MARCOECONOMIC POLICES

Nepal is classified as a least developed country on account of a low per capita income of around US$ 212, low contribution of manufacturing sector to GDP (less than 10 percent) and low indiced in thesocial indicators of development. The landlocked nature and the rugged mountain terrain of a large part of the country and to the economic rigidites of Nepal.Nepal started programmes of planned  economic development as early as mid fifties with the launching of the first five year plan in 1956 with others to follow.The Government has expressed a strong commitment to achieve optimum growth of nationalproduclion and its equitable distribution. Several new policy measures have been adopted in line with the open, market oriented and liberal economic policy to stabilise the economy and pave the way for accelerated economic and social development. the monetary policy is being fine-tuned to increase domestic resource mobilization, enhance efficiency of capital and provide credit to the priority and productive sectors. Steips are also being directed towards maintaining satisfactory balance in intenial and external payments. In the field of industry and commerce, government policy is aimed at giving the private sector a dominat role. Private enterprises are expected to increase efficiency and productivity inindustrial and commercial operations. The Government's role will be that of a facilitator providing infrastructure facilities and a conducive environment in which the private sectro could perform its task effectively. Moreover, private investment is also being encouraged in the development of infrastructure and operation and management of services like road, transport, water supply, etc. The government has implemented a bold privatization programme. Likewise, private foreign investment has been highly encouraged. The trade policy is also directed towardsreducing the trade imbalance through imporved import management, export promotion and diversification. To make economy more competitive, tariff rates have made lowered and Nepali currency has been made fully convertible in all current account transactions. Quantitative restrictions and import licensing system are abolished to make dongenial and investment friendly economic environment to help promote industrial development and make products more competitive. Export procedures have been simplified, and bonded warehouse and duty drawback facilities have been introduced tomake trade comptitive.Besides, a wide ranging financial reform measures have also been carried out to strengthen the liberalisation process. Joint venture banks as well as finance companies have increased significantly in number. The Government has already initiated the effort of legal and procedural arrangements necessary for the implementation of the polices for permitting of up to 25 percent foreign investment on tourism (aviation companies and big hotels), water resources (Power and drinking water), mines and mineral related industries and goods production and processing sources through stock market. This is in line with the government policy of opening foreign investment through the secondary market. the limitation of 25 percent foreign investment and its scope could be further extended in future based on the experiences. Government owned banks and financial institutions are also being either restructured or divested. Furthermore, formulation of necessary legislative measures are underway to establish off shore banking facility in Nepal.

Gross Domestic Product

Gross domestic prodict which increased at a very slow pace in the early period of modern development has been gradually increasing in recent years. GDP increased by 2.4  percent per annum in the 1975-80 period, 3.9 percent in the 1980-85 perios, 4.8 percent in the 1985-90 period and 5.03 percent in 1990-95 period. The current ninth five year plan (1997-2002) has set a target of 6 percent growth of GDP for the plan period and it is expected to grow by 8.3 percent in the 12th plan period as indicated by the country's long term development strategies. The composition of GDP by industrial origin is mentioned in the table below.Industrial productionNepal is still in an early stage of industrial development. The contribution of the manufacturing sector to GDP is around 10 percent. The manufacturing establishments employing 10 or more persons as covered by the industrial census 1996/97 reached 3557. The table below provides an overview of basic data of manufacturing establishments in 1996/97.The manufacturing activities are concentrated mainly in light industries. Intermediate and capital goods manufacture have so far made limited progress. The largest number of industrial units are in carpets and rugs, clay & ceramic products, grain mill products, furniture, textiles & wearing apparels, plastics, bakery, metal products, pulp, paper and paper board, stone cutting & finishing, concrete, cement and plaster articles and printing sub-sectors. In terms of gross fixed assets, sugar, testiles and garments, Pharmaceuticals, carpet and rugs, tobacco, paper products, cement, fruits & vegetable preserving processing, metal products, grain mill products, tyres & tubes, plastic products, jute products, vegetable & animal oil & fat assume importance. In the public sector, large scale industries such as cement, cigarettes, sugar, textiles, jute and pharmaceuticals account for a large share of gross fixed investmetn and number of persons engaged. Some of the recently established and operating large industries constitute acrylic yarn, bricks, and vegetable ghee, stainless steel, tyres and tubes and beer. A variety of other industries in midium and small scales have also been established.The industrial policy, 1992 is greatly liberalized and made transparent. The amendment in industrial Enterprise Act, 1992 has relaxed licensing requirement for a number of industries. Accordingly, licensing for the establishment, expansion and modernisation of industries is required only for those industries concerning security, public health and environment. Industries involved in the production of conventional and modern weapons, ammunition, gun powder and explosives, security printing, and currency and minting of coins fall under the category of security industries. Industries which affect public health and environment include cigarettes, bidi, cigar, tobacco, khainy (chewing tobacco) and industries which utilise tobacco as main raw material for their production and alcohol or beer. A decision on an appliction made to establish these industries will be given within 30 days. For all other industries licence is not required. However, licence is rquired for industries tobe established under foreign investment. All companies should be registered with the company Registrar's Office.

