Basudev Sharma (PHD)

Structure and characteristics of developing economies – Structural diversities in developing

countries; Determinants of economic growth; Development issues and challenges;
Contemporary theories and approaches to economic underdevelopment.
When development economics emerged as a sub-discipline of economics in the 1950s its main
concern, like that of most economic theory, was (and largely remains) understanding how the
economies of nation-states have grown and expanded. This means it has been concerned with
looking at the sources and kinds of economic expansion measured via increases in Gross
Domestic Product (GDP), the role of different inputs into production (capital, labor and land),
the impact of growth in the various sectors of the economy agriculture, manufacturing and
service sectors) and, to a lesser extent, the role of the state. These concerns are at the heart of
classical and neoclassical development economics. In contrast, most radical development
economics starts from the other side of the coin – how to improve the welfare of the population
and the planet although much development economics in the Marxist and neo-Marxist vein
ultimately also focuses on national income. Nevertheless, what can be seen here are two
fundamentally different approaches to the core issue of what exactly is ‘development,’ which is
what underlies this exploration of the key ideas of classical, neoclassical, neo-Marxist and
critical approaches to development economics.

As we know, the study of economic divided into two major branch, microeconomics and macro-
economics. Micro-economics view the economics behaviors as individual actors and attempted
to understand decision making in the face of scarcity and the consequences of these decisions.
While macro-economic view economic as a whole and attempted to understanding the
interaction between economic aggregates such as national income, employment and inflation.
The study of economics still also divided into sub disciplines like international economics,
development economics, welfare economics, etc. So, development economics is one of this sub
disciplines. In development of this economics study, thinkers start to appear in number. They
were gave big ideas to development of study.

In the late 18th century, the classical thinkers like Adam Smith, David Ricardo, etc appear and
then the others thinkers appear and made the schools of economic thought. After classical
economics, then appear Keynesian and Post Keynesian economics, then neoclassical economics,
until contemporary economics now. Their thinking in this study absolutely influence in how our
view on economic and what perspective that we used.

Development economics is a branch of economics which deals with economic aspects of the
development process in low-income countries. Its focus is not only on methods of promoting economic
development, economic growth and structural change but also on improving the potential for the mass of
the population, for example, through health and education and workplace conditions, whether through

public or private channels. What is development economics about? More than growth. Structural
change. Institutional change. LDCís not only have lower levels of per-capita income
(productivity), but also lack institutions common to DCís; e.g. law, property rights,
administrative systems.
 “Development economics is a branch of economics that deals with the study of (i) macro – the
causes of long term economic growth, and (ii) micro – the incentive issues of individual
households and firms, especially in developing countries.” From definitions above, we can
conclude that the study of development economic concerned with the condition of welfare or
wellbeing population. More specifically, this study also using mathematical methods to measure
the degree of a condition through qualitative and quantitative methods. Development economics
is increasingly becoming an empirical discipline today.
Diversity between developing countries
Some of the key structural economic differences between nations – for example:
1. The size of an economy (i.e. population size, basic geography, annual level of national income)
2. Historical background including years since independence from colonial rule
3. Natural resource endowment
4. The age structure of the population
5. Ethnic and religious composition
6. Relative size / importance of public and private sectors of the economy
7. Structural of national output (e.g. primary, secondary, tertiary and quarter nary sectors)
8. Structure of international trade (both geographical and the commodity pattern of trade)
9. Political stability, strength of democratic institutions, transparency of government
10. Ethnic and gender equality and tolerance
11. The ease with which new businesses can be created and sustained
12. Other competitiveness indicators including the relative size and strength of high-knowledge /
high-technology industries
There are also some common characteristics of developing countries – the list below is not
meant to be an exhaustive one, but here these characteristics might include:
1. Relatively low incomes per capita compared to richer advanced nations
2. Lower absolute levels of productivity (labor and capital)
3. A higher dependency on export incomes from primary commodities / low rates of export
diversification
4. They have a large share of the population living in rural areas and employed in agriculture
5. A higher than normal “informal” sector of the economy for example in partial subsistence
farming
6. Many industries in low-income developing countries tend to be some distance from the
technological frontiers reached in rich advanced nations.
7. Relatively fast growth of population and a younger average age – giving a different shape to the
population pyramid
8. Weaknesses in critical infrastructure such as telecommunications, transport, ports, water and
sanitation and institutions such as stable government, a well functioning civil service and money
and capital markets
Some of the most important characteristics of developing economics are as follows:
i. Low incomes per head:
People in developing countries are poorer on an average, than those in developed economies.
However, this does not mean that all the people are poor. In fact, some can be very rich.
ii. Low levels of saving due to low income:
Poor people cannot afford to save and so the savings ratio (saving as a percentage of disposable
income) of a country, where the average income is low, is likely to be low.
iii. Low life expectancy and high infant mortality rate:
 Someone born in Japan can expect to live up to the age of 83 whereas someone born in
Zimbabwe has a life expectancy of 37 years only.
iv. High rates of population growth:
In a number of developing countries, the birth rate exceeds the death rate and there is a high
dependency ratio, with a high proportion of children being dependent on a small proportion of
workers.
v. Low levels of education and health care:
These tend to result in low levels of productivity.
vi. Low levels of capital goods and poor infrastructure:
These again reduce productivity.
vii. Poor housing and sanitation:
A significant number of people may not have access to clean water for drinking and washing.
viii. Relatively high number of workers, employed in the primary sector:
Underemployment can be high in agriculture. For instance, ten persons may be doing the work of
six. This, again, lowers productivity.
ix. Concentration on a narrow range of exports (most of which are primary products):
Developing countries can be subject to, what is known as, the underdevelopment trap or the
vicious circle of poverty- This is the problem, that a country with low incomes has a low saving
rate. This means that most of their resources are used to produce consumer goods. The lack of
capital goods keeps productivity and income low, as shown in Fig. 1.

Determinants of economic growth

Investment
Human capital
Innovation and R&D activities
Economic policies and macroeconomic conditions
Openness to trade
Foreign Direct Investment (FDI)
Institutional framework
Political factors
Social-cultural factors
Geography
Demographic trends
Contemporary Development Issues and challenges in Nepal
• Infrastructure
• Unemployment
• Poverty
• Social exclusion
• Foregone output:
• Electricity crisis
• Resource deficit
• Inadequate private investment
• Failure to meet development target
• Institutional development
• Public-private partnership
 Political commitment
The major critical constraints to growth in Nepal include
1) high-cost economy, (2) subsistence agriculture, (3) alarmingly increasing dependency, (4)
extremely poor infrastructures, (5) low investment in priority sectors, (6) acute and pervasive
poverty, (7) limited items for exports (8) lack of employment opportunities at home, (9) fragile
industrial relations (10) lack of pragmatic industrial and foreign investment policy, (11)
persistent stagflation, (12) huge subsidies to public enterprises, (13) frequent disruption in the
supply of petroleum products, (14) poor capacity to spending capital expenditures, (15) revenues
are inadequate to supplement the counterpart funding, (16) relatively high tax burden, (17)
tumultuous financial sector, (18) poor implementation of reform programs, (19) growing
inefficiency, rampant corruption and poor governance, and (20) prolonged transition.
Development issues and challenges
Achieving millennium development goal
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development.

Contemporary theories and approaches to economic underdevelopment.

Contemporary Development Economics Theory

In contemporary development economics there are two models of development, The Harris-
Todaro Model and The Harold-Domar Model. The Harris-Todaro Model is an economic model
used in development economics or welfare economics to explain some of the issues in rural-
urban migration. that an equilibrium will be reached when the expected wage in urban areas,
adjusted for the unemployment rate, is equal to the marginal production of an agricultural
worker.

The Harrod-Domar model is used in economics to explain an economy’s growth rate in terms of
the level of saving and productivity of capital. It suggests there is no natural reason for an
economy to have balanced growth
The other contemporary theory is Rostow Theory. Rostow was an expert not only in study of
economics, but also in sociology. On his work “The Stages of economic Growth, a Non –
Communist Manifesto” , he explain the idea about how development prosses in economic for
people. Development was the linear prosess from primitive to modern.

The contemporary issue dealt with development economics now is the gap between poorer and
richer nations. The facts around us shown that there is something wrong with conditions of
economic. And people start to ask, is development economics theories that promise the
prosperity for everyone goes on his track? One of the contemporary thinkers that concerned with
that problem is Nobel winner, Amartya Sen. His contributions which are of special interest to us
in development studies is a development ethics that can help guide development policy and
practice. He was criticized and then reconstruction of welfare economics, i.e. the concepts and
theories in economics about when we can say that people and societies are better off: especially
his ‘capability approach’.

The post-World War II literature on economic development has been dominated by four major
and sometimes competing strands of thought: (1) the linear stages-of-growth model, (2) theories
and patterns of structural change, (3) the international dependence revolution, and (4) the
neoclassical, free-market counterrevolution. Inaddition, the past few years have witnessed the
beginnings of a potential fifth approach associated primarily withthe so-called new theory of
economic growth.

Theorists of the 1950s and early 1960s viewed the process of development as a series of
successive stages of economic growth through which all countries must pass. It was primarily an
economic theory of development in which the right quantity and mixture of saving, investment,
and foreign aid were all that was necessary to enable Third World nations to proceed along an
economic growth path that historically had been followed by the more developed countries.
Development thus became synonymous with rapid, aggregate economic growth. This linear-
stages approach was largely replaced in the 1970s by two competing economic (and indeed
ideological) schools of thought. The first, which focused on theories and patters of structural
change, used modern economic theory and statistical analysis in an attempt to portray the
internal process of structural change that a "typical" developing country must undergo if it is to
succeed in generating and sustaining a process of rapid economic growth. The second, the
international dependence revolution, was more radical and political in orientation. It viewed
underdevelopment in terms of international and domestic power relationships, institutional and
structural economic rigidities, and the resulting proliferation of dual economies and dual
societies both within and among the nations of the world. Dependence theories tended to
emphasize external and internal institutional and political constraints on economic development.
Emphasis was placed on the need for major new policies to eradicate poverty, to provide more
diversified employment opportunities, and to reduce income inequalities. These and other
egalitarian objectives were to be achieved within the context of a growing economy, but
economic growth per se was not given the exalted status accorded to it by the linear-stages and
the structural-change models. Throughout much of the 1980s, a fourth approach prevailed. This
neoclassical counterrevolution in economic thought emphasized the beneficial role of free
markets, open economies, and the privatization of inefficient and wasteful public enterprises.
Failure to develop, according to this theory, is not due to exploitive external and internal forces
as expounded by dependence theorists. Rather, it is primarily the result of too much government
intervention and regulation of the economy. Finally, in the late 1980s and early 1990s, a few
neoclassical and institutional economists began to develop what may emerge as a fifth approach,
called the new growth theory. It attempts to modify and extend traditional growth theory in a
way that helps explain why some countries develop rapidly while others stagnate and why, even
in a neoclassical world of private markets, governments may still have an important role to play
in the development process. We now look at each of these alternative approaches in greater
detail.
The Linear-Stages Theory
When interest in the poor nations of the world really began to materialize following the Second
World War,economists in the industrialized nations were caught off guard. They had no readily
available conceptual apparatus with which to analyze the process of economic growth in largely
peasant, agrarian societies characterized by the virtual absence of modern economic structures.
But they did have the recent experience of the Marshall Plan in which massive amounts of U.S.
financial and technical assistance enabled the war-torncountries of Europe to rebuild and
modernize their economies in a matter of a few years. Moreover, was it not true that all modern
industrial nations were once undeveloped peasant agrarian societies? Surely their historical
experience in transforming their economies from poor agricultural subsistence societies to
modern industrial giants had important lessons for the "backward" countries of Asia, Africa, and
Latin America. The logic and simplicity of these two strands of thought—the utility of massive
injections of capital and the historical pattern of the now developed countries—was too
irresistible to be refuted by scholars, politicians, and administrators in rich countries to whom
people and ways of life in the Third World were often no more real than U.N. statistics or
scattered chapters in anthropology books
Rostow's Stages of Growth
Out of this somewhat sterile intellectual environment, fueled by the cold war politics of the
1950s and 1960s and the resulting competition for the allegiance of newly independent nations,
came the stages-of-growth model ofdevelop ment. One of the principal tricks of development
necessary for any takeoff was the mobilization of domestic and foreign saving in order to
generate sufficient investment to accelerate economic growth. The economic mechanism by
which more investment leads to more growth can be described in terms of the Harrod-Domar
growth model.
Goals of Economic Development
The goal of economic development in its simplest form is to create the
wealth of a nation. Prior to the 1970s, rapid economic growth has been
considered a good proxy for other attributes of development (Todaro and
Smith 2009). Economic performance is measured by an annual increase in
gross national product (GNP) The World Bank defines GNI as the sum of
value added by all resident producers plus any product taxes (less subsidies)
not included in the valuation of output plus net receipts of
primary income (compensation of employees and property income) from
abroad.
Quality of Life
In the 1990s, economists increasingly recognized that it was the quality of
life that determines whether people are from developing countries or not.
 Diseases, malnourishment and death that happen in the everyday lives of
those from the developing countries changed the view of development goals
dramatically.
Sustainable Development
In a broader sense, sustainable development is defined by the Brundtland
Commission, formally the World Commission on Environment and
Development, as “progress that meets the needs of the present without
compromising the ability of future generations to meet their own needs”
The Millennium Development Goals
The MDGs were developed to address the most pressing problems in
developing countries, including poverty and hunger, primary universal
education, gender equality, child health, maternal health, HIV/AIDS,
environmental sustainability and global partnership.
Classical Theories of Economic Development
The first generation of economic development models was formulated in the early years after the
World War II. These early models focused on the utility of massive injections of capital to
achieve rapid GDP growth rates. The two famous models are Rostow’s stages growth model and
the Harrod–Domar model.
The Rostow’s model postulates that economic growth occurs in five basic stages, of varying
length
1. Traditional society
2. Preconditions for take-off
3. Take-off
4. Drive to maturity
5. Age of High mass consumption
Harrod–Domar model is used in development economics to explain an economy's growth rate in
terms of the level of saving and productivity of capital. It suggests that there is no natural reason
for an economy to have balanced growth.
Structural Change Models
During most of the 1960s and early 1970s, economists generally described the development
process as structural change by which the reallocation of labour from the agricultural sector to
the industrial sector is considered the key source for economic growth.
International Dependence Models
The international dependence theory was very popular in the 1970s and early [Link]
dependence theorists argued that underdevelopment exists because of the dominance of
developed countries and multinational corporations over developing countries. The poor
countries are said to be dependent on the developed countries for
market and capital. However, developing countries received a very small portion of the benefits
that the dependent relationship brought about. The unequal exchange, in terms of trade against
poor countries, made free trade a convenient vehicle of “exploitation” for the developed
countries.
Neoclassical Counter-Revolution Models
In the 1980s, neoclassical counter-revolution economists used three approaches, namely the free
market approach, the new political economy approach and the market-friendly approach, to
counter the international dependence model. In contrast with the international dependence
model, these approaches mainly argued that underdevelopment is not the result of the predatory
activities of the developed countries and the international agencies but was rather caused by the
domestic issues arising from heavy state intervention such as poor resource allocation,
government-induced price distortions and corruption As a response to public sector inefficiency,
economists of the counter-revolution thinking, focused on promoting free markets, eliminating
government-imposed distortions associated with protectionism, subsidies and public ownership.
Contemporary Theories of Economic Development
New Growth Theory Endogenous growth or the new growth theory emerged in the 1990s to
explain the poor performance of many less developed countries, which have implemented
policies as prescribed in neoclassical theories. Unlike the Solow model that considers
technological change as an exogenous factor, the new growth model notes that technological
change has not been equal nor has it been exogenously transmitted in most developing countries .
The new growth theory emphasizes that economic growth results from increasing returns to the
use of knowledge rather than labor and capital.
Theory of Coordination Failure
The foundation of the theory of coordination failure is the idea that the market may fail to
achieve coordination among complementary activities. When complementaries exist, that is
when returns of one investment depend on the presence or extent of other investments, there
exist two scenarios. On the one hand, optimally, all investors as a whole are better off with all
investments to be achieved at the same time. On the other hand, it would not make sense for an
investor to take similar actions when he believes that others may not do the same as well. The
market is said to have failed to coordinate investors’ actions in this way. Coordination failure
therefore leads the market to an (equilibrium) outcome inferior to a potential situation in which
resources would be optimally allocated and all agents would be better off. As a result,
underdevelopment equilibrium is possible
Summary
The review of the literature shows that there is increasingly a consensus that
economic development is a multidimensional process that involves
interactions among different goals of development and therefore would
require systematically designed policies and strategies. Development issues
are complex and multifaceted. There is no one single pathway for economic
development that all countries can pursue. In the long term, the economic
development process requires changes in policies to account for new
emerging factors and trends. Designing these economic development
policies also need to take into consideration the social, cultural, political
systems and institutions as well as their changing interaction over time in a
country Development strategies have changed remarkably over the past half
century. Classical development economists often see underdevelopment as
having a single cause. But history has demonstrated that focusing on one
single factor alone cannot guarantee success in the development process.
Capital formation (as emphasized in the linear stage growth models) is
necessary but not sufficient. Structural change models that promoted
industry but neglected agriculture also did not bring about the expected
results. The international dependence models pursued an inward-looking
model of development that promoted state-run production. On the contrary,
the neoclassical free market counter-revolution is a different strand of
thought that supported the role of the free market, privatization and export
expansion. However, the contemporary models of development see the
government and the market as complements, in which a certain extent of
government intervention is required to ensure that desirable outcomes can
be achieved in the presence of related market failures. Although the ultimate
goal of economic development goes beyond the growth of gross income
(GDP, GNP or GNI) per capita, an understanding of the sources of growth is
essential to achieve other objectives. Economic development is about growth
plus organizational change Without growth, the change is unlikely to occur,
since a country needs resources to realize other long- term objectives.
Growth and change will thus continue to be central to any development
strategy. The critical knowledge in finding the source of growth has been
closely related to capital formation. However, as reviewed previously, the
major weakness of the early theories is that they focused on finding the
constraints in capital formation of one factor, such as physical capital or
human capital, that limit economic growth. Hence, their solution is simply to
increase investments in the factor identified. History has shown that the
solution to a single cause does not always guarantee successful economic
development. The solution is not simply an increase in that capital. More
importantly, the focus should be on how to use the capital in an economy
that consists of a combination of interrelated production processes. As
recently realized by the contemporary development economists, especially
by the theorists of coordination failures, the solution to obtain sustainable
development underway is to make sure that several things work well
simultaneously. Economic development is a complex process which involves
causal relationships. One cannot risk overlooking these relationships as they
lie at the centre of the development process. The theory of coordination
failure thus served as a theoretical basis for connecting growth, trade and
infrastructure construction later in this study

