of employment can ensure this.
6. The sixth issue is about a thorough implementation of National
Employment Policy, 2071. For this, there is an urgent need of
mainstreaming(estabilshing) employment in sectoral development
policies. This is a momentous(important) task which demands for critical
coordination and accommodating(cooperative) mindset from various
sectoral agencies.

7. Designing and implementing National Employment Guarantee Schemes

has been identified as the seventh pertinent(relevant) issue for our labour
and employment sector. In India such schemes have become quite
successful in reducing poverty, unemployment and inequality at the same
time.
 Migration & Foreign Employment:
 Migration is the movement of a person or group of people to
settle in another place. Migration can be both internal or external,
temporal or permanent.
 Migration is a major component of population change. People
migrate for several purpose that may be for education, security,
employment & better facilities. There is a high tendency of
migration in Nepal. People living in Himalayan & Hilly region
migrate to Terai in search of better opportunities & living
standard. Similarly people migrate to big cities like Kathmandu,
Pokhara , Biratnagar where people feel there are abundance of
opportunities.
 A significant proportion of the population from Nepal migrates abroad for foreign
employment every year & remittances contributed approximately 25 % of the
country’s Gross Domestic Products(GDP) during the last 10 years. Lack of
employment opportunities to Nepalese labor market, education, low
remuneration, culture of not respecting job, technology, increased expectations of
youth are the major factors for increased outbound(leaving) trend among the
Nepalese youths.
 A total of 47,92,000 individuals have gone for foreign employment until mid-
March 2019 & this 45,55,000 were male & 2,37,000 were female.
 Foreign employment is significant in transforming the country’s economic, social
& cultural fabric. Nepal has emerged as a remittance economy due to foreign
employment.
 There is a significant increase in international migration over the years. People
moving abroad are increasing annually. Thousands of youths have been leaving the
country for employment. Major destination for foreign employment includes Qatar,
United Arab, Saudi Arabia, Malaysia, etc.
 Economic Development Plans of Nepal:
 Economic Development Plans aim to achieve the economic goals of
the country through proper policies & resources mobilization. They
provide comprehensive overview of the economy, set policy
directions, identify strategies, programs & projects to develop the
economy.
 The planned economic development in Nepal started in 1955 with
the establishment of Planning Board. From the inception of the first
five year plan in 1956, Nepal has recently completed 14th three year
plans covering the periods between (2016/17 to 2018/19).
 A brief overview of the economic development plans in Nepal is
presented below:
1. First Five Year Plan (1956-1961):
The main objectives of this plan were to increase production &
maximize employment opportunities. Because of limited knowledge &
experience of the Planning Board, there were serious shortcomings in
the plan itself. Despite this, some significant results were achieved.
Little progress occurred in road, power, & industrial development. The
total expenditures were Rs 210 millions. The significance progress in
the fields of education & health. Overall, it created foundations for
economic development.
2. Second Three Year Plan(1962-1965):
It was a three year plan which had allocated expenditure of almost Rs
615 million. The objective were similar to the first five year plan.
Transportation & communication received the top priority. The bulk of
development budget relied on foreign aids mostly from grants.
3. Third Plan (1965-1970:
The main objectives of this plan were to increase agricultural production,
develop basic infrastructures, & develop industrial sector & foreign trade.
The total planned expenditures were more than Rs 1.6 billion.
4. Fourth Plan (1970-1975):
The main objectives of this plan were to increase the production, establish
economic infrastructure, expansion & utilization of labour force available &
diversification of foreign trade. The plan proposed expenditure to more than
Rs 3.3 billion. Transportation & communication were given top priority.
5. Fifth Plan (1975-1980):
The proposed expenditure was more than Rs 8.8 billion for this plan. The
problem of poverty was addressed for the first time in this plan. The concept
of decentralization emerged. Top priority was given to agricultural
development in this plan.
6. Sixth plan(1980-1985:
During this plan the proposed outlay(an amount of money spent) was more
than Rs 22 billion. Agriculture given the top priority followed by social services.
7. Seventh Plan(1985-1990):
The proposed expenditure for this plan was Rs 29 billion. It encouraged private
sector participation in the economy. It aimed at increasing productivity of all
sectors, expanding employment opportunity & fulfilling minimum basic needs.
For the first time, specific goals were set for meeting basic needs.
8. Eighth Plan (1992-1997):
This was the first plan after the restoration(renewal) of democracy brought by
historic people’s movement of 1990. its main objectives were to obtain
sustainable(continued) development of the country through poverty
alleviation(reduction) & reduction of regional imbalance.
9. Ninth Plan(1997-2002):
The main objectives of the ninth five year plan was poverty alleviation(reduction) & economic
& social empowerment of the people.
10. Tenth Plan(2002-2007):
Like the ninth plan, the main objective of this plan was also poverty reduction.