Agricultural Production

Nepal is basically an agricultural country. Agriculture provides employment to over 80 percent of labour force and contributes about 40 percent of gross domestic product. Agrucultual production technologies are primitive and the production system is subsistence based. About 18 percent of land is cultivated and irrgation facilities are limited to about 25 percent of the cultivated land. Considering the importance of this sector in national economy, HMG/N has initiated implementing the 20 years' Agriculture Perspective Plan (SPP) in order tofoster the development of this sector.The major crops grown in Nepal are paddy, maize, wheat pulses, oilseeds, potato, vegetables and fruits. Food grains production in 1997/98 is estimated to reach about 6.36 million metric tonnes. Vegetables and fruits production  is expanding very fast particularly in hill areas. The major export items of agricultural origin area, prouduction and productivity of major crops in the year 1996-97 are presented in table below.Animal husbandry is an integral part of the farming, system. Cattle, buffaloes adn goats are the major livestock raised by the farmers. Sheep rearing is popular in the mountain areas of the country. Poultry farming is emerging as a major farm enterprise particularly in urban fringe. In the paucity of large scale dairy farms, milk production is carried out by the farmers of accessible areas as theri supplementary business. The major position of meat produced comes from buffalo as a by-product. Beef production, however is not permitted by the neation. Livestock population an dproduction are presented in the table below.

Tourism

Nepal is tourist's paradise with an infinite variety of interesting things to see and do. From the lofty snow capped Himalayan mountains of Everest, Kanchanjuna, Annapurna, Dhaulagiri and many other peaks, to the populated valleys, adn the forested plains where the tiger and rhinoceros roam, forests full of wild life, birds and flowers, to shrines, temples and palaces with ageless sculptures and legend, the country provides tourists with a fascinating mux of unparalleled natural beauty with a rich and ancient civilization. Trekking, white water rafting and mountaineering are popular tourist activities.Tourism has been recognized as a very important sector in teh context of Nepalese economy. It is contributing significantly to the nationaleconomy by creating considerable amount of foreign exchange and by generating employment opportunities.As many as 400,000 tourists visit Nepal every year and the number is ever increasing. The government has implemented a liberal tourism development policy aimed at attracting a larger flow of tourists who will spend more in the country by lengthening their average stay.

Foreign Investment

Nepal has created investment friendly environment to encourage foreing investment in the country. By the end of May 1999, 511 foreign ivestement projects with the total project cost of Rs 61.1 billion. These foregn investment projects are mainly in hydro power, mineral exploitation, chemicals, tourist hotels and restaurants, specialized services and in food and beverages industries. The investment has been made mainly from Indian, USA, Norway, Japan, Singapore, Bermuda, China, UK, Hong Kong, S. Korea, Italy, Netherland, Thailand, Philippines, Denmark, Germany, Switzerland, France, Taiwan, Bangladesh, Pakistan, New Zealand, Austria and Australia. Water ResourcesTheoretical hydropower potential of Nepal's rivers, based on an average flow, has been estimated at 83,000 mw which is one of thelorgest potential in the world. Sites which are technically feasible for development could yield an estimated 44,000 mw of installed capacity and about 95% of this could, based on the experience of the past. evaluations, be expected to be expected to be economically viable. Furthermore, the regional electrical systems to which Nepal's surplus could be exported are likely tobenefit more from development of the prime sites at relatively low capacity factors.However, Nepal has so far been able to utilize only a small fraction of this potential resource. By the end of 1997/98 only 261.198 MW (0.3% of the total potential) have been installed. Power generation from other sources such as thermal and solar energy centres is alsovery low as it is just about 57.056 MW by the end of 1997/98.Systematic and planned development of water resources started only very recently. It was in the early sisties that Nepal started collecting data on surface flows. Since then surface water and climatological records have been systematically collected, a master plan for irrigation and hydroelectric power for all of Nepal prepared, investigations on ground water potential of the country started, land use surveys carried out to ascertain. The potential irrigable land area of the country and a xomprehensive regional hydrological study of Nepal completed. Somultaneously, irigation facilities have been developed, supply of drinking water increased and food control and watershed management projects initiated. A number of medium sized hydroelectric prouects such as Kulekhani I and II, Trishuli, Devighat Gandaki, Sunkoshi, Panauti, Marshyangdi and Andhikhola have been completed and commissioned. Moreover, in the last few years a number of small and micro hydroelectric projects have also been increasingly supplementing the energy needs of the mountain and hill regions.Preliminary studies have identified the potential for over half of dozen medium and large hydroelectric prjects are of such a size that their greatest value to Nepal will be from exporting hydroelectric power toneighbouring countries. In addition to power generation, some of the identified projects can bring enormous benefits in terms irrigation, flood control and inland navigation, beyond the Nepalese territory. Typical of these projects is the Karnali (Chisapani) Multipurpose Project with an estimated capacity of over 10800 MW and to provide a high degree of regulation to the water flows of a major tributary of the Ganga River HMG Nepal would encourage the development of the enormous hydropower Potential on the availability of financial and technical assistance form donor countries, multilateral agencies and private investors.

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