Goals of development:
- Growth (of gross income per capita);
- Improvement in quality of life;
- Sustainable development;
- The Millennium Development Goals.
Development thoughts (prime movers of economic development):
- Early views:
Capitalism: free trade, private property and competition (Smith, 1776); and
Communism: social or public ownership of property, and independence of foreign
capital and goods (Marx, 1933).
- Classical theories:
The linear-stages-of-growth models: savings and investments (Rostow, 1960;
Harrod, 1948; Domar, 1947);
Structural-change models: transferring resources from low to high-productivity
activities (from traditional/agricultural to modern /industrial sector) (Lewis, 1954;
Chenery, 1960);
International-dependence models: withdrawal from the international economy
 and
pursuit of self-sufficiency or autarky; and
Neoclassical counter-revolution models: liberalization, stabilization, and
privatization.
- Contemporary theories:
New growth theory: knowledge or innovation;
Theory of coordination failure:
Underdevelopment as a coordination failure among complementary activities;
and
Government intervention to move the economy to a preferred equilibrium.

Developing countries are defined according to their Gross National Income (GNI) per capita per year.
Countries with a GNI of US$ 11,905 and less are defined as developing (specified by the World Bank,
2013).
Of the 192 member states of the United Nations, only 52 are currently classified as high-income
countries. In other words, 140 countries (73 per cent) are still considered developing economies. The
number of people living on less than US$1.25 a day is projected to be 883 million in 2015, compared with
1.4 billion in 2005 and 1.8 billion in 1990. However, much of this progress reflects rapid growth in China
and India, while many African countries lag [Link] are 107 developing countries at the end of
2014

A high-income economy is defined by the World Bank as a country with a gross national
income per capita above US$12,735 in 2014, calculated using the Atlas method. While the term
"high-income" is often used interchangeably with "First World" and "developed country", the
technical definitions of these terms differ. The term "first world" commonly refers to countries
that aligned themselves with the U.S. and NATO during the cold war. Several institutions, such
as the Central Intelligence Agency (CIA) or International Monetary Fund (IMF), take factors
other than high per capita income into account when classifying countries as "developed" or
"advanced economies". According to the United Nations, for example, some high-income
countries may also be developing countries. The GCC countries, for example, are classified as
developing high-income countries. Thus, a high-income country may be classified as either
developed or developing. Although the Holy See is a sovereign state, it is not classified by the
World Bank under this definition.
Nepal trapped at low middle-income level :
(1) low investment ratios
(2) slow manufacturing growth
(3) limited industrial diversification and
(4) poor labor market conditions.
Gross national Happiness concept developed by ex Bhutan King has merits when it says that happiness is
the ultimate objective of development of nations, the economic development alone can't be the basis of
happiness for nations; it rather suggests a must of a balance of economic, social, cultural and spiritual
needs of the people ~a different type of scale can be used to measure non physical attributes differently
Yes very true non physical attributes like mind intellect and Shanskar are very important to be Happy.
Thus smiling Laxmi along with Saraswati Durga Asta-shakti are of radiance for HAPPINESS. King is learned
and post is much more

Macroeconomic Challenges Facing Low-Income Countries

The conference, sponsored by the IMF and funded by the UK Department for International
Development, aims to provide a forum for discussing innovative theoretical and empirical
research on the key macroeconomic challenges facing low-income countries, and to facilitate the
exchange of views among researchers and policymakers. One of the key goals is to increase the
attention devoted to macroeconomic issues in low-income countries. To this end, submissions
from researchers who have not previously focused on these economies are strongly
[Link] papers should shed light on how such macroeconomic challenges operate in
practice, and how they interact with each other, especially in terms of their effect on growth,
macroeconomic stability, and resilience to shocks. Themes of particular interest include:

 Monetary policy
 Fiscal policy
 Investment, growth, and debt sustainability
 Natural resource management
 Diversification and structural transformation
 Financial sector development

3. Development policy-making and role of the state – the nature of development planning,
rationale, and the planning process; Problems of implementation and plan failures; Trends
in governance and reform.
Development policy-making and role of the state (Policy issues in development)
In its simplest sense, ‘policy’ refers to a broad statement that reflects future goals and aspirations
and provides guidelines for carrying out those goals. Hill defines ‘policy’ as ‘the product of
political influence, determining and setting limits to what the state does’. To be more precise,
when a government takes a decision or chooses a course of action in order to solve a social
problem and adopts a specific strategy for its planning and implement- tation, it is known as
public policy. Policy can be defined as a plan or course of action, as of a government, political
party, or business, intended to influence and determine decisions, actions, and other matters. A
course of action, guiding principle, or procedure considered expedient, prudent, or advantageous.
Some assert that development has been a clear success. Others may argue that it has failed. Some
say that it has reduced poverty levels, but that the global number of poor has grown; or that it has
raised incomes but increased inequality. And the debate goes on. The fact is that development is
a complex business. And it takes time. It means integrating the multiple dynamic systems of
economics, finance, politics and culture, and shaping policies that crisscross and sometimes
collide. Add to this recipe the ambiguities of human behavior, brittle ecological endowments,
and random acts of nature, and the task of development becomes even more daunting.
Globalization has generated enormous opportunities but at the same time created countless new
challenges. Policymaking is hard. Growth is fragile.
The involvement of businesses and civil society - consumers, private entrepreneurs, employees
and citizens and community groups, NGOs in designing public policy is critical if the
Government of developing countries are to improve the transparency, quality and effectiveness
of their policies as well as establishing the legitimacy of the public policy. Socio-economic and
political conditions of a country determine or shape the network of a particular policy.
The policy formulation in developing countries has a difference with developed countries by
weak institutional capacity and lack of accountability of state actors. The policy design is often
done by state agencies while there is varied in participation of businesses and civil society -
consumers, private entrepreneurs, employees and citizens and community groups, NGOs at both
form and functions. Thus, the policy communities indicated a policy process in which organized
interests and governmental actors play a major role in shaping the direction and outcome of
public policies and the discourse communities of the dominant idea set always decided the
structure of the policy communities.
State plays a key role in development policy making. Due to legitimacy and resources and access
to information with direct relation with problems and people's needs and expectation
Government care about development policy making. Socio economic development is the main
objective of state thats why it involve in development policy making.
The nature of development planning
A definite goal vision mission objective strategy and action to achieve certain goal with in the
given time and resource frame work. Output, outcome and impact oriented.
Focused on contemporary development issues/ problems and challenges
Effecient allocation of resouces to achieve certain goal objectives
Base for socio economic transformation
Socio economic development action taken by state
Integrated plan managed by central and local authority in participation of stake holder.
Prioritization of sector, resource, need
Programm based, result based, output based
Participatory NDC local body
Focus on growth and development
Socio economic change
Development thrust
Rational of development planning
For state building
To response market failures
For the implementation of government plan policy program and budget
For growth, development and stability
Socio economic transformation
Balanced development (EQUITY, EQUALITY, INCLUCIVENESS)
Systematic development
Sustainable development
Resource distribution and mobilization
For participation and access
Dual economy mixed economy characteristic
Planning process
The development of goals, strategies, task lists and schedules required to achieve the objectives
of a [Link] planning process is a fundamental function of planning commission and
government of the day and should result in the best possible degree of need satisfaction given the
resources available.

Review of past plan after completing three year of existing plan

Progection of development policies plan program for future
Ministeral plan policy program collection
Expert discussion
First discussion on National Development council
Discussion on national planning commission among stake holders
Plan document finalization
Resource committee discussion
Resource ciling estimation
Plan programme prioritatization part 1 part 2
About national planning commission
National Planning Commission (NPC) is the advisory body for formulating development plans
and policies of the country under the directives of the National Development Council (NDC). It
explores and allocates resources for economic development and works as a central agency for
monitoring and evaluation of development plans, policies and programmes. Besides, it facilitates
the implementation of development policies and programmes. Moreover, it provides a platform
for exchange of ideas, discussion and consultation pertaining to economic development of the
country. It also serves as an institution for analyzing and finding solutions to the problems of
civil societies, non-governmental organizations and the private sector in the [Link] is
chaired by Honorable Prime Minister. The Commission constitutes nine other members; one
Vice-Chairman, seven members and one member-Secretary. The Chief-Secretary of the Office of
the Prime Minister's and Council of Ministers and Finance Secretary of the Ministry of Finance
from Government of Nepal are ex-officio members of the Commission. NPC carries out its
functions with needful support from the National Planning Commission Secretariat (NPCS). The
Member- Secretary of the NPC serves as the Secretary of the NPCS. The Secretariat consists of
functional divisions and their sections and Central Bureau of Statistics. Each Division, CBS and
Section is headed by the Joint-Secretary, Director General and Under- Secretary,
[Link] roles and functions of NPC are also stated in the Financial Administration
Regulations, 2056 (1999). The regulations provision that the central level annual plans and
programmes should be approved by the Commission before its implementation. The functional
divisions comprise of Economic Management , Social Development, Infrastructure
Development, Poverty Monitoring, Agriculture and Rural Development, and (General
Administration, Law, Financial Administration, Geographical Information System, Information
Management, Research, Publication and Library).
Evoluation of planning in nepal
The evolution of planned development in Nepal can be traced back to the 1950s. A planning
agency by the name of Planning Commission was constituted for the first time in Nepal in 1956
under the Chairmanship of the Prime Minister. To make it more capable and effective, The
Yojana Mandal (a planning body) was set up the same year in accordance with the Yojana
Mandal Act, 1957. In addition to the responsibility of plan formulation, the Yojana Mandal was
entrusted with various executive powers. Following the overthrow of the multiparty democratic
system in 1960 and with the beginning of Panchayat political system thereafter, Rastriya Yojana
Parishad (National Planning Council) under the Chairmanship of His Majesty late King
Mahendra was constituted. As the decisions of the Council were treated as equivalent to that of
the cabinet, the Council was regarded as the highest authority in the sphere of economic planning
and policies. In the beginning, a separate Secretariat was set up to serve the Council. However,
with the creation of the Ministry of Economic Affairs in 1962, the Ministry itself carried out the
functions of the Secretariat. Various activities pertaining to development budget and foreign aid
were directly mandated to the National Planning Council. With the dissolution of the National
Planning Council in 1963, a new central planning body, with an identical name, was constituted
under the Chairmanship of the Chairman of the Council of Ministers. All the Ministers were
designated as Ex-officio members and the Ministry of Economic Affairs was renamed as the
Ministry of Planning. In 1968, all the works related to development budget and foreign aid
hitherto carried out by the Ministry of Economic Planning were assigned to the Ministry of
Finance. The National Planning Council under the Chairmanship of the Chairman of Council of
Ministers was replaced by the National Planning Commission, under the Chairmanship of the
Prime Minister, and a separate Secretariat was set up to serve it.
A comprehensive study on the functions and responsibilities of the central planning agency
resulted in the preparation of the report in 1972 and the National Planning Commission was
reconstituted [Link] activities were carried in accordance with the Report on
Central Planning Agency, 1972. In 1987, some minor changes were introduced in the structure of
National Planning Commission. With the restoration of democracy, following the people's
movement of 1990 and the establishment of constitutional monarchy in the country, some
changes were made in the structure and organization of National Planning Commission in 1991.
The reconstituted Commission was headed by the Prime Minister and consisted of a Vice-
Chairman and five members and a member-secretary. The Chief Secretary and the Finance
Secretary were included as the Ex-officio Members.

