Case Analysis 1

One of the key indicators of the health of any economic system is its ability to provide a job for
anyone who seeks it. The economy must grow to provide jobs for new workers and to provide
everyone with a rising standard of living. Income must meet basic needs for food, clothes,
shelter, education, medical care, etc. Poverty reduction is directly linked to opportunities for
employment, both in the formal and informal sectors. However, creating full and productive
employment opportunities remains a major challenge in Nepal. The government has been
allocating annual budgets in sectors that can generate employment for skilled and unskilled
labor alike, as well as bringing in new, specifically employment-focused programs. But in the
absence of private-sector confidence in the business environment, employment generation has
lagged behind targets. Labor migration abroad has become the main source of income
generation for many people, but it comes with its own risks and pitfalls (Pyakuryal, 2013).

Status of Employment in 2018

Number in Thousands

Details Employed Unemployed Labor Force

Nepal 7087 799

Male 4466 498

Female 2640 304

Percent

Nepal 88.64% 11.36% 100.00%

Male 89.73% 10.27% 100.00%

Female 86.93% 13.07% 100.00%

Source: CBS, 2019.

The Government of Nepal (GON) created the Employment Fund in 2008 and the Youth and
Small Entrepreneur Self-Employment Fund in 2009 but their contributions in employment
generation have been miniscule. Similarly, the GON launched the Prime Minister Employment
Program in 2019 with great fanfare, though results have yet to be seen.

Working-Age Population in 2018

Number in Thousands

Not in Labor Force Labor Force Working-Age Population

Nepal 12750 7994 20744

Male 4250 4977 9208

Female 8500 3037 11537

Percent

Nepal 61.46% 8.54% 100.00%

Male 46.16% 54.05% 100.00%

Female 73.68% 26.32% 100.00%

Source: CBS, 2019

The unemployment rate is at 11.4 percent in 2018 and 61.46 percent of working age population
is not in labor force in 2018. As is often the case in developing countries, Nepal’s unemployment
rate is not as high as it would be if the country had adequate social protections; the poor simply
have to work to survive, even when remuneration is low. Often, the unemployed are educated
people from middle-income households who can afford to wait out a period of joblessness. In
Nepal’s case, unemployment is concentrated among those who have completed secondary
education (Campbell, 2010). But, it is worrying that even in the backdrop and introduction of
numerous initiatives assisted by exodus of Nepali youth for jobs abroad, the unemployment had
started rising with the current rate that may be regarded as very high, a phenomenon that may
have serious future implications if not already one. Challenges to generating employment in
Nepal include: low economic growth; a substantial working population involved in lowpaying
and less-productive agriculture and informal employment; a low skill base associated with the
low level of human development. (Underemployment is defined as working less than 40 hours a
week, while wanting to work more but being unable to do so due to involuntary reasons, or
working where skills are mismatched. The working age population is of between 15 and 64
years age.)

The reasons for the scenario may be attributed to pervasive vulnerability and uncertainty for
businesses; large economic and social disparities; and persistence of conflict, even after the
cessation of armed hostilities in 2006. In addition to fighting Nepali labor exploitation abroad,
the country must create a more favorable business environment at home in order to attract
employmentcreating investment. Nepal must also ensure equitable access to employment
opportunities from the regional and social perspectives.