11. Eleventh Plan(2007/08-2009/10 ):
The main objective of this plan was to reduce unemployment, poverty & inequality existed in
the country.
12. Twelfth Plan(2010/11-2012/13):
The main objective of this plan was poverty alleviation, establishment of sustainable peace
through employment, equitable economic growth.
13. Thirteenth Plan (2013/14-2015/16):
The fundamental objective of this plan was to upgrade Nepal from least developed to
developing country by achieving the Millennium Development Goal(MDGs are eight
international development goals with measurable targets & clear deadlines for improving the
lives of the world’s poorest people). It focused on sustainable development & human rights.
14. Fourteenth Plan(2016/17 to 2018/19):
National Planning Commission (NPC), the apex(most important) body that
formulate the country’s development plans, has endorsed(declared approval) the
14th periodic plan (2016/17 to 2018/19), based on which the government will frame
development policies & programs in the coming years.
Its focus is on reducing absolute poverty, sharing economic propensity(tendency to
save with the given level of income in the economy), post-earthquake reconstruction,
development of physical infrastructure & good governance. An investment of Rs
2,425 billion at constant prices will be required over the three-year period.
 Vision: Independent, prosperous(successful) & socialism oriented national
economy & affluent people.
 Goal: To reach the level of middle income country by being welfare state with
social justice.
 Objectives: Socio-economic transformation by reducing poverty through high
economic development, productive employment generation & rational income
distribution.
 Strategy:
 Increase output through transformation of agriculture sector &
expansion of tourism, industries as well as small & middle
businesses.
 Promote high & sustainable human development by emphasizing
social development & security.
 Building infrastructures for the development of road, air
transportation, information & communication, rural-urban
development.
 Gender equality, environmental protection, utmost utilization of
science & technology & enhancement of institutional capacity.
 Promote good governance by economic, social & governance reforms,
efficient & accountable finance, fair, transparent & people centric
public service, protecting & promoting human rights.
15. Fifteenth Five Year Plan(FY 2019/20 to 2023/24):
National Planning Commission the apex body responsible for formulating the
country’s development vision unveiled(announced) the 15th five year plan (FY
2019/20 to 2023/24) based on the Slogan of “ Generating Prosperity & Happiness”.
The plan has set a target to achieve a minimum average economic growth of 10.3 %
per annum in the next five years.
The periodic plan projects that the country’s agriculture, industrial & service sectors
will grow an average growth of 5.6 %, 17.1% & 9.9 % growths per annum respectively.
 National Objectives:
 To create base of prosperity through accessible, qualitative & modern
infrastructure, respectful employment promotion, high sustainable & inclusive
economic growth & poverty eradication.
 To protect sovereignty(power/authority), autonomy(freedom) & national interest
through socio-economic transformation & self-reliant (self-sufficient) economy.
 To ensure respectful & improved livelihood to the people by enhancing the
federal system through qualitative health & education, healthy & balance
environment, social justice & accountable public service.
 National Strategies:
 Enhancement of production & productivity
 Achieve speedy, sustainable & employment oriented economic growth
 Protection, mobilization & uplift of natural resources
 Development of internally & internationally interconnected & sustainable city &
villages
 Provide complete, sustainable & productive social security & preservation
 Ensure accessible & qualitative health services & education
 Improvement in public services, promotion of provisional balance & national
unity
 Creation of just society with poverty eradication & socio-economic equality
 Industrial Sector:
 Nepal is a least developed country. The government has set an
ambitious(progressive) goal of uplifting it from the least
developed country to developing country by 2022. This requires a
rapid economic development in the country & the role of industrial
sector is prominent(important) in this regard.
 The history of modern industrialization in Nepal was started in
1936 with the establishment of Biratnagar Jute Mill. After this
Morang Cotton Mill(1941), Morang Sugar Factory(1946) were
other industries in Nepal. After the establishment of democracy in
1950 & adoption of the concept of planned economic development,
the pace(rate) of industrial development is found to be
accelerated(speed up) in Nepal.
 Industrial sector is of great importance for economic development of the
country. Industrial sector plays vital role in reducing trade deficit(when a
country’s imports exceed its exports) by transforming import based
economy to production & export oriented economy. Industrial sector in
Nepal has helped to utilize local resources, means & technologies, make
goods & services available & create employment opportunities in the
country.

 Performance of the Industrial Sector:

1. The Industrial Enterprise Act, 2019 has recently been
promulgated(announced).
2. By the mid- March 2019/20, the portion of large, medium & small industries
remained 14%, 23% & 63% respectively. On the basis of investment-large,
medium & small industries hold 87%, 9% & 4% respectively.
3. The total investment in industries by mid- March 2019/20 remained
Rs 210.15 billion creating total employment of 6,14,827
4.The number of production oriented industries account 37% followed
by service oriented industries 27%, tourism industries 22% & other
the rest.
5. Bagmati province(region) has the highest number of industries-
5,419 whereas Karnali province has the lowest number of industries-
72.