Need for development planning despite failures

Traditionally, national planning for development or development planning has gained
prominence with the emergence of civilized society. In modern times, from the economic
standpoint, development planning started in the former USSR owing to its socialistic
development model. In the initial decades after World War II, pursuit of economic development
was reflected in the almost universal acceptance of development planning as the surest and most
direct route to economic prosperity. Until recently, there is wider consensus among the policy
makers and development experts of the developing world on the desirability of formulating and
implementing a national development plan. In the context of national development, it is a form
of state intervention to achieve maximum results out of the limited resources. The role of state is
dominant in shaping the development policy, and state intervention is justified in every sphere of
economy. Precisely, a development plan is a specific set of quantitative socio-economic targets
to be realized in a given period of time, accompanied by appropriate strategies for achieving
those targets. Such strategies include regional balance, equitable distribution, political and
economic stability, rational allocation of resources, employment and income generation etc.
It is widely believed that national planning offers the essential and perhaps the only institutional
and mechanism for overcoming the major obstacles to development and for ensuring a sustained
high rate of economic growth and employment opportunities. Broadly speaking, planning is a
crucial aspect that is carried out in advance for undertaking any development work, usually in a
developing economy. In other words, development planning may be considered as a deliberate
governmental attempt to coordinate economic decision making over the long run and to
influence, direct, and in some cases even control the level and growth of a nation's principal
economic variables to achieve a predetermined set of development objectives. Such variables
include, among others, income, consumption, employment, investment, saving, export, and
imports.
As a consequence, planning had become a way of life in the public sector of the developing
economies, usually with its permanent central planning agency, such as the National Planning
Commission (NPC) in Nepal. Following this, being a developing economy, Nepal has been
heavily preoccupied with planning for development. However, before 1951, few socio-economic
development programs were taken up in the country. During the Rana regime (1846-1950), two
long-term perspective plans were formulated, but they lacked implementation. Nepal embarked
on the periodic plan with the establishment of democracy in 1951. The first five-year plan (1956-
1961) was crafted by the then Planning Board in 1955. So far, Nepal has formulated and
implemented twelve development plans and is in the process of launching an thirteen interim
plan (2071-2074) due to the ongoing political transition in the country. However, the planning
record did not live up to its advanced billing, and disillusionment with the planning exercise is
now widespread, and thus a growing number of developing countries have moved towards a
more free-market oriented economic system. In this view, this article is an attempt to identify
major problems in the Nepalese development planning.
Despite ongoing planning efforts, the achievement of the plan objectives, physical targets,
expenditure outlays and sectoral objectives have been rather bleak and hardly satisfactory. As an
unwanted tradition, failure to realize the stated objectives have been explicitly stated in the
subsequent plan documents, and often the same problems and constraints are observed due to the
lack of corrective actions. Despite some achievements in certain sectors, high population growth
rate, inefficient utilization of resources, failure to address the problem of regional imbalance, and
poverty alleviation still appear as tough challenges to the country's planning process.
Nepal's economic development in the past half-century reveals that most of the objectives and
policies, though commendable, failed in their implementation. Furthermore, Nepal's policy
(planning) failure is seen in building development infrastructure, improving public services,
creating employment opportunities, involving the grassroots in planning and decision-making,
channeling resources for women, poorest castes and classes and developing democracy from
representative to participatory form. Particularly, such failures have increased the risk of
worsening human development and raising the number of those living below the poverty line,
especially women, “low caste” and disadvantaged indigenous groups. A non-comprehensive list
of hard-core problems prevailing in the Nepalese development planning is as follows:
A number of problems persist in our development planning process. The policy problems include
the lack of reflection of people's expectations in the development planning mainly due to top-
down approach in the planning process. Precisely, there is a tendency to rely on the expert
opinion and reluctance to local aspirations and sensitivity.
This clearly undermines the local conditions, conventional wisdom, and thus capability of local
institutions. Likewise, there is a lack of proper resource policies; on the domestic front, state has
not been able to maximize its own resource mobilization, and there is over-reliance on foreign
aid. Organizational problems include the lack of political will, weak planning agency and other
planning sections in the ministries due to poor resource allocation, lack of administrative
capability and duplication of responsibilities, institutional bottlenecks; excessive caution and
resistance to innovation and change, inter ministerial personal and departmental rivalries,
inadequate power and authorities commensurate with responsibilities; NPC is only an advisory
body, and prevalence of organized political and bureaucratic corruption.
In addition, the unanticipated economic disturbances; both internal and external, rapid population
growth, unequal distribution of resources and benefits, and gender inequality have been the other
challenges to our planning process. Indeed, government planning fails because planners face the
wrong incentives. Instead of being rewarded for doing good things, they are rewarded mainly for
pleasing other planners and politicians. Also, there is lack of capable and responsible human
resource and capitalization of the same through appropriate training.
However, even if our development planning has largely failed in the past and we have been
committed to an open economic system, owing to our underdeveloped market mechanism and
the persistence of massive poverty, we still need to have a development plan. Therefore, the only
option is to revitalize our planning process
Problems of implementation and plan failures
insufficient information, few and poor project proposals, inability to program foreign aid,
pposition of the finance ministry, and severely limited capacity to administer development
little consideration of the absorptive capacity of the instrument for development in determining
targets and outlays.
Underspending was chronic, release of funds intolerably slow, procedures cumbersome and
obstructive.
Why plan fail
Ambitious goals objectives vision mission goal
Lack of resources
Coordination failed
Participation failed
Owned by stakeholder and people
Continuity of plan
Monetering, Evaluation and feedback
Not learned from past mistake
Trends in governance reform
Governance is "the process of decision-making and the process by which decisions are
implemented (or not implemented)". The term governance can apply to corporate, international,
national, local governance or to the interactions between other sectors of [Link] as a
government's ability to make and enforce rules, and to deliver services, regardless of whether
that government is democratic or not. Governance determines who has power, who makes
decisions, how other players make their voice heard and how account is
[Link], the application of good governance serves to realize organizational and
societal goals.
WHAT IS GOOD GOVERNANCE?
Good governance is about the processes for making and implementing decisions. It’s not about
making ‘correct’ decisions, but about the best possible process for making those
[Link], transparent, rule of law, Good governance is responsive Good
governance is equitable and inclusive Good governance is effective and efficient Good
governance is participatory,Based on a long-standing research program of the World Bank, the
Worldwide Governance Indicators capture six key dimensions of governance (Voice &
Accountability, Political Stability and Lack of Violence, Government Effectiveness, Regulatory
Quality, Rule of Law, and Control of Corruption. To improve by alteration, correction of error,
or removal of defects; put into a better form or condition.
Trend
New public administration Delegation, decentralization, participation community driven
Development administration New public management Reinventing government C4 REDMAM
Good governance Collaborative government New public service
Reform in governance
Three institutions can be reformed to promote good governance: the state, the private sector and
civil society, However, amongst different cultures, the need and demand for reform can vary
depending on the priorities of that country's society. First generation reform Second phase
reform or second generation reform in liberalization Political reform, Administration system
reform, bureaucratic culture reform, Restructuring
Reform in 21st century
Meeting the needs of citizens (more integrated services linking levels of government, using
community and business organizations, exploiting new technology)
Strong leadership and strategic direction strengthened ‘strategic policy’ advising, links with
academia, strengthening role of ministry Commission and role of departmental secretaries)
Highly capable workforce (firmer career development, more investment in HRM, return to more
centralized remuneration system)
Efficiency (systematic agency reviews, reduced ‘red tape’, strengthened governance
arrangements)
Assessment that system is ‘not broken’, no radical surgery needed, but action to maintain and
improve quality of service
Balancing markets and governments
Balancing politics and administration
Benefits from emphasis on performance management
Balancing centralization and devolution
Balancing contracting out and in-house service provision
Increased importance of wide engagement, increased importance of professional skills

Development planning in Nepal – Development issues in Nepal; Relevance of planning;

Tools used in the planning process – Cost-benefit analysis, internal rate of return, financial
and economic analysis, logical framework analysis; Challenges of economic development in
Nepal.
What is the meaning of development planning?
Planning has been defined in many ways. Planning involves the formulation of a national
program of action for achieving development objectives. planning is, in essence, an organized,
conscious and continual attempt to select the best available alternatives to achieve specific goals
Broadly speaking, development planning is of two types: the central planning and the indicative
planning: the former is practiced in a centralized economy where the role of the state is dominant
in the socio-economic life of the people. Such types of planning were pursued in socialist
countries like the then Soviet Union, North Korea and so forth. In mixed economics like Nepal,
planning takes the form of indicative in nature. Economics decisions are partly guided by the
 'invisible hand' and partly done by the state intervention. The state sector and the private sector
both remain active and play their respective roles. The role of the public sector is conceived as
that of a facilitator to promote development in the country. The private sector on the other hand
is involved in providing goods and services needed for economy to move on the growth path.
Planning is an appropriate development path to improve the life of common people. A
development plan contains, among others, the following features
(i) a survey of the current economic situation;
(ii) Objectives, targets, strategies and programs for accelerating economic growth and development
(iii) a list of proposed government expenditures
(iv) a macroeconomic projection for the whole economy etc.
It is worth pointing out the distinction between development planning and development plan.
Development planning as a process helps the formulation of effective development policies. The plan is
the product of the planning process while the first is the process itself.
Development planning typically follows a set of distinct phases:
 Situation analysis, both internal to the area, and the forces which are shaping the area. This may
involve a range of tools to assess the strengths, weaknesses, threats and opportunities (SWOT)
facing an area;
 prioritizing key issues, problems or outcomes;
 developing objectives;
 developing plans to address the objectives, including strategies, activities and projects;
 developing a spatial picture of the situation as well as plans;
 developing budgets to achieve the plans.

Development issues in Nepal

Mass Poverty and Inequality
Lack of Physical Infrastructure
Widespread Unemployment
Stagnation of Agriculture
Economic Dependency
Political Stability and Good Governance
Low Level of Savings and Investment
Natural Resources Utilization
Human Resources
Benefiting from Globalization
Relevance of planning;
For state building
To response market failures
For the implementation of government plan policy program and budget
For growth, development and stability
Socio economic transformation
Balanced development (EQUITY, EQUALITY, INCLUCIVENESS)
Systematic development
Sustainable development
Resource distribution and mobilization
For participation and access
Dual economy mixed economy characteristic
Importance of Development planning
The need for planning arises from the inability of the price mechanism to ensure growth,
efficiency and equity. Sometimes the political objective of a nation may dictate the necessity of
planning and the government may need to intervene in the economic activities of the country.
The more pressings are the development problems, the greater is the need for planning.
The preparation of a plan has advantages because it provides a systematic approach to co-
ordinate development decisions. Further, development plans are useful for initiating or
stimulating development process.
Tools used in planning (Planning techniques and tools)
Different countries use planning models/techniques depending upon the nature of the economy. The
availability of the information, the capacity to use and manage such techniques and models. Some of the
major models can be presented as follows: Harrod – Domar, (b) Neo-classical growth models, (c) Input-
output model.
The H-D Growth Model: The H-D model is the simple analysis of capital accumulation in the
absence of technological progress. The simple version of H-D model is given by the following
equation;Y = K/α; where Y is the rate of growth, K = the savings (investment) rate and α = the
capital – output ratio. The equation simply says that the rate of economic growth is determined,
given the technology, by the rate of investment.
The neoclassical growth model: Since in the H-D growth model there is no place for
technological changes, the neoclassicial economists believe that growth is also the function of
technological changes. Hence, the neoclassical growth model is given by the production
function.
Y – A KαLβ, where Y = the rate of economic growth, K is the capital and L the labor. A
represents the technological progress α and β present the share of capital and labor in the
production process. This is usually referred to as Cobb-Douglas production function which
simply states that A the measure of the technological progress is important in the determination
of the aggregate growth rate.
Input-output Model; (I/O) provides a microscopic view of the national economy. It is a statement of the
output of goods and services produced by a sector and the volume of goods and services which are
consumed to produce a given unit of production in that sector. Since different sectors of the economy are
interrelated, and each sector has to depend on other sectors for input and to sell output. In other words, an
output of one sector is used as inputs in other sector. The I/O is an instrument which recognizes the
interdependence nature of the economy. For instance, the agriculture sector output depends on the
production of fertilizer industry and so on. There are other models/techniques such as linear
programming, computable general equilibrium model and so on. But the above are some of the models
which Nepal has tried in the past while trying to formulate development plan in Nepal.
Marginal productivity of factor of production
Logical framework approach
An LFA is a management tool for effective planning and implementation of developmental
projects. It provides clear, concise and systematic information about a project through a
framework. We know about various components of a project such as goal, objectives, activities,
results and indicators. The LFA helps in connecting all these components in one framework,
presenting the tight relationship between them, leading to the achievement of the expected
outcomes.
Why is LFA so important? Because donors use it. It was first actually developed by USAID
during the 1970s, but now every donor is using it in its proposal format. The log frame has
become an essential tool for donors not only in planning their own macro-level strategies, but
also in seeking in-depth information about small and medium-sized projects funded by them.
LFA also gives a clear outlay of how much resources would be needed and how these will be
used for various project activities.
Logical frameworks are widely accepted as project planning tools for ensuring effective
monitoring and evaluation during project implementation phases. It is mandatory to make use of
them, according to the existing policy provisions, and to prepare and attach a logical framework
with all new project proposals. A brief description of logical framework is presented in Annex-2.
Logical Framework
Title of Project: Date of Completion:
Duration of Project: Date of Preparation:
Date of Start:
Narrative Summary Performance Indicators Means of Verification Risks and Assumptions
Goal (Impact indicator)
Objective (Outcome indicator)
Outputs (Output indicator)
Activities Inputs
OGICALFRAMEWORK
SIMPLE LOG FRAME
Objectives and Outputs and key Indicators Means of Important
outcomes activities verifications assumptions
objectives
outcomes
outputs
Major activities