Case analysis 2

The Agriculture Perspective Plan (APP) (1995-2015), was implemented in 1995 which aimed at
accelerating Nepal's agricultural growth by 2 percent from about 3 percent per annum to 5
percent per annum. Simultaneously the APP also aimed at decreasing the population growth
rate, from 2.5 percent to 2.0 percent. This would lead to a six fold increases in the growth of
agricultural output per capita, i.e., from the current insignificant rate of 0.5 percent to a rapid 3
percent. This would also bring down the population below the poverty line to 13 percent in 20
years. However, the poor performance of agriculture in the last 16 years does not give any hope
to meet the APP target within the stipulated period. When the year 1995/96 is taken as the
base period, the yields of paddy, maize, wheat, millet and barley were 2.39 kg, 1.68 kg, 1.55 kg,
1.08 kg, and 1.04 kg respectively. In 16 years, i.e. in the year 2009/10, the yields of same crops
were 2.71 kg, 2.11 kg, 2.12 kg, 1.11 kg and 1.03 kg respectively. The percentage increase in
these crops in 16 years is 13.5, 26, 37, 2 and -0.1 respectively (MoAC, 2011). It is to be noted
that paddy is usually grown in irrigated farms and such fertile and irrigated lands are owned
mostly by the well to do persons; whereas, maize, millet and barley are important crops for the
majority of hilly and poor farmers and these are the crops which have poorly performed. This is
linked with policy setbacks. Agriculture research has consistently put priority on "major crops"
and millet and barley which are labelled as the "minor crops" have not received enough
attention from research institutions. Poor people are dependent on these so called minor crops
but the government is not serious in realizing this fact and orienting research towards these
crops and formulating supporting policies. Nepal Agricultural Research Council (NARC) which is
an apex body to conduct agricultural research in Nepal has recently published a booklet (NARC,
2010) which documents the names of all released and registered crop varieties in Nepal from
1960 to 2010. There were only six varieties of Barley which were released in 50 years (five
between 1973 and 1974 and one in 1990). Since 1990, no variety in Barley has been released.
Similarly, there were only three varieties of finger millet. Two were released in 1980 and one
was released in 1990. No other variety was released afterwards. In 21 years, there is not even a
single variety of barley or millet which has been released and registered. For comparison, there
were 23 varieties of maize, 30 varieties of wheat and 59 varieties of rice which were released
and registered within the same period (1960 to 2010). This shows the unwillingness of the
government and the scientists to work for the poor as they have continuously been neglecting
varietal improvements of the life saving crops such as the barley and millet.

The performance of agriculture is also not satisfactory. The yields of major food crops are
mostly dependent on rainfall. An analysis of crop yield and rainfall data during 2000 to 2009
gave a Pearson's correlation coefficient (r) value of 0.378 indicating a positive relation between
yield and rainfall. In the years of good and timely rainfall, production figures are relatively
better, whereas in its absence the yields are lower.

The yields of paddy and wheat have increased in the past 50 years. This is mainly due to the use
of improved varieties of seeds. However, yields of other crops such as maize, millet and barley
have not improved much. Not to mention that maize, barley and millet are the poor man's food
crops and this should be a great concern to guarantee food security.

Problems

a. Low Yields of Food Crops: Despite higher yield potentials of food crops, their yields are nearly
3 to 4 times lower. Poor irrigation facilities, lack of adequate supply of inputs such as fertilizers
and pesticides, poor quality seeds, low government investment in agriculture (research and
extension), have combined negative effect on the yields of food crops. b. Skewed Distribution of
Land More than one- tenth (11.27%) of total population are homeless and landless; 47.7
percent are marginal farm households having 0.1-<0.5 Ha who own only 14.7 percent of total
cultivated land and 2.9 percent are medium to large farm households (3-5 Ha) who own 17.3
percent of total cultivated land. Those who till are landless and large owners have left the land
barren leading to food shortage.

c. Poverty: Recent data indicates that 25.2 percent of population is below the poverty line. Such
poor households do not have enough resources to buy land. In the absence of better livelihood
options, they work as landless labourers with a very poor wage. They cannot afford social
services such as drinking water, electricity, health services and the likes.

d. Absence of integrated agricultural research, extension and education system: Agricultural

Research, Extension and Education are independent of each other and there is no coordination
between/among them. Research is mandated to NARC which is an autonomous body.
Agricultural Extension is within the purview of the Department of Agriculture which is a
government entity. Agriculture Education is not linked with research and extension system and
it is within the university system. It produces manpower without any human resource
development plan.

e. Lack of Coordination between Ministries of Land Reform and Management and the Ministry
of Agriculture Development: These two ministries, the ministry of land reform and management
and the ministry of agriculture development run their programmes parallel to each other. Land
and agriculture are so integrated to each other; however the programmes of these ministries
have no functional linkages, as they do not have any tradition of working together. Small
farmers need various kinds of subsidies including revenue rebates. Small farms may require
special programme on consolidation of land and then commercialize agriculture. Such
programmes need these ministries to work closely.