6. The sanctioned(licensed) foreign investment by the Investment
Board till the mid-March 2019/20 was Rs 155 billion.
7. The foreign investment in industries accounted to 40% in energy, 19
% in service, 18% in production, 16% in tourism & the rest in others.
They are expected to generate 2,67,132 employments.
8. Chinese investment is the highest i.e 44% followed by Indian
investment i.e 30%.
9. Due to the global Covid-19 pandemic, the total value added of
production oriented industries is expected to be negative by 2.3%.
The contribution of industrial output in last 5 years averaged 55%.
This is expected to be 5.1% in 2019/20.
10. By the mid-March of 2019/2020: 51,602 trademarks, 79
patents & 204 designs have been registered as intellectual
properties in Nepal.
11. The business environment in Nepal is improving. According to
the Doing Business Report-2020 published by World Bank, Nepal
ranked 94th position with 63.2 score out of 190 countries for 2020.
the rank was 110th with 59.63 score in 2019.
 Challenges/Constraints/ Issues of
Industrial Sector in Nepal:
 The following are some of the challenges of Industrial Sector in Nepal:
1. Government policy & regulation:
The state(gov) regulations governing the industries in Nepal are found to
be complex. The industrialists perceive the income tax & VAT regulations
to be unfavorable for them.
2. 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.
3. Lack of physical infrastructures:
There is lack of physical infrastructures such as transportation,
communication, etc to support industries. The existing physical
infrastructures are also not fully utilized.
4. Lack of energy:
Lack of adequate energy for the smooth operation of industrial sector
has been another problem of Nepalese industrial development.
Massive load shedding has been a major reason of poor productivity
of industrial sector in Nepal.
5. Weak technology:
Nepalese Industrial Sector has been using a very low level of
technology. It affects the quality of industrial products adversely with
increased cost of production leading to lower industrial productivity.
6. Lack of Security:
Lack of security has been another major problem of Nepalese
industrial sector. Crime, forced donation, theft & kidnapping are
widespread in Nepal. The level of industrial security is low in Nepal so
it has adversely affected the industrial development in Nepal.
7. Labour regulation& & labour unions:
In Nepal, the roles of labour regulation & labour unions are also not
found constructive towards maintaining favourable industrial
relations. Industrial conflict, dispute are very common in Nepal. Many
industries are shut down due to labour management issue. However,
the Labour Act 2017 has addressed many issues.
 Agricultural Sector:
 Traditionally, Agriculture has been a major or primarily occupation for
livelihood in Nepal. Hence, Nepal is known as agricultural country. However,
the contribution of the agriculture sector to the economy is declining while
that of industries & service sector is gradually increasing in Nepal.
 The share of the agriculture sector in GDP is 28.9% while about two third of
population is engaged in this sector. Nepalese agriculture sector is
characterized by subsistence(fact of maintaining or supporting oneself,
especially at a minimal level) farming, low productivity, lack of
commercialization, dominance(superiority) of food crops, poor linking with
other sector, inadequate credit & unequal distribution of landholding.
 The development of Nepal is largely depends on development of agriculture
sector. Hence, there is a need to implement agriculture policy & programs
that help improving agro-based industry(farmers, manufacturers of
farm equipment, and importers and exporters of farm products) while
raising production & productivity of this sector.
 Features of Nepalese Agriculture Sector:
 Less than 20% of its land is cultivable.
 Agriculture is the main source of food, income & employment for the majority of
the population.
 Subsistence farming-not from commercial point of view.
 Monsoon based farming, poor irrigation(the supply of water to land or crops to
help growth) facility.
 Suffers frequently from natural calamities as floods, earthquakes, landslides, cold
weather etc,
 One third of GDP & more than 50% of the Nepalese export depend on agriculture.
 Low productivity due to poor irrigation, inferior (low/ poor quality) seeds, use
of traditional technologies.
 Lack of crop diversification(variety of crops).
 Issues/ Challenges of Agriculture
Sector:
 Nepalese Agriculture is in a low development stage. The majority of the
population is engaged in agriculture, productivity & competitiveness of
this sector are low, adaptation of improved technology is limited & even
though most cultivated area is devoted to cereals, there is a growing food
trade deficit & malnutrition is high.
 Some subsectors such as tea, poultry, dairy, fisheries, vegetable seeds
show dynamism but overall these positive signs are not yet sufficient to
lift a large number of people engaged in agriculture out of poverty &
make a dramatic dent (reduced) in reducing malnutrition & assure food
security of the nation.
 The following are some of the issues for the development of agriculture
sector in Nepal:
1. Productivity:
Improved productivity of land & labour is at the
cornerstone(foundation/base) of the agriculture development in Nepal.
Agricultural productivity requires the adaptation of appropriate
technologies & know-how to increase efficiency & sustainability of
agricultural production consistently with market demand & food security
needs of subsistent(the action supporting oneself at a minimal level)
farmers.