Logical frameworks are widely accepted as project planning tools for ensuring effective
monitoring and evaluation during project implementation phases. It is mandatory to make use of
them, according to the existing policy provisions, and to prepare and attach a logical framework
with all new project proposals. A brief description of logical framework is presented in Annex-2.
Table 3
Logical Framework
Title of Project: Date of Completion:
Duration of Project: Date of Preparation:
Date of Start:
Narrative Summary Performance Indicators Means of Verification Risks and Assumptions
Goal (Impact indicator)
Objective (Outcome indicator)
Outputs (Output indicator)
Activities Inputs
Development programme and projects should be monitored and evaluated on the basis of inputs,
outputs, objectives, targets, performance indicators, and means of veri
Fiction as spelt out in the logical framework during their formulation phase. If risks and
assumptions that can impede project performance are identified and addressed on time, it can
help reduce the possibility of cost and time overruns.
Programme/Project Monitoring and Evaluation Evolution of Monitoring and Evaluation in
Nepal,(Weightage System, New Monitoring and Evaluation System, Result Based Monitoring
and Evaluation, Basis of Monitoring and Evaluation Policy Periodic Plan Business Plan
Medium-Term Expenditure Framework Budget Policy and Programme Project Document,
Immediate Action Plan)
Monitoring and Evaluation Forms, Technical Audit, Public Expenditure Tracking Survey
Performance Based Budget Release System, Results-based Management, Monitoring and
Evaluation
Planning Techniques Used in Nepal
Eighth criteria were used to for prioritization such as (i) direct contribution to the national goal of
poverty alleviation, (ii) contribution to the sectoral priority (iii) regional balance (iv) necessity of
government's involvement in programs/projects, (v) possibility of public participation, (vi)involvement of
local bodies in line with the spirit of decentralization, (vii) contribution in enhancing private sector's
involvement/competition, and (viii) achievements in the past in the context of the on-going
programs/projects. Medium Term Expenditure Framework, Application of Log Frame, Application of
Metrics
Cost-benefit analysis, internal rate of return, financial and economic
analysis,
Cost benefit analysis A process by which business decisions are analyzed. The
benefits of a given situation or business-related action are summed and then the
costs associated with taking that action are subtracted. Some consultants or
analysts also build the model to put a dollar value on intangible items, such as the
benefits and costs associated with living in a certain town. Most analysts will also
factor opportunity cost into such equations. Prior to erecting a new plant or taking
on a new project, prudent managers will conduct a cost-benefit analysis as a means
of evaluating all of the potential costs and revenues that may be generated if the
project is completed. The outcome of the analysis will determine whether the
project is financially feasible, or if another project should be pursued.
A cost analysis (also called cost-benefit analysis, or CBA) is a detailed outline of the
potential risks and gains of a projected venture. A cost -benefit analysis (CBA) is a
systematic process for calculating and comparing benefits and costs of a project or
decision. A CBA helps predict whether the benefits of a project or decision outweigh
its costs, and by how much relative to other alternatives. A CBA has two purposes:
1. To determine if the project or decision is a sound investment or decision (i.e., a
justification of feasibility or advantage).
2. To provide a basis for comparing projects or decisions. It involves comparing the
total expected cost of each option against the total expected benefits, to see
whether the benefits outweigh the costs, and by how much.
Examples of types of costs include:
Development costs  Operational costs  Non-recurring costs such as capital
investment costs Recurring costs such as leases, utilities and other overhead
Examples of types of benefits include:  Cost reductions such as value
enhancement  Recurring benefits, such as lower overhead  Labor cost reduction
How to do a cost analysis
Define your CBA's unit of cost. Itemize the tangible costs of the intended project.
Itemize any and all intangible costs, Itemize the projected benefits
 Add up and compare the project's costs and benefits, Calculate a payback time for
the venture
Use your CBA to inform your decision about whether to pursue your project.
Key analyses in a cost-benefit analysis
Risk, Financial. Cost-benefit including: •cost-effectiveness •social •environmental
impact •assessment Budget, Regulatory
Pay Back Period Value Added Capital-Output Ratio Proceeds per Unit of
Outlay
Average Annual Proceeds Per Unit of Outlay
Discounting Techniques
Net Present Worth (NPW) Benefit-Cost Ratio (BCR) Internal Rate of Return
(IRR) Net Benefit-Investment Ratio (NBIR = N/K Ratio) Sensitivity
Analysis Choosing Among Mutually Exclusive/Alternate Projects Domestic Resource
Cost (Modified Bruno Ratio)
Internal rate of return
The internal rate of return (IRR) or economic rate of return (ERR) is a rate of return
used in capital budgeting to measure and compare the profitability of investments.
It is also called the discounted cash flow rate of [Link] internal rate of return on
an investment or project is the "annualized effective compounded return rate" or
rate of return that makes the net present value (NPV as NET*1/(1+IRR)^year) of all
cash flows (both positive and negative) from a particular investment equal to zero.
It can also be defined as the discount rate at which the present value of all future
cash flow is equal to the initial investment or in other words the rate at which an
investment breaks even. In more specific terms, the IRR of an investment is the
discount rate at which the net present value of costs negative cash flows) of the
investment equals the net present value of the benefits (positive cash flows) of the
investment.
Financial and economic analysis,
The most commonly used financial include:
 payback period analysis, accounting rate of return, net present value, internal rate
of return
Each of these methods has its advantages and drawbacks, so generally more than
one is used for any given project. And no financial formula, or combination of
formulas, should be used to the exclusion of common sense. A project may "fail"
your tests under some or all of these methods, but you might decide to go forward
with it anyway because of its value as part of your long-range business plan.
Economic analysis
Three common economic analysis methods include cost-effectiveness, benefit-cost
and economic impact analyses. The use of one or more of these methods will
depend upon the scope and objectives of the analysis as well as the available data.
•Cost-effectiveness is the least comprehensive analysis that identifies the least
costly method for achieving specific physical objectives.
•Benefit-cost analysis determines whether the direct social benefits of a proposed
project or plan outweigh its social costs over the analysis period. Such a comparison
can be displayed as either the quotient of benefits divided by costs (the benefit/cost
ratio), the difference between benefits and costs (net benefits), or both. A project is
Economically justified if the present value of its benefits exceeds the present value
of its costs over the life of the project.
•Socioeconomic impact analysis is broader in scope because it identifies the direct
and indirect (secondary), positive and negative effects of an action or project.
 Difference Financial and economic analyses have similar features. Both estimate
the net-benefits of a project investment based on the difference between the with-
project and the without-project situations. However, the financial analyses of the
project compare benefits and costs to the enterprise, while the economic analyses
compare the benefits and costs to the whole economy.
While financial analysis uses market prices to check the balance of investment and
the sustainability of project, economic analysis uses economic price that is
converted from the market price by excluding tax, profit, subsidy, etc. to measure
the legitimacy of using national resources to certain project. Financial and economic
analyses also differ in their treatment of external effects (benefits and costs), such
as favorable effects on health.
Challenges of economic development in Nepal.
• Infrastructure Unemployment Poverty Social exclusion Foregone output: Electricity
crisis
• Resource deficit Inadequate private investment Failure to meet development target
 Institutional development Public-private partnership Political commitment
Elusive Private Foreign Direct Investment: Poverty Eradication and Standard of
Living: Environment and Quality of Life, Domestic Economic Issues, Bilateral and
Multilateral Economic Issues:

Types of planning
Annual plans are used mostly as an instrument of translating medium-term plan objectives and
programs for implementation. Thus, an annual plan deals with current development activities
without losing sight of medium-term objectives.
A medium term plan-a five-year plan in the context of Nepal indicates total investment and investment by
sectors for the entire plan period and the targets to be achieved at the end of the plan period. Medium term
plans are not operational plans. In order for them to become effective guides to action, output and
expenditures must be determined for each year of the plan period. This is accomplished by the
formulation of the annual plans.
Perspective plans usually covering a period of 10-20 years are less detailed than medium term plans. Such
perspective plans are based on longer-term growth prospects with general targets based on only through
approximations of the likely supply of, and the demand for, resources. They provide a good enough idea
of priorities to enable planners to concentrate on the most promising sectors in preparing medium-term
plans. They also indicate, in advance, in what area reinvestment and other surveys will be required before
specific projects/programs can be formulated.

The First Five-Year Plan (1956–61) allocated about Rs576 million for development
expenditures. Transportation and communications received top priority with over 36 percent of
the budget allocations
The second three year plan After Parliament, which had been established under the 1959
constitution, was suspended in 1960, the Second Plan failed to materialize on schedule. A new
plan was not introduced until 1962 and covered only three years, 1962-65 The Second Plan had
expenditures of almost Rs615 million. Transportation and communication again received top
priority with about 39 percent of budget expenditures. Industry, tourism, and social services were
the second priority.
The Third Five-Year Plan (1965–70) increased the involvement of local panchayat. It also
focused on transport, communications, and industrial and agricultural development. Total
planned expenditures were more than Rs1.6 billion
The Fourth Five-Year Plan (1970–75) increased proposed expenditures to more than Rs3.3
billion. Transportation and communications again were the top priority.
The Fifth Five-Year Plan (1975–80) proposed expenditures of more than Rs8.8 billion. For the
first time, the problem of poverty was addressed in a five-year plan, although no specific goals
were mentioned. Top priority was given to agricultural development, and emphasis was placed
on increasing food production and cash crops such as sugar cane and tobacco.
The Sixth Five-Year Plan (1980–85) proposed an outlay of more than Rs 22 billion. Agriculture
remained the top priority; increased social services were second. The budget share allocated to
transportation and communication was less than that allocated in the previous plan; it was felt
that the transportation network had reached a point where it was more beneficial to increase
spending on agriculture and industry
The Seventh Five-Year Plan (1985–90). It encouraged private sector participation in the
economy and local government participation. The plan targeted increasing productivity of all
sectors, expanding opportunity for productive employment, and fulfilling the minimum basic
needs of the people. For the first time since the plans were devised, specific goals were set for
meeting basic needs. The availability of food, clothing, fuelwood, drinking water, primary health
care, sanitation, primary and skillbased education, and minimum rural transport facilities was
emphasized

The introduction of the Eight Five-Year Plan (1992-1997) promised to fulfill the new aspirations of the
people reflected in their struggle for democracy in the country. The cravings for life, liberty and pursuit of
happiness was given due attention while formulating the plan. Planning as a development intervention
had utterly failed to expedite the economic growth of the country before 1990

In the Ninth Five Year Plan period from 1997 to 2002, the recorded rate of growth was merely
5.35%. However, this economic growth rate is a percentage point lesser than the GDP growth of
6.5% targeted during this period.
TENTH PLAN 2002-07 The Tenth Plan, being the first one leading to twenty-first century
and the new millennium, is destined to enhance the concept of developing cultured,
competitive, affluent and equitable Nepali society reflecting the ultimate aspirations of
Nepal and Nepali people at large.
Eleven 2007/8 TO 2009-10 THREE YEAR INTERIM PLAN Twelve 2010/11-2012/13
Thirteen

Planning Institutions
Planning functions at the central level are widely scattered over a number of institutions. At
least, five institutions/agencies are directly involved in the planning process. These are;
 The Cabinet
 The National Development Council which is sometimes referred to as "Development
Parliament" (NDC)
 The National Planning Commission (NPC)
 Development Ministries, and
 The Regional/Zonal Offices of Ministries/Departments
Each of these institutions does play a varying role at different stages of the planning process.
Five-Year Plans of Nepal generally strove to increase output and employment; develop the
infrastructure; attain economic stability; promote industry, commerce, and international trade;
establish administrative and public service institutions to support economic development; and
introduce labor-intensive production techniques to alleviate underemployment. The social goals
of the plans were improving health and education as well as encouraging equitable income
distribution. Although each plan had different development priorities, the allocation of resources
did not always reflect these priorities. The first four plans concentrated on infrastructure—to
make it possible to facilitate the movement of goods and services—and to increase the size of the
market. Each of the five-year plans depended heavily on foreign assistance in the forms of grants
and loans.
Three Major Turns in the development plan in Nepal
Three major turns in the pattern of development plans have been clearly realized. First has been
seen in fifth plan in which the concept of regional de velopment was introduced along with
strengthening of party less Panchayat system. The Second turn has been found in eighth plan that
was the first plan after the restoration of multi party system in 1990. The change in this plan was
seen in the form of guaranteeing democratic rights and opportunities to the people in existing
socio economic and political scenario along with the promotion of privatization and economic
liberalization. The third turn has been reflected in the current interim plan. The change has been
seen through the aspirations of people that have been incorporated here in various ways to make
a new Nepal. All the turns have been identified through the difference in plan objectives, policies
and strategies that have been affected by influential change in socio political situations of the
country due to some epoch making events.
Objectives of fifth plan
Increase in the production of peoples’ requirements Maximum utilization of labor power
Regional balance and unification Mobilization of internal resources Investment production
structure Labor intensive technology Economic stability Industrial arrangement Increase and
diversification of foreign trade Land reform
Eighth Five Year Plan
Excessive Control and Regulation Inefficient Public Enterprises Inefficient Investment Portfolio
High cost of Economy Inefficient Administration Faulty Planning Process Objectives and
strategies of Eighth Plan Sustainable Economic Growth Poverty alleviation Reduction of
Regional Imbalances
Three Year Interim Plan To give special emphasis on relief, reconstruction and reintegration
To achieve employment-oriented, pro-poor and broad-based economic growth To promote good-
governance and effective service delivery To increase investment in physical infrastructures
To give emphasis on social development
Thirteen three year plan The government has come up with a draft approach paper of the
upcoming Three Year Interim Plan (TYIP) FY2014-FY2016. It was endorsed by the National
Development Council on July 6. The upcoming plan has a vision of graduating Nepal from LDC
category to a developing country status by 2022. It is consistent with the Istanbul Plan of Action,
an outcome of the UNLDC IV meeting held in Istanbul on 9-13 May 2011.
Growth rate: The government is targeting an average annual growth rate of 6.0% over the next
three years, with agriculture sector growth and non-agriculture sector growth targeted at 4.5%
and 6.7%, respectively. Surprisingly, while the NPC has listed targeted growth rate for all sub-
sectors , it is missing in the case manufacturing activities, which have seen a consistent decline
over the last few years. Instead, it is combined with mining and quarrying and the combined
growth target is 4.7%. Mining and quarrying itself was growing at over 5% in the last few years.
Probably, the NPC is not expecting much growth in manufacturing sector as it is still plagued
with persistent structural bottlenecks and supply-side constraints.
The highest growth at the sub-sectoral level is targeted for community, social and personal
service related activities, followed by hotel and restaurant; transport, storage and
communication; education; electricity, gas and water; and health and social work (all above 7.5%
growth rate). While real estate and commercial activities, and financial intermediation are
expected to register growth rate of over 6%, wholesale and retail trade growth is estimated at
5.5%. Note that most of these are driven by remittances-backed demand. In essence, this plan
doesn’t aim to change much (wrt economic fundamentals required for promoting high-
productivity and jobs-generating activities), but let the economic activities be driven by
exogenous factors (mainly remittances sent from abroad).
Poverty and social development: The government is targeting to reduce proportion of population
living below the national poverty line to 18% from 25.2% in FY2011 and an estimated 23.8% in
FY2013. The targets for maternal mortality rate (per 100,000 birth) is 134 from 229 in FY2013,
net enrolment rate at primary education target is 100% from 95.3% in FY2013, and area under
forest cover is targeted at 40%, marginally up from 39.6% in FY2013.
Similarly, the targets for population with access to drinking water, sanitation, and electricity are
set at 96%, 91% and 87%, respectively. They were 85%, 32% and 67%, respectively, in FY2013.
Furthermore, the government targets to add 668 MW by FY2016 (major contribution coming
from the completion of 456 MW Upper Tamakoshi hydropower project). It is targeting cent
percent telephone (including mobile) access by FY2016. While aiming to construct 3,000 kms of
road, the government is also targeting to link all district headquarter by road transport.
Investment: Of the total investment required to realize the growth rate, the government is
expecting the private sector to contribute 68.7%. The government is expecting 100% private
sector investment in real estate, rent and commercial services, and construction. The contribution
of private sector in total investment is expected to be over 90% in manufacturing (here, mining
and quarrying is missing!); construction; wholesale and retail trade; hotel and restaurant; and real
estate, rent and commercial activities. Now, if the government is expecting major investment to
come from private sector to support economic activities, then it should have explicitly laid out
the steps it will initiate to ensure an investor-friendly environment. Apparently, this is missing or
even if it will be laid out in the final version, there are ample reasons to doubt its effective
implementation. No wonder, the plan has received lukewarm response from the private
Overall, the government is targeting total investment of about 25.8% of GDP by FY2016, with
private and public sector contributing 17.7% of GDP and 8.1% of GDP, respectively. While
about 4% of GDP is expected to be invested in agriculture and industry sectors each, the
investment target in services sector is about 17.5% of GDP over the next three years. Highest
investment of 6.1% of GDP in expected in transport, storage and communication sub-sector.