Challenges

a. Scientific Land Reform; access to basic means of production: Launching scientific land reform
is a challenge to the policy makers and implementers. But, landless and marginal farmers are
organized into various coalitions and movements and some of the communist parties have
supported the movement. As access to land is an important means of livelihood of the poor
households, successful implementation of scientific land reform becomes a challenge to cope
with.

b. Lack of common understanding on land right as the fundamental property right: Related to
the above challenge is the capacity of the State to address the issue of convincing that land right
is a fundamental right not a basic right of the people.

c. Semi feudal system: Nepali society is basically a semi-feudal society. Land based feudalism
prevails and farmers are extremely exploited by the relatively better- off land owners. Those
who are the real tillers do not get paid well and most of the profit goes in the hands of the land
owners. They are the power holders and with their land based power influence policies to be in
their favour. To overcome this structure, change and transformation should begin from below
and unless the existing power structure changes, the system becomes a challenge.

d. Lack of consensus on clarifying on an agreeable structure of federal states: Constitutionally

Nepal is a Federal Republic. However, it is not understood by the stakeholders in the same way.
Some political parties are against the federal system and others have suggested different
number of federal states. Similarly, the structure of governance is also not understood in the
same way. Whether the president becomes the executive head of the state or the prime
minister is still a debate. Similarly, there has not been a common understanding on the election
system. These are some of the challenges ahead.

e. Maintain status quo or fundamental structural changes that would lead to a fast and
equitable growth, equity and durable peace for sustainable development: There are two forces
– one which believes in spontaneous change and another which is the proponent of drastic
change. Both of these approaches would lead to different outcomes. Such an ideological tussle
is a challenge to solve.

Opportunities/Strength We also have opportunities/strength to handle the problems and

challenges. However, one needs to have a skilful vision and a clear plan of action to see the
programmes moving. The following are some of the opportunities that can be exploited.

Most of the cultivated lands in Nepal are still either fertile or can be satisfactorily improved.
There are still almost a million hectares of uncultivated arable land which could be cultivated.
Moreover, Nepal is bestowed upon distinctly three ecological belts: mountains in the north, hills
in the middle and the Terai in the south. These ecological variations are suitable for crop
diversification. There is a great potentiality of two to four- fold yield increase in the main food
crops of Nepal. NARC has released and registered varieties of food crops (NARC, 2010). For
example, Khumal -8 which was released in 2006, yielded 9.8 mt/ha. Similarly, Manjushi-2 yields
8.3 mt/ha. Both of these varieties are suitable for the Terai, Inner Terai and Mid-hills. For Jumla
valley and similar high hills, Chandannath-1 and Chandannath-2 both yielding 6Mt/ha are
recommended. Similarly, Gautam and Kanti are some recommended varieties of wheat both
yielding 5 to 5.5 mt/ha. Manakamana-4 and Manakamana-5 and Manakamana-6 yielded 5.3 to
6.6 mt/ha. Table 8.6 explains the potential of yield.