2. Governance:
Governance refers to the capacity of government to design, formulate &
implement policies & discharge functions. Key elements of governance
include: accountability, participation, predictability & transparency.
Enhancement of governance is a key issue of agriculture development in
Nepal.
3. Commercialization:
For the development of agriculture sector in the country, the agriculture
carried out solely for subsistence(maintenance) & by default(i.e no other
livelihood or household food security options are available to the
household), should be transformed into a sector in which the vast
majority of farming is carried out for commercial purposes which is
connected to the local, national & international markets.
4. Farmers’ rights:
While forming agriculture related policies, farmers should be
participated. They should be consulted when formulating policies for the
agricultural sector & undertaking monitoring of the sector. By having
their representatives in all these institutions, farmers will be able to
ensure & strengthen their rights.
5. Competitiveness:
The core focus of agriculture sector should be on
competitiveness. Competitiveness is founded on a
competent(skilled), hard-working & efficient work force, a
clear understanding of what makes Nepal unique in the
global market place, & the determination &
entrepreneurship to maximize productivity & innovate with
new products & processes based on the country’s natural
environment.
 Economic Policies:
 Economic policy refers to the actions & guidelines of the
government for the economic development of the country. It
covers the systems for setting levels of taxation, government
budgets, money supply & interest rates as well as the labour
market, national ownership & many other areas of
government interventions into the economy.
 Some of the notable economic policies in Nepal are
discussed below:
 Industrial Policy, 2010:
 Nepal is a member of the WTO(World Trade Organization), SAFTA(South Asian
Free Trade Area) & BIMSTEC(Bay of Bengal Initiative for Multi-Sectoral Technical
& Economic Cooperation) & its connectivity with world market has expanded.
 In such a situation, Nepalese industries are required to enhance productivity &
demonstrate professional expertise taking into consideration thhe global
competitiveness. For this, they require quality of products, transparency in
commercial transaction & regular analysis of market trends.
 The main problems of industrial development in Nepal are political instability,
weak industrial infrastructures, lack of competent human resources, lack of
capacity to adopt new technology, low productivity, etc.
 The Industrial Policy 2010, attempts to cope with challenges posed by
globalization, address the increasing roles of service industries in the economy
of the country, involvement of private sector in building infrastructures & human
resources. It emphasized the promotion of micro enterprises, cottage & small
industries & women entrepreneurs.
 Policies:
1. Priority to develop or acquire new technology to enhance
competitive capacity, quality & productivity of industrial products
& services.
2. Special emphasis to promote the industries that use local
resources, raw materials, skills, labour, technology.
3. Follow the no pay for no work principle as provided by the labour
law with a view to enhance productivity & strengthen industrial
relationship as a strong basis of industrial development.
4. Technical & financial assistance to the industries that use
environment-friendly & energy saving technology on their own
costs.
5. Identification & utilization of the areas of comparative
advantage to make the industrial bas strong & sustainable.
6. Formation of industrial security force for strengthening
industrial security.
7. Encouragement to the non-resident Nepalese to invest in
Nepal.
8. Reform(improve) in macro-economic policies, revenue policy, local
tax & other sectoral policies.
9. Adherence(supporting) with multilateral(having members from
several groups/countries) & regional agreements.
10. Institutional arrangement of institutions like Investment Board,
Industrial Promotion Board, Industrial Human Resources
Development institution & Nepal Business Forum.
11. Capacity enhancement activities for development of industrial
skills & entrepreneurship & sound industrial management to create
self-employment opportunities.
12. Special measures to promote green industries & to make the
established industries pollution free & zero to carbon emission.
13. Protection of industrial intellectual property rights to encourage
the use of intellectual property.
14. Institutional structure & infrastructure along with necessary legal
provisions to support, promote, develop & expand micro enterprise,
cottage & small industries.
15. Special provision for production & market promotion of the
products of micro enterprises, cottage & small industries.
 Privatization Policy:
 Privatization is the process of transferring of ownership,
property or business from the government to the private
sector. Privatization of public enterprise is one of the
important aspects of economic liberalization(removal of
restrictions on economy) in Nepal. Its main goals are
enhancing productivity, rescue government from budgetary
burden & effective resource allocation.
 Privatization has been taken as a means of improving the
performance of public enterprises. In Nepal, Privatization
efforts were initiated in early 1990s. It is a part of public sector
reform(improve). In Nepal, altogether 30 public enterprises
have been private till the date.
 Privatization Policy & Practices in Nepal:
 The Privatization Act, 1992 defines privatization as involving
private sector in the management of the enterprise or sell or lease
it or to transfer government ownership to the private sector or
workers or employees or desirous(desiring)groups either wholly
or partially.
 The main features of Privatization Act, 1992 are as follow:
1. Formation of Privatization Committee:
A Privatization Committee is formed to organize the privatization of
enterprise under the chairmanship of the minister or state minister
for finance. The committee may invite the chief of the enterprise,
labour representative & any distinguished economist in its meeting.