The incremental capital output ratio (ICOR) has been maintained at 4.9 (think of it as investment
as a share of GDP divided by GDP growth rate). It shows the level of inefficiency of capital
investment, largely contributed by the lack of prerequisites (energy, roads, ICT, quality of human
resources, among others) to ensure productive and efficient investments. The highest ICOR is for
electricity, gas and water (22), followed by health and social work (8.9); transport, storage and
communication (8.7); hotel and restaurant (7); community, social, personal service related
activities (6); real estate and commercial activities (5.5); and financial intermediation (5.5).
 Priorities:
 Hydro and other energy development
 Agriculture productivity, diversification and commercialization
 Road and other physical infrastructures
 Social sector: basic education, health, drinking water and sanitation
 Tourism, industry and trade
 Good governance

2. Poverty, inequality, population growth and development; Measuring poverty and

inequality; Basic issues and challenges of population growth, Quality of life - issues;
Migration and urbanization trends and issues.
Poverty Condition where people are basic needs for food, clothing, and shelter are not being met.
Poverty is generally of two types: (1) Absolute poverty is synonymous with destitution and
occurs when people cannot obtain adequate resources (measured in terms of calories or nutrition)
to support a minimum level of physical health. Absolute poverty means about the same
everywhere, and can be eradicated as demonstrated by some countries. (2) Relative poverty
occurs when people do not enjoy a certain minimum level of living standards as determined by a
government (and enjoyed by the bulk of the population) that vary from country to country,
 sometimes within the same country. Relative poverty occurs everywhere, is said to be increasing,
and may never be eradicated.
United Nations: Fundamentally, poverty is the inability of getting choices and opportunities, a
violation of human dignity. It means lack of basic capacity to participate effectively in society. It
means not having enough to feed and clothe a family, not having a school or clinic to go to, not
having the land on which to grow one’s food or a job to earn one’s living, not having access to
credit. It means insecurity, powerlessness and exclusion of individuals, households and
communities. It means susceptibility to violence, and it often implies living in marginal or fragile
environments, without access to clean water or sanitation,
World Bank: Poverty is pronounced deprivation in well-being, and comprises many dimensions.
It includes low incomes and the inability to acquire the basic goods and services necessary for
survival with dignity. Poverty also encompasses low levels of health and education, poor access
to clean water and sanitation, inadequate physical security, lack of voice, and insufficient
capacity and opportunity to better one’s life. Absolute poverty is a condition characterized by
severe deprivation of basic human needs, including food, safe drinking water, sanitation
facilities, health, shelter, education and information. It depends not only on income but also on
access to social services. The term 'absolute poverty' is sometimes synonymously referred to as
'extreme poverty.
Vicious circle of poverty; in economics, the cycle of poverty is the "set of factors or events by
which poverty, once started, is likely to continue unless there is outside intervention." The cycle
of poverty has been defined as a phenomenon where poor families become trapped in poverty for
at least three generations. These families have either limited or no resources. The poverty cycle
is usually called "development trap" when it is applied to countries. no income no saving no
investment, no production, no...
Quality of life Daily living enhanced by wholesome food and clean air and water, enjoyment of
unfettered open spaces and bodies of water, conservation of wildlife and natural resources,
security from crime, and protection from radiation and toxic substances. It may also be used as a
measure of the energy and power a person is endowed with that enable him or her to enjoy life
and prevail over life's challenges irrespective of the handicaps he or she may have.
Dimensions of quality of life A first set of indicators has been published and work is still on-
going to fill in the gaps and possibly make recommendations for new indicators to be collected
within this framework. Based on academic research and several initiatives, the following 8+1
dimensions/domains have been defined as an overarching framework for the measurement of
well-being. Ideally, they should be considered simultaneously, because of potential trade-offs
between them:
 Material living conditions (income, consumption and material conditions)
 Productive or main activity, Health ,Education .Leisure and social interactions
 Economic and physical safety ,Governance and basic rights
 Natural and living environment ,Overall experience of life
Inequality
The condition of being unequal; lack of equality; disparity: Unlike poverty, which concentrates
on the situation of those at the bottom of society, inequality shows how resources are distributed
across the whole society. This gives a picture of the difference between average income, and
what poor and rich people earn, and highlights how well different Member States redistribute or
share the income they produce. The most used inequality measure is Gini index as a ratio of two
areas in Lorenz curve diagrams values between 0 and 1. A low Gini coefficient indicates more
equal income or wealth distribution, while high Gini coefficient indicates more unequal
distribution. 0 corresponds to perfect equality and 1 corresponds to perfect inequality. The
problem with Gini index are: the measure will give different result when applied to individuals
instead of households; it measures in certain time, ignores life-span changes in income; in some
societies people may have significant income in other forms than money as in subsistence
farming, the value of these incomes is difficult to quantify, thus will yield different Gini index.
Another inequality measurement is Theil index which is a weighted average of inequality within
subgroups, plus inequality among those subgroups, means that Theil index has decomposability
that Gini index doesn’t have. The Theil index is always positive, individual contributions to the
Theil index may be negative or positive. But Gini index is more popular than Theil for its
depicted on Lorenz curve which is more intuitive to understand.
Measurement income inequality in the EU is normally measured in two ways: the S80/S20 ratio
and the Gini coefficient. Both these measures can be difficult to understand and have some basic
limitations in terms of capturing an accurate picture on inequality.
The S80/S20 ratio is the ratio of the total income received by the 20% of the country’s
population with the highest income to that received by the 20% of the country’s population with
the lowest income. The higher the ratio the greater the inequality.

Measuring poverty and inequality

The headcount index (P0) measures the proportion of the population that is poor. It is popular
because it is easy to understand and measure. But it does not indicate how poor the poor are. The
poverty gap index(P1) measures the extent to which individuals fall below the poverty line (the
poverty gaps) as a proportion of the poverty line. The sum of these poverty gaps gives the
minimum cost of eliminating poverty, if transfers were per-fectly targeted. The measure does not
reflect changes in inequality among the poor. The squared poverty gap index (also known as the
poverty severity index, P2) averages the squares of the poverty gaps relative to the poverty line.
It is one of the Foster-Greer-Thorbecke (FGT) class of poverty measures that allow one to vary
the
amount of weight that one puts on the income (or expenditure) level of the poorest members in
society. The FGT poverty measures are additively decomposable. It is also possible to separate
changes in the FGT measures into a component resulting from rising average incomes, and a
component resulting from changes in the distri- bution of income.
Multidimensional Poverty Index
The Multidimensional Poverty Index (MPI) was developed in 2010 by Oxford Poverty & Human
Development Initiative and the United Nations Development Programme and uses different
factors to determine poverty beyond income-based lists. The global Multidimensional Poverty
Index (MPI) is an international measure of acute poverty covering over 100 developing
[Link] index uses the same three dimensions as the Human Development Index: health,
education, and standard of living. These are measured using ten indicators.
Dimension indicators
Health Child Mortality and Nutrition
Education Years of schooling and School attendance
Cooking fuel, Toilet, Water, Electricity, Floor,
Living Standards
and Assets

MPI
Dime
Weigh
nsion
Indicators Person is deprived if living in a t of Corresponding
s of
of Poverty household where... indicat SDG Area
Pover
or
ty
Any person under 70 years of age
SDG 2: Zero
Nutrition for whom there is nutritional 1/6
Health Hunger
information is undernourished.
(1/3)
A child under 18 has died in the SDG 3: Health and
Child
household in the five-year period 1/6 Well-being
mortality
preceding the survey.
No eligible household member has SDG 4:
Years of
completed six years of 1/6 Quality
Educat schooling
schooling. Education
ion
Any school-aged child is not SDG 4:
(1/3)
School attending school up to the age at Quality
1/6
attendance which he/she would complete class Education
8.
A household cooks using solid SDG 7: Affordable
fuel, such as dung, agricultural and Clean Energy
Cooking fuel 1/18
crop, shrubs, wood, charcoal, or
coal.
The household SDG 6:
has unimproved or no sanitation fac Clean Water
Sanitation 1/18
ility or it is improved and Sanitation
but shared with other households.
Living The household’s source SDG 6:
Stand of drinking water is not safe or Clean Water
Drinking
ards safe drinking water is a 30- 1/18 and Sanitation
water
(1/3) minute or longer walk from
home, roundtrip.
SDG 7: Affordable
Electricity The household has no electricity. 1/18
and Clean Energy
The household SDG 11:
has inadequate housing materials Sustainable Cities
Housing 1/18
in any of the three and Communities
components: floor, roof, or walls.
The household does not own SDG 1:
more than one of these assets: No Poverty
radio, TV, telephone, computer,
Assets 1/18
animal cart, bicycle, motorbike, or
refrigerator, and does not own a car
or truck.

Human development index

The HDI is a summary measure for assessing long-term progress in three basic
dimensions of human development—a long and healthy life, access to knowledge
and a decent standard of living.
Nepal’s human development index (HDI) value in 2021 stood at 0.602 which is
third worst after the war-torn Afghanistan and Pakistan, which is also facing an
economic crisis lately, according to the report titled ‘Making our future: New
directions for human development in Asia and the Pacific,’ released on Sunday by
United Nations Development Programme (UNDP).
Human development index is A tool developed by the United Nations to measure and rank
countries' levels of social and economic development based on four criteria: Life expectancy at
birth, mean years of schooling, expected years of schooling and gross national income per capita.
The HDI makes it possible to track changes in development levels over time and to compare
development levels in different countries.
Life expectancy at birth, Expected year of schooling, mean year of schooling, GNI per capita

The HDI was created to emphasize that people and their capabilities should be the ultimate
criteria for assessing the development of a country, not economic growth alone. The HDI can
also be used to question national policy choices, asking how two countries with the same level of
GNI per capita can end up with different human development outcomes. For example, Malaysia
has GNI per capita higher than Chile but life expectancy at birth is about 5 years shorter, mean
years of schooling is shorter and expected years of schooling is 2.5 years shorter resulting in
Chile having a much higher HDI value than the Malaysia. These striking contrasts can stimulate
debate about government policy priorities.
Nepal ranked 145th in human development rankings. Nepal has also improved its ranking in
Gender Inequality Index. The country is now ranked 98th from 102nd last year.
Human Poverty Index
Some of the dimensions of human poverty are manifested in a short life, illiteracy, exclusion and
lack of private and public resources, and also in various combinations of these The Human
Povety Index (HPI) of UNDP measures deprivation in basic human development by combining
these basic dimensions of poverty and reveals the differences between human poverty and
income poverty. The HPI uses indicators of the most basic dimensions of deprivation, namely, a
short life, lack of basic education and lack of access to public and private resources. It cannot,
however, reveal the full extent of poverty in all its dimensions, although it provides an additional
measure of poverty from the human development perspective.
Measuring Poverty and Inequality
There are several kinds of poverty and inequality measuring tools, here are three ways to
measure poverty and two measures of income inequality. The World Bank defines poverty as
inability to attain minimum standard of living. The first way to measure poverty is by defining
poverty line or poverty threshold which measures minimum living standards based on per capita
income that is sufficient to provide a minimum acceptable level of consumption. The way to set
consumption based poverty line is by PPP method and the food energy method. The PPP method
reflects the cost to individuals to buy goods or services in the domestic market as a dollar in US.
The PPP does not deal with inter country differences in nutrition; because the composition of
consumption is very likely differ in different countries. To handle this problem, the food energy
method is used which defines minimum calorie intake using nutritional values of consumption
goods. However, it’s still problematic as people in different countries may choose different
combination of foods which require different incomes to meet nutritional requirements.
 In practice, the World Bank assigned poverty line $1.25 which means the minimum level of income
deemed necessary to achieve standard of living. This value comes from income or consumption
data survey, estimation of PPP level, and World Bank comparison program. From the value of
poverty line, the number of people under the poverty line can be measured using head count
index. The head count index ignores the extent to which the poor fall below the poverty line.
The third way to measure poverty is poverty gap index which measures the depth or intensity of
poverty, how far the poor are below the poverty line.

Poverty in figure
Absolute Poverty head count index Poverty gap index
Squared poverty gap
poverty index
Year 052/053 069/70 052/053 260/61 66/67 052/053 260/61 66/67 052/053 260/61 66/67
Nepal 42% 23.8% 41.76 30.85 25.96 11.75 7.60 5.43 4.67 2.70 1.81
City 21.56 15.46 21.55 9.55 15.46 6.54 2.20 3.19 2.65 0.70 1.01
Village 43.27 27.43 43.27 34.62 27.43 12.14 8.50 5.96 4.83 3.10 2.00

Over all Gini coefficient on the basis of consumption expenditure 0.328

Urban city area Gini coefficient on the basis of consumption expenditure 0.353
Rural area Gini coefficient on the basis of consumption expenditure 0.311
The millinium development goal states that
The decreasing rate in poverty from 1996 to 2004 annually 1.5%
The decreasing rate in poverty from 2004 to 2013 annually 2.5%

According to the 2022-23 official poverty line, an individual in Nepal is classified as poor if their
annual per capita total consumption expenditure is less than NRs. 72,908. 20.27 percent of the
population in Nepal lives below the new poverty line (Table 9). The incidence of poverty is
higher in rural areas (24.66 percent) than in urban areas (18.34 percent). Two complementary
measures to understand the incidence of poverty include the poverty gap and the squared poverty
gap. The poverty gap index measures the extent to which the mean income of individuals on
average fall below the poverty line as a proportion of the poverty line. It ranges between 0 and
100. A Poverty Gap index of 0 indicates no one is below the poverty line, and a value of 100
indicates zero income for all individuals. Nepal has a Poverty Gap index of 4.52 percent,
implying that a total of NRs. 94.71 billion is needed to bring the poor up to the minimum welfare
threshold defined by the new poverty line in 2022-23 assuming perfect targeting and zero
leakage. The average shortfall of mean income is higher in rural areas at 5.64 percent compared
to 4.03 percent in urban areas.

The headcount index and the poverty gap do not measure the inequalities among poor
individuals. The Squared Poverty Gap, a weighted sum of the poverty gaps, measures poverty
severity among the poor. With weights proportional to the poverty gap, it puts more weight on
the individuals whose observed consumption is farther away from the poverty line. Table shows
that the relative deprivation for the poor individuals is more severe in rural areas (1.91 percent)
than in urban areas (1.29 percent). The Gini index is a measure of statistical dispersion and
captures the extent of consumption inequality in Nepal. The Gini index is based on inequality in
the per capita consumption expenditures, adjusted to account for spatial and seasonal price
 differences. The Gini measures the amount by which any two households differ in terms of per
capita spending, relative to the average.
The Gini index ranges between 0 to 1, where a value of 0.0 represents perfect equality, while a
Gini of 1.0 reflects perfect inequality. The Gini index for Nepal in 2023 stands at 0.30. The value
for urban domains (0.303) is higher than rural (0.287) indicating larger inequalities in per capita
consumption spending in urban areas.
Poverty in figure
Poverty incidence Distribution
Headcount rate Poverty gap Poverty gap Gini Index of the of the
Region (percent) squared poor population
(percent)
Nepal 20.27 4.52 1.48 0.300
Urban 18.34 4.03 1.29 0.303 62.86 69.48
Rural 24.66 5.64 1.91 0.287 37.14 30.52

Seasonal poverty is considerably lower during the third season, between October and January,
There is considerable variation in the incidence of poverty across the seven provinces
Poverty rate is highest in Sudarpaschim (34.16 percent), followed by Karnali (26.69 percent),
Lumbini (24.35 percent) and Madhesh (22.53 percent).
Causes of poverty
In terms of individuals, some key factors are seen as making a person more “at risk” of being in
poverty such as: unemployment or having a poor quality (i.e. low paid or precarious) job as
this limits access to a decent income and cuts people off from social networks;
 low levels of education and skills because this limits people’s ability to access decent jobs to
develop themselves and participate fully in society;
 the size and type of family i.e. large families and lone parent families tend to be at greater risk
of poverty because they have higher costs, lower incomes and more difficulty in gaining well
paid employment;
 gender - women are generally at higher risk of poverty than men as they are less likely to be in
paid employment, tend to have lower pensions, are more involved in unpaid caring
responsibilities and when they are in work, are frequently paid less ;
 disability or ill-health because this limits ability to access employment and also leads to
increased day to day costs;
 being a member of minority ethnic groups such as the Roma and immigrants/undocumented
migrants as they suffer particularly from discrimination and racism and thus have less chance to
access employment, often are forced to live in worse physical environments and have poorer
access to essential services;
 living in a remote or very disadvantaged community where access to services is worse.
All these factors create additional barriers and difficulties, but should be seen within the overall
structural context of how a particular country chooses to distribute wealth and tackle inequality.