Way Forward: Vision for 2030 It is a well known fact that agriculture is the engine of growth and
development. Equitable distribution of land, its proper management and advancement in
agriculture which is more prepared to face the challenges of globalization and take advantage of
it are the needs of the day. Spectacular change and transformation in the agrarian structure is
only possible after we empower the majority of the landless, marginal and the small farmers.
This can be done by converting the tenants into the landowners, and develop and mobilize all
the components of agricultural production such as varietal improvement, provision of all
agricultural inputs, irrigation facility, credit and the market. Transforming subsistence agriculture
into a profitable commercial and industrial agriculture needs a concerted effort. I would now
like to mention below a vision that would transform subsistence agriculture to a vibrant
commercial and industrial agriculture by 2030. Nepali farming is mixed farming where a
combination of crop, livestock and horticulture interplay with agro forestry, biodiversity, market
development and trade and commerce. So our traditional understanding of crop farming as
synonym to agriculture should be changed to the scope mentioned above. This needs a
reorientation on the understanding of agriculture. Due to the absence of male members
because of internal and international migration to look for jobs, agriculture in Nepal is more and
more feminized so a reorientation of extension and training is also a need. It is envisaged that
with proper planning, infrastructures such as agricultural roads, small, medium and large scale
irrigation systems and micro hydro power for generating electricity for irrigation, market
networks, cooperatives and cold storage at various places, and fruit and vegetable processing
plants will be first well developed. Agricultural research, extension and education needs to be
integrated and the Agriculture and Forestry University will be made responsible to technology
generation, extension and education. The Ministry of Agriculture Development will also be
restructured to match with the forthcoming federal system. Research thrusts would be on crops
which are important to the poor people together with other traditional crops. Land reform
programme will be immediately implemented and agricultural development programme will be
integrated with it so that land reform generates improvements in agriculture. Land reform to
succeed must have an excellent data management system established, a land use plan and
strong farmers' organizations. These are all important components of scientific land reform
programme which will take place during the beginning phase. In the second stage, the direction
of research will be changed to make it more relevant and able to face globalization challenges.
Agriculture will be a business enterprise. The university curriculum will also be improved
accordingly. Commercialization and industrialization of agriculture will occur. Research thrust
will be in food crops (viz. barley, maize, millet, sorghum, paddy, wheat and maize.), livestock,
NTFP & agro-forestry, commercial crops (potato, vegetable, dairy, poultry etc.), and industrial
crops (sugarcane, tobacco, jute, cotton, tea coffee, timber etc.). Scientific land reform and
scientific agriculture go hand in hand during this period. At a much later stage sustainable
agriculture which is environmentally friendly and fully benefits from the wave and opportunities
of globalization will be the expected output in this stage. Farmers will be sufficiently
empowered and will have significant influence on the economy and polity of Nepal. Farming will
be a socially prestigious occupation. A broad based development will occur as an influence of
agriculture development. With modernization of agriculture, population density in agriculture
land will decrease and the surplus labour will be engaged in industry. Nepal will be an exporter
of agro-based products. Agriculture will take full advantage of advancement in bio-technology
enhanced by the Agriculture and Forestry University. This university will be developed as a
Centre of Excellence and an Apex body for higher learning. Agriculture education, research and
extension and training will be an integral part of agriculture development.
Case analysis 3

Nepal is renowned world-wide as a prime tourist destination due to its unparalleled natural
beauty, diverse bio-diversity, ethnic, lingual, and social diversity; and historical and cultural
wealth. It is necessary for Nepal to utilize its natural resources in order to promote tourism as
well as to take maximum advantage in an era when far-reaching changes in science, technology,
and communications technologies have led to the creation of a global village. As tourism
business is one of the leading sectors of the national economy, its diversification and growth is
indispensable for creating livelihoods and employment opportunities in order to improve living
standards of the people. On the one hand, while it is necessary to protect and preserve Nepal's
natural, biological, ethnic, religious, social, historical, and cultural heritage; on the other hand,
it is essential to improve air connectivity - including all forms of tourism-related infrastructure-in
order to build the tourism sector's capacity in terms of both quantity and quality (GON 2009).

The country is endowed with the majestic Himalayan range, including Mount (Mt) Everest,
which at 8848m, is the world's highest mountain peak and eight peaks over 8000m. Out of 14
such peaks in the world, eight is in Nepal. Many towns of Nepal, including those in the
Kathmandu Valley, are home to world heritage sites (WHS) while rural traditional settlements
are set against some of the most dramatic natural scenery. Centuries-old festivals are celebrated
year-round. Moreover, the country is blessed by a pleasant year-round climate while the people
are renowned for their hospitality. National Geographic Adventure Magazine (2009) identifies
Nepal as 'one of the best countries for adventure destination in the world. Lonely Planet has
continuously rated Nepal very highly as a destination deserving serious attention time and again
in various categories and has declared best value destination for 2017 proving the enormous
potentiality of the industry in Nepal that could act as a vehicle for economic transformation.

There are ample opportunities to achieve growth in the Nepalese tourism sector. The rich and
unique cultures, diverse natural environments and suitable climate that the country can offer
round the year has made destinations within the country attractive to international as well as
domestic tourist. Likewise, the religious harmony and the world icons Mount Everest and
Birthplace of Buddha, Lumbini, with ever smiling and welcoming people have appealed
thousands of adventure sports lovers worldwide. Moreover, the destination is much cheaper
comparatively providing an extra impetus for budget travelers.