2. Powers, functions & duties of the committee:
The Powers, functions & duties of the committee are as follows:
• To recommend, programs & priorities of privatization
• To conduct study or research in order to formulate privatization
programs
• To evaluate the enterprise & recommend to the government
• To remove hindrances( delay/obstacle) faced in privatization
programs.
• To follow-up the decisions & agreements relating to privatization
• To constitute sub-committee as may be necessary
• To perform other works, if necessary
3. Process of privatization:
The process of privatization has been specified as:
 Sale of shares
 Formulation of cooperatives
 Selling assets of the enterprise
 Leasing out the asses of the enterprise
 Involving private sector in the management of the enterprise
 Adopting any other modalities(mode/method) considered
appropriate by the government on the basis of the
recommendation of the committee.
4. Evaluation of proposal:
The proposal of privatization is evaluated on the following
basis:
 Attractive price
 Management of the enterprise without changing its nature
 Retention(continuing) of the service of present workers &
employees
 Enhancement of the employment opportunity
 Managerial experience
 Expansion of the enterprise & business by preparing a
good business plan & making additional investment.
5. Settlement of dispute:
If any dispute arises, it is resolved through mutual consultation among the concerned
parties.
6. Continuity of the present workers:
The Government may ensure the continuity of service of the present workers of the
enterprise to be privatized.
7. Liquidation(process of bringing a business to an end & distributing its assests to
claimants) of enterprise:
 The government can dissolve wholly owned enterprise by publishing a notification in
Nepal Gazette(newspaper/journal/magazines).
 All arrears (balance) due to the enterprise liquidated(close down) are recovered as
government dues.
 The government may transfer the assets & liabilities of the enterprise liquidated to
any other body.
 If all liabilities(dues/debt) of the enterprise could not be fully settled from the assets
of enterprise, the residual(remaining/ excess) liabilities can be settled according to
existing laws.
 Commerce/Trade Policy, 2015:
 Nepal Government has issued new commerce policy, 2015 which replace
the earlier Commerce Policy, 2008 & help reduce trade deficit(a situation
where the value of imports are greater than the value of exports) through the
utilization of opportunities provided by world trade system incorporating
issues including developing harmony between Commerce Policy & Nepal Trade
Integration Strategy, enhancing supply related capacity, increasing production
& productivity, protecting & promoting service, trade & intellectual property,
making arrangement for monitoring corporate social responsibility, trade &
environment.

 This policy has incorporated the task of transforming the existing Trade &
Export Promotion Center into an autonomous(self-governed/powerful)
institution naming Trade Promotion Academy with the arrangements of
necessary organizational structure & resources. This policy consists of a list of
possible export items with 26 goods & 7 Services.
 Long-term Vision:

“Achieve economic prosperity(profitability) by enhancing commerce

sector’s contribution to national economy through export promotion”.
 Goal:

To achieve inclusive(full) & sustainable(continued) economic growth

through export promotion
 Objectives:
 To increase access of goods, services & intellectual property to the
regional & global markets
 To enhance supply related capacity, reduce trade trade deficit by
increasing exports of value added & competitive goods & services
 Strategies:
 Government shall play the role of coordinator, facilitator,
regulator to enhance active participation of the private sector.
 Reduce trade deficit by strengthening supply-side capacity.
 Reduce transaction cost through trade facilitation &
institutional strengthening.
 Enhance competitive capacity of the products of comparative &
competitive advantage for export promotion.
 Enhance the competitive capacity of exportable service sectors.
 Mainstream(Influence) trade in order to establish it as a major
component of economy.
 Strategy to increase access of goods, services &
intellectual property to regional & world markets:
 Expand market & enhance trade capacity by means of
multilateral(more than two parties/countries), regional &
bilateral(involving two parties/countries) mechanisms & trade
diplomacy(skills)
 Link trade in goods & services to regional & global production
network by strengthening & making them competitive as well as
complementary to each other.
 Increase access of Nepalese products to world market by
promoting & protecting trade related intellectual property
rights.
 Tourism policy, 2008:
 Nepal is well known in the global tourism map as a major tourist
destination due to its abundance(very large quantity) of unique
natural beauty, rich bio-diversity, multi-ethnicity, variety of religions
& languages, social heterogeneity(consisting of people from lots of
different backgrounds) & historical as well as cultural heritage. Such
national heritages are the foundations of Nepal for maximizing
benefits from tourism by attracting global tourists.

 Tourism would be a source of livelihood & employment opportunities

& improve the standard of living of the Nepalese population. For this,
diversification & expansion of this business is must & its is essential to
protect & preserve the heritages of Nepal as well as grow the tourism
service industry quantitatively & qualitatively.