Population below poverty line (%)

 Country 1995 2003 2004 2008 2011 2015 2023
Nepal 42 31 30.9 24.7 25.2 21.8 20.27

Extreme poverty = $1.25 per person per day (or below national poverty lines in some cases). This basic
statistical measure is based on consumption or expenditure as recorded by household surveys.
•Severe poverty = $0.70 per person per day, based on the average consumption of the poor in sub-
Saharan Africa (or in some cases consumption below national food or severe poverty lines).
•Chronic poverty = extreme poverty that persists over years or a lifetime, and that is often transmitted
intergenerational.
•Impoverishment = descent into extreme poverty.
•Sustained escapes from extreme poverty = staying out of poverty and progressing towards a higher
threshold (such as $2 per person per day).
•Panel household survey = a survey that tracks the same households over several years, enabling the
tracking of movements in and out of poverty.
•Multidimensional deprivation/poverty = the Oxford Poverty and Human Development Initiative defines
this as being ‘deprived in 3 of 10 assets and capabilities’; and severe deprivation as being deprived in
half of these indicators.

Definition: Population below $1.25 a day is the percentage of the population living on less than
$1.25 a day at 2005 international prices. As a result of revisions in PPP exchange rates, poverty
rates for individual countries cannot be compared with poverty rates reported in earlier editions.
Measuring Poverty
There are many different definitions and concepts of well-being. This site focuses on three
aspects of well-being: poverty, defined as whether households or individuals have enough
resources or abilities today to meet their needs; inequality in the distribution of income,
consumption or other attributes across the population; and vulnerability, defined here as the
probability or risk today of being in poverty – or falling deeper into poverty -- in the future. It
then briefly presents some of the issues which arise when measuring poverty, including issues of
comparability between surveys, before turning to the types of measurement which can be
undertaken for various types of data sources.
To compute a poverty measure, three ingredients are needed:
1. One has to define the relevant welfare measure.
2. One has to select a poverty line – that is a threshold below which a given household or individual
will be classified as poor.
3. One has to select a poverty indicator– which is used for reporting for the population as a whole
or for a population sub-group only.
Monetary dimensions of poverty, Consumption is a better outcome indicator than income
Consumption may be better measured than income: Consumption may better reflect a
household’s ability to meet basic needs: Non-monetary dimensions of poverty
Health and nutrition poverty, Education poverty:
Inequality
The most used inequality measure is Gini index as a ratio of two areas in Lorenz curve diagrams
values between 0 and 1. A low Gini coefficient indicates more equal income or wealth
distribution, while high Gini coefficient indicates more unequal distribution. 0 corresponds to
perfect equality and 1 corresponds to perfect inequality. The problem with Gini index are: the
measure will give different result when applied to individuals instead of households; it measures
in certain time, ignores life-span changes in income; in some societies people may have
significant income in other forms than money as in subsistence farming, the value of these
incomes is difficult to quantify, thus will yield different Gini index.
Another inequality measurement is Theil index which is a weighted average of inequality within
subgroups, plus inequality among those subgroups, means that Theil index has decomposability
that Gini index doesn’t have. The Theil index is always positive, individual contributions to the
Theil index may be negative or positive. But Gini index is more popular than Theil for it’s
depicted on Lorenz curve which is more intuitive to understand.
A second definition of welfare which is often considered in analysis is that of ‘relative’ poverty,
defined as having little in a specific dimension compared to other members of society. This
concept is based on the idea that the way individuals or households perceive their position in
society is an important aspect of their welfare. To a certain extent, the use of a relative poverty
line in the previous sections does capture this dimension of welfare by classifying as ‘poor’ those
who have less than some societal norm.
The overall level of inequality in a country, region or population group and more generally the
distribution of consumption, income or other attributes is also in itself an important dimension
of welfare in that group. Inequality measures can be calculated for any distribution not just for
consumption, income or other monetary variables, but also for land and other continuous and
cardinal variables.
Some commonly used measures are presented in Technical Note: Inequality Measures and their
Decompositions. For a discussion of the properties and qualities of alternative measures, please
consult Inequality: Methods and Tools , which presents the five key axioms which inequality are
usually required to meet. The paper also discusses the calculation of standard errors for usual
measures, which is useful for comparisons between estimates of inequality for different
distributions.
Gini-coefficient of inequality: This is the most
commonly used measure of inequality. The
coefficient varies between 0, which reflects complete
equality and 1, which indicates complete inequality
(one person has all the income or consumption, all
others have none). Graphically, the Gini coefficient
can be easily represented by the area between the
Lorenz curve and the line of equality.
On the figure to the right, the Lorenz curve maps the
cumulative income share on the vertical axis against
the distribution of the population on the horizontal
axis. In this example, 40 percent of the population
obtains around 20 percent of total income. If each individual had the same income, or total
equality, the income distribution curve would be the straight line in the graph – the line of total
equality. The Gini coefficient is calculated as the area A divided by the sum of areas A and B. If
income is distributed completely equally, then the Lorenz curve and the line of total equality are
merged and the Gini coefficient is zero. If one individual receives all the income, the Lorenz
curve would pass through the points (0,0), (100,0) and (100,100), and the surfaces A and B
would be similar, leading to a value of one for the Gini-coefficient.
It is sometimes argued that one of the disadvantages of the Gini coefficient is that it is not
additive across groups, i.e. the total Gini of a society is not equal to the sum of the Ginis for its
sub-groups.
Theil-index: While less commonly used than the Gini coefficient, the Theil-index of inequality
has the advantage of being additive across different subgroups or regions in the country. The
Theil index, however, does not have a straightforward representation and lacks the appealing
interpretation of the Gini coefficient. The Theil index is part of a larger family of measures
referred to as the General Entropy class.
Decile dispersion ratio: Also sometimes used is the decile dispersion ratio, which presents the
ratio of the average consumption or income of the richest 10 percent of the population divided by
the average income of the bottom 10 percent. This ratio can also be calculated for other
percentiles (for instance, dividing the average consumption of the richest 5 percent – the 95th
percentile – by that of the poorest 5 percent – the 5th percentile). This ratio is readily
interpretable, by expressing the income of the rich as multiples of that of the poor.
Share of income/consumption of the poorest x%: A disadvantage of both the Gini coefficients
and the Theil indices is that they vary when the distribution varies, no matter if the change occurs
at the top or at the bottom or in the middle (any transfer of income between two individuals has
an impact on the indices, irrespective of whether it takes place among the rich, among the poor
or between the rich and the poor). If a society is most concerned about the share of income of the
people at the bottom, a better indicator may be a direct measure, such as the share of income that
goes to the poorest 10 or 20 percent. Such a measure would not vary, for example, with changes
in tax rates resulting in less disposable income for the top 20 percent at the advantage of the
middle class rather than the poor.
It is possible that different measures will rank the same set of distributions in different ways,
because of their differing sensitivity to incomes in different parts of the distribution. When
rankings are ambiguous, the alternative method of stochastic dominance can be applied. The
attached paper Inequality: Methods and Tools discusses a type of stochastic dominance which
can be used for unambiguous comparisons of inequality across distributions: the mean-
normalized second-order dominance, or Lorenz dominance.
Basic issues and challenges of population growth,

Population growth and development

Supply of some natural resources (non-renewable) and capital is fixed Supply would grow more
slowly than the population Theories of Population and Development interrelations
Malthusian theory Population tends to increase at a geometric rate, Food can only increase
arithmetically, Population expands to eat up any surplus, Subsistence wages forever unless moral
checks, Choose moral checks or positive checks
Coale-Hoover Theory High population growth causes poor socio-economic development
Policy Implications: Government should intervene to control population
The Optimistic Theories Population growth exerts a positive influence on economic
development ŠHuman ingenuity would create the technology to overcome any environmental
constraints to development
Marxism and Population A “Surplus population “is a creation of capitalism, and a necessary
condition for its continuance Capitalism requires a surplus of readily exploitable manpower
“which it creates by expropriating land, and by displacing workers with machines
Population growth and specific aspects of development
Population and deforestation, and agriculture development
Population and employment
Population growth and education
Population, food and nutrition
Population and water resources
Population and urbanization
Population growth has a substantial impact on economic development. There are two schools of
thought regarding this issue. Some researchers maintain that population has a negative impact on
economic development while others are convinced that the effect is positive.
Some theoretical analyses argue that high population growth creates pressures on limited natural
resources, reduces private and public capital formation, and diverts additions to capital resources
to maintaining rather than increasing the stock of capital per worker. Others point to positive
effects such as economies of scale and specialization, the possible spur to favorable motivation
caused by increased dependency, and the more favorable attitudes, capacities, and motivations of
younger populations compared with older ones. The actual evidence on the association between
growth rates of population and per capita income does not point to any uniform conclusion,
though the true relationship may be obscured in a simple two-variable comparison. None of this
means that per capita income growth, currently and in the past, would have been the same if
population growth rates had been markedly higher or lower. But it is possible that the effect of
population growth on economic development has been exaggerated, or that no single
generalization is justified for countries differing as widely in growth rates, densities, and income
levels as do today's less developed areas. Clearly there is need for more intensive research on the
actual experience of nations, currently and in the past.
In 1798, Thomas Robert Malthus published his Essay on the Principle of Population. It proved
to be one of the most enduring works of the time. Malthus’s fundamental argument was that
population growth will inevitably collide with diminishing returns. Diminishing returns imply
that adding more labor to a fixed quantity of land increases output, but by ever smaller amounts.
Eventually, Malthus concluded, increases in food production would be too small to sustain the
increased number of human beings who consume that output. As the population continued to
grow unchecked, the number of people would eventually outstrip the ability of the land to
generate enough food. There would be an inevitable Malthusian trap, a point at which the world
is no longer able to meet the food requirements of the population, and starvation becomes the
primary check to population growth.