Despite having so much strengths and opportunities backed by strategies, policies and plans
designed to upscale Nepalese tourism industry, the country has not been fully successful to tap
the economic benefits in terms of the dynamics of national socioeconomic development and
the potential benefits for local poor tourism stakeholders. Likewise, the country has not been
able to tackle the related risks that have been created by complicated, new challenges emerging
locally and globally. The decade of the 1990s has experienced a drastic lowering of profit
margins and smaller volumes of business. Critics say, this include a proliferation of tourism
operators, under-cutting tour package rates, lowering the quality of tourism-related services,
lack of a concerted marketing effort and inadequate planning and organization. Other critical
factors have also been noted as constraints for the progress of tourism more specifically for pro-
poor tourism. They included limited access to the market, less commercial viability of their
products in terms of quality and price, weak marketing strengths, lack of suitable policy
framework, and inadequate knowledge on managing and implementing the programs at local
level.

However, after the Visit Nepal Year in 1998, the country slightly headed towards the right
direction, bringing awareness and enthusiasm among all tourism stakeholders for collective
development approach. Unfortunately, the situation could not last longer, and as of beginning
of the 2000s, the country started experiencing the same problems due to severe conflicting
situation in the country besides other problems emanating both within the country and outside
the country. The country overcame the situation and tourists started coming back with the
restoration of peace in 2006. The efforts in 2011 declaring it as Tourism Year further boosted
the industry in restoring its place as well as promoting Nepal as a destination for year round
with visitor friendly activities and initiatives.

Despite the opening of the country in the early fifties, the tourist arrival, for the first time, was
recorded in 1961 when 6127 visitors arrived in the country. It grew to 493,000 in 1999. However
various reasons including the conflict sharply affected the arrivals reaching 275,466 in 2002 and
revived only after signing of the comprehensive peace agreement. It reached an encouraging
736,215 in 2011 and 803,092 in 2012. Since then, however, stagnancy syndrome is noted which
is further aggravated by the great earthquake of 2015 and economic blockade in 2016 having
serious implication in tourist arrivals. Arrivals declined to 796,216 in 2013, further to 790,118 in
2014 and virtually crashed due to aforementioned reasons in 2015 to 538,970. It recovered to
753,000 in 2016 and to 960,000 in 2017 making the dream of bringing in one million tourists
almost a reality. The government, with this attainment, has been encouraged to dream of two
million visitors in near future.

Nepal, from the cost perspective too, is estimated to be highly competitive in the world tourism
market. Tourists are estimated to spend US$53 per day on average and in total US$ 544 per
person for an average length of stay of 11.8 days. The three main categories of expenditures are
food and beverage (28.9 percent) gift/shopping (22.8 percent) and accommodation (19.3
percent). The declining value of Nepalese currency is, however, an added incentive to visitors
coming to Nepal.

Taking into account these statistics and in view of the prospect for growth, a five-star hotel in
Kathmandu with 150 bed capacity is planning to double the bed capacity to provide
accommodation facilities to increasing tourists. He observed that there are 116 star hotels with
9710 beds and 960 other tourist class hotels with 27240 beds meaning a total bed capacity of
about 37000. His analysis showed that there has been diversification in the market with Chinese
tourists crossing 200,000 and Indian tourists still proving the largest in number. But, except for
few, their demand for high class accommodation is still limited. The western tourists are most
profitable and elegant but they have long tended to stagnate. In the perspective, there is an
increasing dilemma in regards to which market segment to position at. Further, he is also facing
trouble from the employees demanding more facilities and perks particularly in the perspective
of hotel expansion. He also foresees environmental challenges. On the one hand, a large
number of hotels are coming up both in Kathmandu valley and outside and on the other, he is
confused whether to go ahead with the planned expansion or not despite the forecast for the
coming period being highly encouraging and the existing hotel accommodation estimated to be
definitely in short supply during the peak period. There is also an apprehension that damaged
heritage sites during the great earthquake mostly have not been able to be restored even after
the lapse of three years and tourists may not actually want to see the debris. It may further
drive the tourists away from Nepal at least for the time being. The proposed expansion is in a
dilemma and he wants your meaningful suggestion.