 The following are some features/ characteristics of Tourism Policy,
2008:
1. Emphasis on promotional activities to attract the tourists in Nepal.
2. Emphasis on Rural Tourism, community based Tourism & Home-stays
3. Priority to internal tourism
4. Diversification, growth & expansion of tourism through the following:
*Mountaineering *Business Tourism *Adventure Tourism
*Trekking *Cultural Tourism *Religious Tourism
*Rafting *Sports Tourism *Casino
*Cinema Tourism *Educational Tourism *Health Tourism
*Agricultural Tourism
5. Development of air services
6. Focus on human resource development for tourism development
7. Reforms(improve) in legal, administrative, managerial & structure
aspects
8. Leading role of private sector inn tourism development
9. Focus on tourist security & crisis management
10. Extensive use of information technology & data in tourism management
11. Provision of coordination, supervision & evaluation
12. Emphasis to environmental protection for tourism development
13.Recognition to tourism as industry & facilities to the industry
14. Formation of Tourism Coordination Committee, Crisis Management
Committee
15. Activation of Tourism Council(Apex body chaired by the prime minister)
 Policy:
 The participation of the private sector will be sought to the maximum
extent for the development & diversification of tourism products &
services. The involvement of government will be primarily directed
towards infrastructure development & will maintain its role as motivator &
coordinator for the growth of the tourism industries.
 Existing tourism infrastructure & facilities will be upgraded. Priority will
be given to developing new tourist destinations, particularly in rural areas.
 Participation of the Nepalese people in the integrated manner will be
carried out for environmental conservation programmes which contribute
to sustainable tourism development.
 Popular religious tourism sites will be improved & promoted in order to
develop religious tourism.
 Nepal will be developed as a centre for adventure tourism.
 Tourist service & facilities will be encouraged to upgrade in quality.
Special efforts will be made to make Nepal a secure place for tourists.
 Local investment will be encouraged in service-oriented, travel &
trekking agency businesses in which local investors have proven
capability. Foreign investment, including joint ventures, will be
promoted in areas which transfers skills & technology or in capital
intensive industries like hotels & resorts.
 Competitive tourism promotion & marketing will be launched in tourist
originating markets to establish Nepal as a major tourist destination.
 Due attention will be paid to improving regional imbalances while
developing tourism.
 The National Civil Aviation Policy will be implemented as an integral
part of Tourism Policy.
 Monetary Policy:
 Monetary Policy is a macroeconomic policy. It is concerned with monetary
system of a country. It is formulated & implemented by the Central Bank.
It involves management of money supply & interest rate.
 Monetary policy used by the government of a country to achieve
macroeconomic objectives like economic growth, price stability, balance
of payment stability, full employment etc.
 The objectives of monetary policy are as follows:
 To increase investment for full employment
 To stabilize the price level since fluctuations in prices bring uncertainty &
instability in the economy
 To maintain equilibrium( in the balance of payments.
 To have rapid economic growth with stability
 Monetary Policy, 2020/2021:
 Nepal Rastra Bank promulgated(announced) the monetary policy for 2020/21 on
17th July 2020. The policy attempts to address economic effects of the Covid-19
Pandemic & focuses on economic stability by achieving economic growth of 7% in
2020/21. The new monetary policy has got all the applause(approve/ praise) from
lobby groups such as commercial banks & private sector businesses.
1. Commercial banks need to lend at least 15% to the agriculture sector, 15 % to
micro, small & medium enterprises & 10% to the hydropower sector of their total
loans.
2. Extension of the deadline for paying loan installments up to one year depending on
the degree of impact on the particular sector to ease the pains on the businesses
caused by the pandemic.
3. Provision of refinance(process by which one loan is replaced by another loan)
funds up to five times to revive(resue/renew) the businesses severely hit by Covid-
19.
4. Encouragement to merger among Banks & Financial Institution(BFIs).
5. The Capital plus Credit to Deposit ratio(CCD ratio-is the limit till which
the banks are allowed to issue the loans & advances) has been raised to 85%
from 80%. It will enable BFIs to release an extra Rs. 183.3 billion in loans.
6. The issuance of licenses for new finance companies has been
halted(end/stop) for the time being.
7. Barred(blocked) the BFIs from charging fees on interbank ATM
withdrawal.
8. Provision of a fund worth Rs. 50 billion through which badly affected
sectors like tourism & micro, small & medium enterprises get loans at a 5%
interest rate for reviving the enterprise & paying staff salary.
9. Ensure adequate foreign exchange reserves to cover seven months worth
of imports of goods & services, adequate liquidity to facilitate economic
recovery, 18% growth in money supply, & 20% credit growth to the private
sector.
 Liberalization of the Nepalese Economy:
 Economic liberalization refers to “opening up” a country to rest of
the world with regards to trade, regulations, taxation & other
areas that generally affect the business sector. Economic
liberalization is the gradual process of lessening(minimizing)
government regulations & restrictions in the economy. It
advocates(promote) greater participation of the private sector in
the economic activities. It also involves combining the economy
with rest of the world.