Population The total number of people inhabiting a specific area. The total number of persons
inhabiting a country, city, or any district or area.
1. People in place: all of the people who inhabit an area, region, or country
2. All people of group: all of the people of a particular nationality, ethnic group, religion, or class
who live in an area
3. Number of people: the total number of people who inhabit an area, region, or country, or the
number of people in a particular group who inhabit an area
4. Act of supplying inhabitants: the populating of an area with inhabitants
5. Individuals of same species: all the plants or animals of a particular species present in a place
6. Statistics group statistically sampled: the entire group of individuals or items from which a
sample may be selected for statistical measurement
The population of Nepal is estimated to be 30,494,504 people based on the 2014 census, with a
population growth rate of 1.596% and a median age of 21.6 years. Female median age is
estimated to be 22.5 years, and male median age to be 20.7 years. Only 4.4% of the population is
estimated to be more than 65 years old, comprising 681,252 females and 597,628 males. Sixty
one per cent of the population is between 15 and 64 years old, and 34.6% is younger than 14
years. Birth rate is estimated to be 22.17 births/1,000 population with an infant mortality rate of
44.54 deaths per 1,000 live births. Life expectancy at birth is estimated to be 67.44 years for
females and 64.94 years for males. Death rate is estimated to be 681 deaths per 100,000 people.
Net migration rate is estimated to be 61 migrants per 100,000 people. According to the 2011
census, 65.9% of the total population is literate.
Population Growth
Over the past 300 years, the population of nearly every major area in the world has increased
exponentially, so much so that certain places have instituted incentives to couples who agreed to
have fewer children. For the last 50 years, world population multiplied more rapidly than ever
before, and more rapidly than it is projected to grow in the future. In 1950, the world had 2.5
billion people; and in 2005, the world had 6.5 billion people. By 2050, this number could rise to
more than 9 billion. World population growth accelerated after World War II, when the
population of less developed countries began to increase dramatically. After millions of years of
extremely slow growth, the human population indeed grew explosively, doubling again and
again; a billion people were added between 1960 and 1975; another billion were added between
1975 and 1987. Throughout the 20th century each additional billion has been achieved in a
shorter period of time. Human population entered the 20th century with 1.6 billion people and
left the century with 6.1 billion.
Population growth rate
The "population growth rate" is the rate at which the number of individuals in a population
increases in a given time period, expressed as a fraction of the initial population. Specifically,
population growth rate refers to the change in population over a unit time period, often expressed
as a percentage of the number of individuals in the population at the beginning of that period.
This can be written as the formula, valid for a sufficiently small time interval:
Population growth and development; The growing imbalance between economic development
and population growth has been a major concern worldwide. The western and developed
countries have negative population growth, which is likely to cause an acute shortage of active
human resource. On the contrary, the developing countries are facing the problem of high rate of
population growth compared to their economic growth rate. The imbalance between the
population and economic growth is posing a serious humanitarian crisis in the developing
countries. Despite serious efforts to control high population growth, the situation is still far from
satisfactory. Nepal is also not an exception. Nepal also shares similar problem as other
developing countries are facing at present. According to experts, the economic growth needs to
be at least three times higher that of the population growth rate in order to have sound economic
growth and development. However, it could not have been so in Nepal. Although the population
growth rate has declined over the years due mainly to the massive awareness generated in the
past, economic growth has not been encouraging. As a result, there has not been positive
equilibrium between economic growth and population rise. Despite decline in birth rate, Nepal’s
population continues to grow rapidly due to migration misusing the open border. If the present
trend continues, Nepal will face a population time bomb in near future, which will have negative
impact on all sectors.
As Nepal may be heading towards a big humanitarian and developmental crisis, immediate
measures need to take in order to maintain positive and healthy balance between development
and population. Already stung by massive poverty, huge unemployment and low level of
development, Nepal has already experienced several social, economic and environmental
problems. As the population is growing rapidly, the nation is increasingly facing food insecurity.
Several districts in the mountainous and Himalayan region e very year face acute food shortage,
which is a cause of growing imbalance between the production and population. The growing
population rate has put more pressure on the natural resources, which is likely to create further
catastrophes. The country is facing more environmental problem than ever before and
agricultural productivity has declined. Poverty and population growth appear to be twin children
and it is apparent that without addressing one, the other problem cannot be solved. Moreover, the
low level of education, especially among the rural population, may also have been a major factor
of this imbalance. Against this background, an integrated approach is necessary to
simultaneously address both poverty and population growth. It is now imperative that serious
efforts from all sides need to be made to strike a balance between the population and economic
growth to ensure a sustainable future of the country and the people.
Population growth and food crisis
-Environmental degradation: -Economic stagnation-Maternal mortality:-Political unrest:
Urbanization Changing demographics Persistent international migration Environment Climate
Change, water, energy biodiversity
Quality of life - issues; Quality of life (QOL) is the general well-being of individuals and societies. QOL
has a wide range of contexts, including the fields of international development, healthcare, politics and
employment. It is important not to mix up the concept of QOL with a more recent growing area of
health related QOL (HRQOL. When we look at HRQOL we in effect look at QOL and its relationship with
health. Quality of life should not be confused with the concept of standard of living, which is based
primarily on income.
Daily living enhanced by wholesome food and clean air and water, enjoyment of unfettered open
spaces and bodies of water, conservation of wildlife and natural resources, security from crime,
and protection from radiation and toxic substances. It may also be used as a measure of the
energy and power a person is endowed with that enable him or her to enjoy life and prevail over
life's challenges irrespective of the handicaps he or she may have.
Issue in health related
Issue in environment related
Issue in education and other social issue related
Issue with opportunity related
Issue with different diseases rtelated
hg;+VofnfO{ c;/ kfg]{ tLg tTjx?dWo] a;fO{;/fO{ klg Ps xf] .
a;fO{ ;/fO{ klg @ lsl;dsf x'G5g\ cfGtl/s / cGt/f{li6«o a;fO
;/fO{ . cfGtl/s a;fO{ ;/fO{n] hg;+Vof 36a9df s'g} c;/ kb}{g
o;n] hg;+Vof ljt/0fdf km/s kfb{5 eg] cGt//f{l6«o a;fO{
;/fO{n] b]zsf] hg;+Vofsf] l:yltdf km/s kfb{5 .
g]kfndf j;fO{ ;/fO{sf] gLlt of]hgfj4 ljsf;sf] qmd;u} ljsf;
ePsf] kfOG5 . dflg;x? ;'lawfef]uL x'G5g / hxf ;'lawf k|fKt
 x'G5 eGg] ;f]Rb5g Toxf a;fO{ ;/fO{ u5{g\ . g]kfndf a;fO{
;/fO{sf] cWoog dxTjk"0f{ x'G5 lsgsL oxf+ b'j} cfGtl/s /
cGt/f{li6«o a;fO{ ;/fO{df Jofkstf cfO{/x]sf] 5 .
a;fO{ ;/fO{n] hg;+Vofdf kfg]{ c;/
– j[l4b/df c;/
– agfj6df c;/
– ljt/0fdf c;/
– Job Market df bjfj
– j]/f]huf/L a9\5
– o'jf hg;+Vof a9L x'g] ePsf] n] High Demand / Aspiration h'g
kl/k"t{ ug{ cfly{s bjfj a9\5 .
– s[lif of]Uo e"lddf bjfj
– Place of origin sf lgj{n ;d"xdf k|efj
– jg h+unsf] gfz
– jftfj/0fdf c;/
– :yflgo ljsf;sf] jh]6df c;/
– cf}Bf]lus If]qdf bjfj
Migration and urbanization trends and issues.
Migration is the movement of people from one place to another. Migration happens for a range
of reasons. These can be economic, social, political or environmental. Push and pull factors drive
migration.
What are the main types of migration?
Migration can be permanent, temporary, voluntary or forced. It can be international or internal.
Permanent migration is when someone moves from one place to another and has no plans to
return to their original home. Temporary migration is limited by time. This could be for seasonal
employment. Forced migration involves the migrant having no choice but to move. Voluntatry
migration is the opposite of this.
International migration is when a person moves from one country to another country. For
example people moving from the UK to the USA. Internal migration is when people migrate
within the same country or region. An example of this would be someone migrating from
Manchester to London.
There are many different definitions of migration, but all include these essential qualities:
 Migration exhibits predictable movement of an animal from one location and climate to another
location and climate.
 Typically these movements are linked to resource availability, seasonal changes and
reproduction.
People migrate for many different reasons. These reasons can be classified as economic, social,
political or environmental:
 economic migration - moving to find work or persue a particular career
 social migration - moving to be closer to family or friends or for a better quality of life
 political migration - moving to escape war or political persecution
 environmental causes of migration include natural disasters such as an earthquake
 Migration can occur as result of push and pull factors.
 Push factors are those which force a person to move. This can include drought, famine, lack
of jobs, over population and civil war.
 Pull factors are those which encourage a person to move. These include a chance of a better
job, better education, a better standard of living.
Over the past decade, Nepal has experienced a surge in migration for employment to various
destination countries. As more and more Nepali citizens depart for foreign jobs, regulators and
stakeholders face new challenges in managing the migratory cycle and ensuring that the well-
being and rights of all migrant workers are safeguarded.
Trends in International migration Key features of international migration, Temporary labour
migration, Feminization of labor migration, Student migration, Irregular migration, Trafficking
Remittances, Refugees
Urbanization is a population shift from rural to urban areas, "the gradual increase in the
proportion of people living in urban areas", and the ways in which each society adapts to the
change. It is predominantly the process by which towns and cities are formed and become larger
as more people begin living and working in central areas. The United Nations projected that half
of the world's population would live in urban areas at the end of 2008. It is predicted that by
2050 about 64% of the developing world and 86% of the developed world will be urbanized.
Urbanization occurs as individual, commercial flight, social and governmental efforts reduce
time and expense in commuting and transportation and improve opportunities for jobs,
education, housing, and transportation. Living in cities permits the advantages of the
opportunities of proximity, diversity, and marketplace competition. However, the advantages of
urbanization are weighed against alienation issues, stress, increased daily life costs, and negative
social aspects that result from mass marginalization.
Out-migration from Nepal, 1961–2001, based on the absent population (gone abroad)
Population census Total population Absent population % of total population
1961 9,741,466 328,470 3.4
1971 NA NA NA
1981 15,425,816 402,977 2.6
1991 19,149,387 658,290 3.4
2001 23,499,115 762,181 3.2
2011* 26,494,504 1,921,494 7.3

*CBS, 2011
Policy issues in development – Current status and dimensions of economic policies in
Nepal; Economic liberalization policies adopted by Nepal and their impact; Privatization
policy and its effective implementation. Nepal’s current Industrial, Agricultural, Tourism
and Hydropower policies. Prospects of Foreign direct investment and Economic diplomacy
in the context of Nepal.

The actions taken by a government to influence its economy. Types of economic

policy actions can include setting interest rates through a federal reserve,
regulating the level of government expenditures, creating private property rights,
and setting tax rates.

An economic policy is a course of action that is intended to influence or control the behavior of the
economy. Economic policies are typically implemented and administered by the government. Examples
of economic policies include decisions made about government spending and taxation, about the
redistribution of income from rich to poor, and about the supply of money
Economic policy is the term used to describe government actions that are intended to influence the
economy of a city, state, or nation. Some examples of these actions include setting tax rates, setting
interest rates, and government expenditures.

Goals of economic policy. The goals of economic policy consist of value judgments about what
economic policy should strive to achieve and therefore fall under the heading of normative
economics. While there is much disagreement about the appropriate goals of economic policy,
several appear to have wide, although not universal, acceptance. These widely accepted goals
include:

1. Economic growth: Economic growth means that the incomes of all consumers and firms
(after accounting for inflation) are increasing over time.
2. Full employment: The goal of full employment is that every member of the labor force
who wants to work is able to find work.
3. Price stability: The goal of price stability is to prevent increases in the general price
level known as inflation, as well as decreases in the general price level known as
deflation.
There are three methods a government uses in order to accomplish this task.

Allocative function
Stablization function
Distributive function
Nepal centers around an agrarian economy
One-quarter of the population falls below the poverty line
The unemployment rate is very high
The earthquake, unsurprisingly, will have a devastating effect on the country

Nepal is a small economy having GDP 1928.5 billion rs in 2013/2014 with in annual growth rate
of 3.5. 23.8 % people below poverty line, GDP per capita 772 $. Nepal main natural resource are
agriculture, forest, [Link], herbs. Similar to economies all over the world,Nepal has
experienced economic booms and busts, Recent natural disaster impact country from different
anamolies.
Dimension of economic policy; Fiscal policy, Monetary policy, Sectoral policy and other policy
Mixed economy, planned economy, focused on growth, development and stability. Desire to be
middle income country gradually upgrading from least developed country to developed country.

The economic dimension handles all economic outputs/externalities of the event firm and the
individual event. Values measured range from the direct economic impacts on the host
community and the world- to the more complex indirect impacts, both being of great interest to
event researchers. In the case of the Baseline Evaluation, it is the organisational processes that
influence these values that are scrutinized.

Direct impacts include tangible values such as revenue in the form of tourism receipts and jobs
generated by the event organization itself. Indirect impacts are hotly debated and serve as one of
the main arguments for the need of a research based approach to event evaluation. These include
measurements of catalytic and multiplier effects relevant to the greater region hosting an event.

Economic liberalization in nepal

Economic liberalization refers to those government policies which promote economic growth by
opening up trade to international markets, extending the use of markets and lessening the
restrictions and regulations placed on business. China, Brazil and India, three of the fastest
growing transitioning economies, achieved their economic growth after their governments
liberalized their approach to business. This has led some economists to believe that economic
reform is of greater importance than political reform in developing economies
The meaning of liberalization is to liberate the economy form the clutch of the government and
provide the platform for the enhance role of the private sector in economic activities.
Liberalization seeks to see the transformed role of the government from ruler to facilitator in
order to strengthen the market forces in resource allocation. It refers to the opposite of economic
regulation by the state and includes deregulation of markets, deregulation of prices, privatization
of PEs, delicensing and removal of quota system in foreign trade.
According to World Bank, “Economic liberalization means freeing of prices, trade and entry to
markets from state control while stabilizing the economy”. It is the tool for non-interventionist
approach to development. And it is pursued through reducing public expenditures, privatizing
government owned-enterprises, deregulation and delicensing and curtailing grant and subsidy
provided by the government to different sectors of the economy.
Nepal and economic liberalization
The rapid process of liberalization began in Nepal when for the first time she faced the problem
of BOP deficit in 1982/83 due to the excessive liquidity pumped into the economy by the then
government in order to win the referendum. It devalued the Nepalese currency vis-à-vis to US
dollar by 14.7 percentage point in 1985 in order to overcome to BOP deficit problem. But it
could not solved the problem, therefore, the government approached to the IMF and World Bank
for their assistance in order to absorb the excess liquidity and for that matter 18th month stand-by
arrangement program was implemented as a tool of stabilization. From 1987, Nepal entered into
the W/B and IMF initiated reform programs named under Structural Adjustment Facility – SAF
and Structural Adjustment Program – SAP in order to break the supply side bottlenecks.
The W/B defines SAF as non-project lending to support programs of policy and institutional
change to modify the structure of the economy so that it can maintain both its growth rate and
viability of its balance of payment in the medium term. The loans are geared to seven main areas:
[Link] side reforms: Improving the efficiency with which market operates
[Link] reforms [Link] the price of tradable goods relative to the non-traders
[Link] the correct terms of trade between agriculture goods and industrial goods
[Link] the size of the public sector [Link] reforms [Link] reforms
Types of liberalization •internal liberalization: Real/fiscal and Financial sector liberalization
•External Liberalization: Trade and Exchange rate liberalization
External Liberalization: The external liberalization encompasses the liberalization of current
and capital account. The current account liberalization works particularly through trade
liberalization, which is advocated for accelerating growth through specialization. The external
trade, as it is argued, pierces the problem of narrow domestic market and thereby leads to
generation of larger employment and higher income than it would otherwise be. The external
trade, then, is envisaged as the outlet to break the vicious circle of low income, low demand, low
production, low employment and low income.
Reforms in trade sector: Since the inception of plan development concept in 1960s Nepal
adopted the Import Substitution Industrialization (ISI) trade policy and accordingly foreign
exchange rate policies were pursued. In the period, the nature of the trade was dichotomous-
more or less free with India and controlled with the rest of the world. In other words, imports
form overseas countries were controlled through tariff and non tariff barriers and exports were
more or less freed.
In the early period of 1990, trade policy had been changed from ISI policy to export led
economic growth strategy. Stringent restrictive barriers in the form of high tariff wall and
quantitative restrictions were rationalized. Imports were freed to assist export. The reforms in the
trade sector were sought to put in place through the enhancement of Industrial Policy, 1992 and
Foreign Investment and Technology Transfer Act, 1992. These two acts fully made current
account convertible and capital account partially convertible. The major reforms undertaken in
the trade sector were as follows:
Reforms in Import Regime
[Link] in non-tariff barrier front
Open General License (OGL) system replaced the quantitative restrictions. Prior to the OGL,
Nepal had followed quantitative restriction (QR) policy in order to protect the domestic
industries from the foreign industries, facilitate import of raw materials and intermediate inputs
required for domestic production by local and export – oriented industries, conserve the foreign
exchange and discourage the deflection of good to India.
But this QR policy was not favored by multinationals such as W/B and IMF. So, when Nepal
approached for their help in order to overcome the excess liquidity problem in mid 1980s, they
pressurized to give up QR policy for liberal trade policy.
An import Auction License System (IALS) replaced the administrative quota system in July
1986 for 88 commodities and later on, with the successful conclusion of stand-by arrangement
program, SAL and SAP, entire import goods except some contraband items were put under the
OGL umbrella in July 1993.
[Link] in tariff front
With the replacement of quota system by auction system and later one by OGL system, Nepal
had only one tariff measure left in her hand in order to curb the import in the trade regime. Nepal
had imposed high custom tariffs in order to preserve the competitive capacity of the domestic
industries on the one hand and on the other, a. raise revenue, b. curtail luxury consumption, and
c. preserve foreign reserves and thereby maintain BOP equilibrium at satisfactory level. But
advocates of free trade opine that these objectives are better realized through income tax and
subsidy for domestic production than through custom tax. Both tariff rates and slabs have been
slashed down. Maximum tariff rate has been reduced to 80% from 300% and tax slabs have been
curtailed to 6 categories i.e. 5, 10, 20, 30, 40, and 80 percentage.
Reforms in Export
In the past Nepal has followed export promotion strategy such as export subsidy, dual exchange
rate, bonus system etc. Though these measures are beet effective to diversify Nepalese trade,
they are discriminatory and proved beneficial to business house rather than common mass. Thus
with implementation of adjustment programs bonus and subsidy facilities were replaced by
Bonded Warehouse, and duty draw back system. Exports are tax exempted except 0.5 percent.
Sales tax is replaced by VAT which does not tax [Link] new Trade Policy 1992.
Reforms in Foreign Exchange
Current Account Reform With effect form March 1992 foreign exchange is made partially
convertible. From 1993 it made fully [Link] foreign exchange market is converted to
floating system but it is still pegged 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 there account in convertible currencies if they receive salary in such
currency similarly Nepalese working abroad also can keep there account in convertible currency
in local [Link] Banks can provide loan to exporters (related to trade finance) in
foreign exchange and central bank started to refinance area to commercial bank in US currency
from 1998.
The worldwide movement toward economic, financial, trade, and communications integration.
Globalization implies the opening of local and nationalistic perspectives to a broader outlook of
an interconnected and interdependent world with free transfer of capital, goods, and services
across national frontiers. However, it does not include unhindered movement of labor and, as
suggested by some economists, may hurt smaller or fragile economies if applied indiscriminately

Economic liberalization does not always come without its drawbacks. Domestic companies may
face difficulties in competing with foreign companies once the international trade barriers are
removed. There is also the risk of brain drain and the environmental degradation that can follow
in the wake of deregulation. Many developing third world countries, however, view economic
liberalization as an approach for which there is no alternative.
Privatization policy
Privatization is the strategy or the process which transfers totally or partially, an asset or
enterprise which is owned or controlled, either directly or indirectly, by the state to private
organizations. Privatization provides an opportunity to educate market capitalism, to build
institutions and to reinforce democracy. It is a process of empowerment that makes people
economic and political participants by creating opportunities for ownership and a sense of
involvement in the society at large. Prtivatization is one of the important economic policy
adopted by the most of the states during 1980s and after ward. The economic librization policy
of the government enforced to initiate privatization in Nepal. Nepal has statrted privatization
since 1992. From the period of 1992 to 2008 30 state owned enterprises have been privatized
using the different modalities such as assets and business sales, share sales, management
contract, lease, liquidation, and dissolution. Foolowing table depicts the scenario of these
enterprises.