Case 4

Nepal, despite engaging in planned development since the fifties that to some extent
transformed the traditional agrarian economy to a modern economy, has not been able to
attain desired development in multifarious aspects resulting in the persistence of poverty,
deprivation, and high under employment. On top of that the development has not been
inclusive fueling the feeling of discrimination creating socio-political problems. Nepal still faces
rampant poverty, regional imbalance, a deepening social divide, and numerous political, social,
economic, and cultural problems. These problems are not only manifest in the daily lives of the
people, but have led to violent conflicts and has given rise to other forms of movement,
resistance, aggression and civil disobedience. It has further manifested in the continuity of large
scale poverty estimated to exceed 6.5 million people, large scale migration of youth in foreign
countries in search of jobs due to less than satisfactory employment generation, increasing gaps
between haves and have nots, and the country losing competitive edge and momentum. True,
poverty in Nepal, though persisting at a sizeable level, has shown a declining trend and has
raised the vision that if we continued the process for a decade or two, we should be able to
overcome the problem of absolute poverty and then afterwards only the problem of relative
poverty is expected to persist. Poverty came down to 30.8 percent in 2003-04 (CBS, 2004) from
42 percent in 1995/96 and further 25.2% in 2010/11 (CBS, 2011) currently estimated at 21.6%.
However, it was found that the factor that explained the most for this decline was attributed to
remittances meaning that our domestic efforts have failed to bring down the level of poverty in
Nepal. Of course, despite the progress revealed by these data, it does not exhibit the level of
absolute and hardcore poverty persisting in various pockets, communities and groups. Many
people in different communities and areas still suffer from 'Inhumane' existence and the formal
development process has simply failed to reach them. The challenges in Nepal are not
exacerbated by income poverty alone. Large disparities appear to exist in social indicators when
comparing the various geographic regions and socio-economic groups. In terms of other social
indicators too, despite recording impressive growth during recent times, Nepal lags behind
other South Asian countries. Hence, there is no doubt that poverty, despite efforts of many
decades, continues to be our bane and required serious and purposeful addressing to reverse
the situation.

The importance of promoting trade in the back drop is very important. Nepal actually
developed its trade only after the establishment of democracy in 1951. In the early era, Nepal’s
trade was virtually concentrated with India though a small semblance of trade took place with
Tibet. The efforts to diversify and expand trade in the sixties and the seventies helped Nepal’s
trade to expand its trade as well as diversified resulting in concentration of Nepal’s trade with
India coming to a level of around 25%. In terms of trade Nepal remains a relatively open country
but in recent times, its advantages appear to have been waning. Not only that given the existing
situation of galloping trade compounded by huge trade deficit, Nepal is entering in some form
of crisis. The trade policy of 2010 and the budgets of the country have tried to bring conducive
changes, but the situation has mostly remained poor meaning that Nepal has failed to achieve
trade led growth as anticipated in many policies and plans. It shows that the import growth is
much higher than the export growth putting constant pressure to balance of payment position.

Trade is one of the most important components of Nepalese economy. Currently total foreign
trade ratio to GDP is around 40 percent. The trend of export is not positive as it tended to be
stagnant and declined in relative terms. The ratio of export to GDP has decreased from 14.6
percent in 2004/05 to 7 percent in 2016. But the ratio of import to GDP has increased from 29.5
percent in 2004/05 to 40 percent in 2016. Compared to the average growth rate of total trade at
16.1 percent, the average growth rates of export and import are 1.9 percent and 12.9 percent
respectively from 2004 to 2015 that clearly indicate that imports have tended to grow
significantly while exports have tended to be static. After the accession of Nepal to the WTO,
the share of export in total trade decreased from 28.2 percent in 2004/05 to 12.6 percent in
2013/14 in comparison to the increase in import from 71.8 percent to 85.9 percent during the
same period.

Nepal's Trade Scenario 2004/05-2010/11 (in NRs Billion)

Year Total Export Import

Volume percent Volume Percent

2004/05 208.2 58.7 28.2 149.5 71.8

2005/06 234.0 60.2 25.7 173.8 74.3

2006/07 254.1 59.4 23.4 194.7 76.6

2007/08 281.2 59.3 21.1 221.9 78.9

2008/09 352.2 67.7 19.2 284.5 80.8

2009/10 435.2 60.8 14.0 374.3 86.0

2010/11 459.5 64.6 14.1 394.9 85.9

2011/12 536.0 74.3 13.9 461.7 86.1

2012/13 633.6 76.9 12.1 556.7 87.9

2013/14 721.0 91.0 12.6 630.0 87.4

2014/15 860.0 85.3 9.9 774.7 90.1

2015/16 843.7 70.1 8.3 773.6 82.7

Source: GoN, Ministry of Finance, Economic Survey 2013/14and Nepal Rastra Bank.