 Liberalization is the removal of government controls to
encourage economic development. The goal is to maintain or
increase economic competiveness by encouraging private sector
on competitive basis by reducing government interference.
 Liberalization is a non-interventionist approach to development. It can
be achieved through reducing public expenditures, privatizing
government owned-enterprises, deregulation & de-licensing, subsidy(a
sum of money granted by the state to help the business) provided by the
government to different sectors of the economy. Liberalization policy is
based on assumption that private sectors are more efficient than public
sector.
 In Nepal, the liberalization policies were implemented from 1990 with
predominant emphasis on privatization & open market policies. After
the adaptation of these policies, a new industrial policy was enacted
in1992. it abolished the licensing system giving priority to the
promotion of export oriented industries & subsidies on fertilizer,
essential goods & services were reduced. Different acts & policies were
promulgated(announced) & implemented as parts of liberalization
process. Some of them are Industrial Policy, 1992 & 2010, Foreign
Investment Policy, 1992, Labour Act, 1992 & Tourism Policy, 2008.
 Internal & External Liberalization:
A) Internal Liberalization:
The internal liberalization in Nepal takes various forms as mentioned below:
1. Financial sector reforms(improve):
The main objective of financial sector reform is to support the effort of the government to
create a sound market oriented financial system for macroeconomic stability & private
sector led economic growth. The financial sector reform includes the following:
 The banking sector is opened for foreign investment.
 The commercial banks are allowed to accept current & fixed deposits in foreign
currency.
 Deregulation of investment rate regime(arrangement) in which the commercial banks
are allowed to fix their interest rate.
 Restructuring of Nepal Bank Limited & Rastriya Banijya Bank.
 Enactment(passing) of the NRB Act, 2002, Debt Recover Act, 2002 & Banking &
Financial Institution Act, 2006.
2.Fiscal Reforms:
These include tax reform, strengthening financial system, deregulation of
interest rate & convertibility of Nepalese currency. Some of them are:
 Introduction of VAT
 Introduction of export duty drawback(disadvantage) &
bonded(guaranteed) warehouse.
 Private sector is allowed to borrow money from foreign sources.
 Provision of open general license.
3. Monetary policy:
Internal liberalization through monetary policies includes:
 Deregulation of interest rate policy
 Deregulation of foreign exchange rate determination policy.
 Privatization of public owned enterprises.
4. One window Policy:
One window policy has been brought to provide quick & effective way the approvals,
facilities & other administrative services to industries.
5. Removal of subsidies:
The government is gradually reducing the subsidies provided to different sector of
the economy.
6. Public sector reform:
The government has the policy of not setting up new public enterprises. It is
focusing on privatization of the public enterprises.
7. Insurance sector reform:
The private sector is allowed to open insurance business as a part of liberalization
program.
8. Capital market reform:
The external liberalization takes the form of reforms in trade sector & reforms in
B) External liberalization:
The external liberalization takes the form of reforms in trade
sector & reforms in foreign exchange.
1. Reforms in trade sector:
In the early period of 1990, trade policy had been changed from
Import Substitution Industrialization(ISI) policy to export led
economic growth strategy. Stringent (strict) restrictive barriers
were rationalized(attempt to explain). Imports were freed to assist
export. The reforms in the trade sector were also promoted by the
Industrial Act, 1992 & Foreign Investment & Technology transfer
Act, 1992. These two acts fully made current account convertible &
capital account partially convertible.
2. Reforms in foreign exchange:
It includes current account reform & capital account reform.
 Current Account Reform: From 1993, foreign exchange has been made
fully convertible. The foreign exchange market is converted to floating
system but it is still pegged(fix at a particular) with Indian currency.
Commercial banks are allowed to keep their balance abroad.
 Capital Account Reform: Effective from 1991, Nepalese working in
international agencies based in Nepal can keep their account in
convertible currencies if they receive salary in such currency. Similarly
Nepalese working aboard also can keep their account in convertible
currency in local bank. Commercial banks can provide loan to
exporters in foreign exchange & central bank started to refinance area
to commercial bank in US currency from 1998.
 Capital Market Reforms:
 Capital market also called security market refers to the part of a
financial system concerned with raising capital by dealing in bond,
shares & other long-term investments. It plays an important role in
mobilizing(organizing/managing) savings & channels (passes)
them into productive investments for the development of trade &
industry. Hence, it helps in capital formation & economic growth of
a country.
 Securities Board of Nepal(SEBON) was established by the
Government of Nepal on June 7, 1993 as an apex (main) regulator of
Securities Markets. It has been regulating the market under the
Securities Act, 2006.
 Some of the capital market reforms in Nepal are:
1. The foreigners are allowed to invest in the stock exchange. The
NEPSE(Nepal Stock Exchange Limited) is in the process of privatization.
2. 15% income tax exemption(deduction) for firms that issue shares to
public.
3. There will not be any regulatory intervention in pricing of IPO(Initial
Public Offering) & price will be determined based on demand from
investors & how much they desire to pay per unit share.
4. International financial institutions are allowed to issue local currency.
5. A fully automated system at NEPSE is implemented covering trading
automation & clearing & settlement automation.
6. Develop a compatible system for cross-border trading/listing to bring
investment from foreign institutional investors & non-resident Nepalese.
 Factors Contributing to Competitive Business
Environment in Nepal:
 The business environment in Nepal has changed significantly over
the years. Globalization & emergence of information technology
have exerted(bring) massive impact on the business environment in
Nepal. Significant changes may be notices in economic, political,
socio-cultural, technological Legal environment of business in
Nepal. All these changes are making the business environment in
Nepal more competitive.
 The following are the important factors contributing to competitive
business environment in Nepal.
1. Increased private investment in core businesses:
Core(main) businesses are those businesses that need heavy investment & high level
of managerial capability. Some of the core businesses in Nepal are communication,
electricity, transportation. These business were conducted only by the government
before the government pursued the liberalization policy. Increased private
investments in core businesses in Nepal have contributed to make the business
environment more competitive.
2. Rise of financial institutions:
By the Mid-March, 2019, 27 commercial banks, 23 development banks, 22 financial
companies, 89 micro finance institutions & 1 infrastructure companies, 34,837
cooperatives, employee provident fund, citizen investment trust & postal saving
bank are also in operation.
Due to rise of financial institutions, the business sector has better access to capital.
It has also enabled the business sector with improved risk management & lower
transaction costs. All these factors are contributing to competitive business
environment in Nepal.
3. Rise of multinationals:
With the liberalization of economy, the number of multinationals in Nepal has increased
rapidly. The multinationals companies are coming Nepal in collaboration with the
Nepalese companies. They have become a source of technology transfer & foreign
investment. They help to create employment & develop economic condition of the country.
All these factors are changing competitive landscape(is a business analysis method that
identifies competitors) of Nepalese business sectors.
4. Increase in Foreign Direct Investment(FDI):
Due to liberalization policy of the government, FDI has increased in Nepal over the years.
A sum of Rs 155 billion has been received as FDI till Mid-March 2019-20. the government
has recently promulgated new FDI Policy, 2015 & its main features are:
 Foreign investments are opened in accountancy, engineering, film industries & many
more which were previously not allowed.
 Foreign investment is allowed for multi brand retailing.
 Investment in listed securities is open for foreign institutional investors.
Due to FDI, the business environment in Nepal is turning to be competitive over the years.
5. Changing Role of the Government:
With liberalization of the economy, the role of the government is gradually
changing to facilitator from the regulator. The role of the government is
gradually shifting to developing infrastructures for economic development.
The government has promulgated & implemented various laws to facilities the
business sector. They are Foreign Investment & Technology Transfer Act,
Company Act, Industrial Enterprise Act 7 income Tax Act. This also
contributed to the competitive business environment in Nepal.
6. Development of capital market:
Capital market plays an important role in mobilization of small savings. With
liberalization, Nepal has been providing due importance to capital market
development & expansion. Securities Board of Nepal has been regulating &
monitoring the listed companies in Nepal. Nepal Stock Exchange limited is
involve in over the counter of the security market. Due to this, the businesses
have better access on capital which eventually increased the level of
7. Growing Urban Population:
Urbanization refers to the process of growth in the proportion of population
living in urban areas. The concept of urbanization has been related to
specialization, industrialization & consequent economic development. The rate
of urbanization has been growing in Nepal. With growing urbanization, business
opportunities in Nepal have also increased. The urban population normally has
higher spending capacity. Most of the businesses in Nepal are targeting this
population leading to more competitive business environment.
8. Use of modern technologies:
The level of technology adopted by the Nepalese business organizations is
increasing over the years. The manufacturing industries like food, cement, iron
industries have started using modern computer based technologies. Similarly,
the service sectors are also using modern technology. The educational
institutions & hospitals are using latest technology in their operation. The
businesses compete each other on efficiency & effectiveness by using suitable
technologies leading to a more competitive business environment.
9. Changing marketplace scenario:
With liberalization, Nepalese market is greatly occupied by imported
goods. The demand for two wheeler, automobile, T.V, mobile phones,
fashion items etc are increasing day by day. This implies the
modernization of Nepalese society. This is also the reason of increase in
income level of people. The products which were once considered
luxurious are now taken as essentials. This way, Nepalese marketplace is
getting more competitive over the years.
10. Integration to the world economy:
Nepal is the member of the regional organization such as SAARC ,WTO &
BIMSTEC. These are the efforts of Nepal to integrate(incorporate) its
economy to the global economy. Nepal can have ample(sufficient) benefit
through this its terms of market expansion. However, Nepalese
organization are likely to face severe competition from foreign companies.