The big gap between export and import is generating huge trade deficit as well as creating
foreign exchange burden to the economy. The total value of the imports of one product, viz.
petroleum products is greater than the total value of all the commodities exported. In addition,
Nepal’s trade, especially the export trade, is highly concentrated on few items and few markets.
Major 10 export items cover around 40 percent of the total exports. The major export products
are iron and steel, textiles, woolen carpets, garments, pashmina, tea, coffee and large
cardamom. Nepal’s exports go to a very few countries, mainly to India, USA, Bangladesh,
Germany, UK, France, Turkey, Canada, Italy, China and Bhutan. The export to Bangladesh and
Bhutan is gradually increasing in recent years. Their emergence as the important export
destinations, if sustainable, will also enhance Nepal’s trade competitiveness as these countries
are geographically nearest to it, have almost similar economic culture and are linked with roads
and railways with fewer problems in transportation and transit.
 Nepal’s major imports include petroleum products, iron and steel, machinery and parts,
transport vehicles and their parts, electronic and electrical equipment, pharmaceutical
products, gold, telecommunication equipment and parts, crude soya bean oil, polythene
granules, and chemicals. Nepal's ten major source countries of imports are India, China, UAE,
Indonesia, Argentina, Thailand, Korea R., Malaysia, Japan and the USA. India is the largest
trading partner of Nepal both in terms of export as well as imports. India absorbs 67.5 percent
of total trade consisting 66.9 percent of total exports and 67.6 percent of total imports. The
reasons for this concentration of trade with India are its physical proximity, similarity in culture,
religion and language, long standing preferential trade agreements, and 1700 miles of open
border.

Nepal imports mainly petroleum products, machinery, medicines, clinker and cement, high tech
products, automobiles, electronic and electrical products, chemicals etc. from India while it
exports mainly medicinal herbs and agricultural products, garments, raw skin, some semi
processed products, instant noodles, zinc plates, etc. to India. Nepal has signed three separate
agreements on trade, transit and control of unauthorized trade between the two countries to
promote trade with India. Nonetheless, considering their close political, social and cultural
relations, the trade potentiality may be much larger. However, the increasing trade deficit with
India that accounts for 56.5 percent of the total trade deficit has created serious problems in
the balance of trade of Nepal. Nepal’s ever-growing dependence on a single country indicates
the urgency for trade diversification and indicates need for strengthening its competitiveness to
attain this end. Nepal faces several problems in its foreign trade with third countries mainly due
to long transit route, long and complex administrative procedures, SPS and TBT related issues.

Nepal has attained success in the growth of trade but this increasingly appears to have created
problems as well with the exports stagnating and imports galloping. Nepal recorded a total
trade to the proportion of 36.4% of GDP in 2010/11, a slight fall compared to the level of
2009/2010 when the ratio has reached 39.7%. The increase in total trade is mainly contributed
by the growth in imports while the exports have virtually stagnated as is exhibited by the figure
below. There is no need to specify that until special attention is given, the trend will simply be
not sustainable. The government formed a committee under the chairpersonship of the vice-
chair of the National Planning Commission (NPC) in 2009 and the committee suggested a few
measures the result of which can be noticed in the braking, to some extent, in the growth rate
of imports. However, such ad hoc initiatives are not going to be adequate. In the first case, there
was a delay in the effort and more importantly these should have been continuous efforts.
The trade deficit is rapidly increasing as shown by the figure included below. The trade deficit as
a proportion of GDP increased from 15.9% in 2004/05 to around 30% in 2016 meaning that
almost a third of GDP is being incurred only to finance the trade deficit. Naturally it is causing a
serious pressure to the overall balance of payment situation. Not surprisingly, Nepal has to
undergo a serious challenge posited by negative balance of payment scenario from mid-2009 to
early 2011, or in other words for the longest period in its economic history. This kind of situation
demands continuous enquiry into the issues coming out with appropriate solutions. Inability of
the existing mechanisms to address the problem means creating a right mechanism we really
want to promote trade on a sustainable basis and make it a vehicle for economic growth.