Year Number of Enterprises

enterprises
privatized
1992 3 Brikuti Paper Factory, Harisidhhi Brick and Tile Factory, Bansbari Leather Shoe Factory.
1993 4 Nepal Film Development Company, Balaju Textile Industry, Raw Hide Collection and Processing
Centre, Nepal Jute Development and Trading Company.
1994 3 Nepal Bitumen and Barrel, Industry, Nepal Lube Oil, Tobacco Development Company.
1996 2 Nepal Metal Factory, Raghupati Jute Mills
1997 1 Nepal Bank Limited
2000 1 Nepal Tea Development Corporation
2001 1 Agriculture Project Service Centre
2002 6 Biratnagar Jute Mills, Himal Cement Industry, Cottage Handicraft Sales
Emporium, Nepal Coal Limited, Hetauda Textile Industry, Nepal Transport Corporation.
2003 3 Butwal Power Company, Birgunj Sugar Factory, Agriculture Inputs Factory
2004 1 Bhaktapur Brick Factory Limited
2006 4 Lumbini Sugar Factory, Nepal Rosin and Turpentine Industry, Agriculture Lime Industry
Limited, Nepal Drilling Company,
2008 1 Nepal Telecom
With the objectives of increasing productivity by improving efficiency, reducing administrative
and financial burden of the Government and increasing private sector participation as well as by
ensuring effectiveness in service delivery, the process of privatization, dissolution and
liquidation of Government-owned public enterprises was started since 1993.
Modalities of privatization

Modalities Assets and Share Assets Management Dissolved Liquidation

business sales sale and contract
sales lease
Number of 3 11 3 1 11 1
enterprises
Percentages 10 36.66 10 0.0333 36.66 0.0333

Challenges of privatization

A lot of problems and hazerds are there in the process of privatizations. The government is not
able to monitor minute problems of privatizations. Still monitoring and evaluation of
performance of privatized enterprises is not made for their positioning. Privatization is
becomming an unsolved issues. Whether privatization is failure or success in nepal still the
picture is unclear. Some people are in the favour of privatization where as others are not in
favour but in against of privatization.

From the government side

Nepal government is not able to fulfill the commitment which was made at the time of the
agreement. Biratnagar Jute Mills and Nepal Tea Development corporation are unable to set the
exact land as proposed by the government and still demanding to provide the pre agreed land
area. Nepal Rosin and tarpentine Not seeking the exact area of forest and still demanding the
area.
From the business side
Business enterprises after privatization forget the corporate social responsibility and not ready to
pay obligation.
Industrial policy 2011
The Industrial Policy, 1993 was framed with the objective of accelerating industrial
sector. However, there has been no significant progress in our state of industrial
development even after the passage of a long time of framing of the policy. Industrial
development is rapidly going on all over the world including neighbouring countries one
after another, however, this sector could not have progressed in its expected pace in
Nepal. It is in this backdrop that the new Industrial Policy, 2011 has been formulated
with the objective of bringing positive changes in overall economic and social sectors of
the country by means of rapid industrial development doing away with the weaknesses of
the past. It is expected that through this Policy, activities of industrial development will
be increased; employment opportunities will be massively created and the level of
income of people will be increased so that contribution of industrial sector in economy of
the country will be at the forefront.
Need for new policy
to create reliable industry-friendly atmosphere, employment generation, production,
export promotion and investment. This policy has been formulated in order to accelerate
the pace of industrialization in response to the diversity in the service industry and
opportunities arising out of them. In this policy, special provisions have been made for
promotion of micro enterprises, cottage and small industries. Similarly, special policy
provisions have been made for woman entrepreneurs. Moreover, it is necessary to make
provisions for supremacy of industrial policy for promotion of industrial promotion and
development and toensure that no other legal and policy provisions will be made nor
unnecessary intervention will be brought curtailing the facilities provided by this policy.
Main objectives of the Policy
To increase export of industrial products along with growth in national income and
employment through enhancement of quality and competitive industrial products and
productivity;
To increase contribution of industrial sector in the balanced national and regional
development by mobilizing local resources, raw materials, skills and means
To establish industrial entrepreneurship as a sustainable and reliable sector by utilizing
latest technology and environment friendly production process; To create strong basis of
investment having developed productive human resources and managerial capacity
required for industrial development thereby establish Nepal as an attractive place for
investment in the South Asian region and in the world as well by; To protect industrial
intellectual property rights.
To increase export of industrial products along with growth in national income and
employment through enhancement of quality and competitive industrial products and
productivity

Priority shall be accorded to develop or acquire new technology at national and industrial
unit levels in order to enhance competitive capacity, quality and productivity of industrial
products and services; no pay for no work principle

To increase contribution of industrial sector in the balanced regional development by

mobilizing local resources, raw materials,skills and means

To create strong basisof investment having developed productive human resources

and managerial capacity required for industrialdevelopment thereby establish Nepal as an
attractive placefor investment in the South Asian region and in the world aswell by

Special policy provisions relating to micro enterprises, cottage and small industries

STRATEGY

Competitive capacity of industry sector shall be enhanced byutilization of managerial

capacity, creativity and promotion of knowledge and skills and adoption of appropriate
technology.
Well-facilitated Special Economic Zones
Protection shall be afforded to industries through the antidumping duty and ountervailing
duty within the bounded rate.
Special strategies relating to micro enterprises, cottage and small industries

Definition and classification of industrial enterprises

Industries based on agriculture and forestry
Production-oriented industries
Export-oriented industries
Energy-oriented industries
Mining industries
Tourism industries
Construction industries
Information and communication technology industries
Services industries
Classification of industries based on investment nature shall be as follows:-
For the purpose of this Policy, a micro enterprise means the enterprise having met the
following conditions:-
Where investment is up to two hundred thousand rupees as fixed capital except the
house or land
Where the entrepreneur himself/herself engaged in management
Where there are up to nine workers including the entrepreneur
Where the annual financial transaction is less than two million rupees, and
If an instrument with engine is used, the electric motor or other oil engine capacity
has to be less than ten kilowatt
Small Scale industries
An industrial enterprise other than those of micro enterprises and traditional and other
cottage industries having the fixed assets of up to 50 million rupees.
Medium Scale Industries
An industrial enterprise having the fixed assets more than fifty million to one hundred
fifty million rupees.
Large scale Industries
An industrial enterprise having the fixed assets of more than one hundred fifty million
rupees.
Prioritized Industries
1. Industries based on agriculture and forests products (as referred to in schedule-1)
2. construction Industries (to construct and operate) as referred to in schedule-3
3. Energy-oriented Industries including power generation and distribution
4. Export promotion Industries
5. Industries relating to adventure tourism along with infrastructure, village tourism, eco-
tourism, golf course, polo, pony trekking, trekking, water rafting, conferencetourism,
religious tourism, cultural tourism, fun park construction and operation, wildlife reserves
6. Mining industries, petroleum and natural gas exploration and extraction
7. Industries producing cement and clinker using native limestone, pulp and papers,
sugar, chemical fertilizers (except mixing), powder milk, medicines
production,processing of solid waste and unused materials,

VARIOUS PROVISION ON POLICY

Permission
Registration
Special provisions relating to administration of microenterprises, cottage and small
industries
Facilities and Concessions
Facilities and concession of exemption of income tax
Facilities and concession in custom tariff, excise and value added tax
Additional Facilities and concession and certainty
Special Facilities and Concessions for micro enterprises,cottage and small industries
Special Provisions relating to Special Economic Zone
Income Tax Exemption
Facilities relating to value added tax
Exemption in Custom Duty
Exemption of Local Tax
Facilities equal to export to be provided
Institutional Arrangement
Board of Investment
Industrial Promotion Board Functions, Duties and Powers of Industrial Promotion
Board:
Foundation for Industrial Human Resources Development
Industrial Districts Management Authority
National Council for Productivity
One Stop Services Center
Nepal Bureau of Standards and Metrology
Intellectual Property Protection Office
National Micro Entrepreneurship, Cottage and Small Industries Promotion Board and
Cottage and Small Industries Development Board
Special Provisions for Woman entrepreneurs
Provisions relating to reform and restructuring of sick industries
National Agricultural Policy, 2004
There are possibilities of achieving a sustainable economic growth and ensuring food
security through the proper utilization of the opportunities provided by the country's
geography, farmers' experience, and modern farming technologies. The 1991 Policy
Outlines of Agricultural Development and the Agricultural Perspective Plan, which have
been brought into force with the objective of ensuring an overall development of the
agriculture sector; have provided, to some extent a sense of direction to the process of
development of this sector. Even then, against the background of economic
liberalizations, the sustainable development agenda set for the country and its goals of
millennium development, the need has been felt for formulating and implementing a new
National Agricultural Policy that retains the basic aspects of the Agricultural Perspective
Plan. Accordingly, Government of Nepal has promulgated this National Agricultural
Policy, 2004. All commodity and subject specific policies, which have been of, shall be
formulated in this sector shall be guided by this policy.
Vision
The long-term vision of the agricultural sector shall be to bring about an improvement in the
standard of living through a sustainable agricultural
development to be achieved by transforming the current subsistence oriented farming system into
a commercial and competitive farming system.
3. Objectives
For the purpose of contributing to the task of ensuring food security and poverty alleviation by
achieving a high and sustainable economic growth a commercial and competitive farming system
3.1 Agricultural production and productivity shall be increased.
3.2 The bases of a commercial and competitive farming system shall be developed and made
competitive in the regional and world markets.
3.3 Natural resources, as well as the environment and bio-diversity,shall be conserved, promoted
and properly utilized.
Policies
Agricultural production and productivity
Special Facilities for Target Groups
Development of a Commercial and Competitive Farming System
Conservation, Promotion and Utilization of Natural Resourcesand the Environment
Implementation and Monitoring Arrangement
Tourism Policy 2065 (BS)
The tourism industry is growing very rapidly and Nepal has tremendous potential for tourism
development because of its unique natural and cultural heritage. In this context, this tourism
policy has been formulated with the aims of: increasing national productivity and income;
increasing foreign currency earnings; creating employment opportunities; improving regional
imbalances and projecting the image of Nepal more assertively in the international arena;
through the development and diversification of the travel and tourism industries. Broadly
speaking the current priorities of Nepalese tourism are shaped by: Tourism Policy 2065, Nepal
Tourism Year 2011, Tourism Vision 2020 developing tourism infrastructure, increasing tourism
activities creating employment in the rural areas and sharing the, benefits of tourism in the
grassroots level leading role of Private Sector in Tourism
•More focus on partnership approach: Public-Private-People
•Emphasis on Rural Tourism, Community based Tourism and Home-stays
•Formation of Tourism Coordination Committee, Crisis Management Committee
•Activation of Tourism Council ( Apex body chaired by the PM)
Objectives:
+ To develop tourism as an important sector of the national economy by developing linkages
between tourism and other sectors.
+ To diversify tourism down to rural areas so as to improve employment opportunities, foreign
currency earnings, growth of national income and regional imbalances.
+ To improve natural, cultural and human environments of the nation in order to develop and
expand the tourism industry.
+ To maintain a good image of the nation in the international community by providing quality
service and a sense of security.
+ To develop and promote Nepal as an attractive tourism destination.
Policy
+ The participation of the private sector will be sought to the maximum extent for development
and diversification of tourism products. The involvement of government will be primarily
directed towards infrastructure development. Apart from this, Nepal government will maintain
its role as coordinator and motivate for the growth of the travel and tourism industries.
+ Participation of the Nepalese people in the integrated manner will be carried out for
environmental conservation programmes which contribute to sustainable tourism development.
+ Existing tourism infrastructure and facilities will be upgraded. Priority will be given to
developing new tourist destinations, particularly in rural areas.
+ Popular religious tourism sites will be improved and promoted in order to develop religious
tourism.
+ Nepal will be developed as a centre for adventure tourism.
+ Tourist service and facilities will be encouraged to upgrade in quality. Special efforts will be
made to make Nepal a secure place for tourists.
+ Due attention will be paid to improving regional imbalances while developing tourism.
+ Competitive tourism promotion and marketing will be launched in tourist originating markets
to establish Nepal as a major tourist destination.
+ Linkages will be established between tourism and agro-based as well as cottage industries.
Emphasis will be placed on developing these related sectors simultaneously.
+ Local investment will be encouraged in service-oriented, travel and trekking agency businesses
in which local investors have proven capability. Foreign investment, including joint ventures,
will be promoted in areas which transfers skills and technology or in capital intensive industries
like hotels and resorts.
+ The National Civil Aviation Policy will be implemented as an integral part of Tourism Policy.
Working Policy:
+ Tourism investment will be diversified and channeled for the creation and improvement of
infrastructure in new destination areas.
+ The private sector will be motivated to make systematic and effective use of existing
infrastructure in order to develop sightseeing packages of cultural and religious sites, high
Himalayan ranges and places with outstanding natural beauty.
+ The private sector will be motivated to operate environmentally friendly recreational,
adventure activities based on water, land and air in various parts of Nepal.
+ Services and facilities will be expanded in temples, monasteries and other religious sites to
attract more domestic tourists on the one hand, while attempting to develop such sites as
international religious centers on the other.
+ Wildlife tourism will be developed and promoted in various geographic areas, in recognition of
the bio-diversity that exists in the nation.
+ New trekking routes and climbing peaks will be opened, in a phased manner, with a view to
spreading mountain tourism on a regional basis.
+ Coordination will be maintained with neighboring countries to enhance cross border tourism
activities based on mutual benefit.
+ Innovative and promotional products such as conference tourism, cultural and youth tourism,
international sports competitions etc. will be especially encouraged.
+ Rural tourism will be encouraged. Rural communities will be motivated to launch various
programmes that contribute to the growth and promotion of rural tourism.
+ Programmes developed at different levels will be implemented for the awareness of people on
tourism.
+ National environmental guidelines for tourism will be formulated and subsequently adopted to
minimize adverse environmental impacts from tourism.
+ Local environmental codes will be designed in conformity with prevailing international
conventions and national guidelines pertaining to the environment.
+ Land with high tourism potential under the ownership of the government will be leased out to
private entrepreneurs for development of environmentally friendly resorts. The credentials and
business plans of the private entrepreneur will be considered before leasing out such land on a
long term basis.
+ The private sector will be allowed to invest in infrastructural services and facilities for tourists.
However, certain standards will be fixed for such infrastructural services and facilities.
+ Tourism entrepreneurs will be encouraged to adopt codes of conduct through their respective
professional associations for enhancement of quality in the services and facilities they offer
Trekking areas will be classified into three categories as follows:- General Trekking Area :
Areas with a network of good trails and which offer basic services and facilities to tourists will
be categorized as general trekking areas. - Guided Trekking Area: Area already open for trekking
but not meeting minimum infrastructural requirements such as trails, and basic services and
facilities such as hotels and lodges, will be categorized as guided trekking areas. Only group
trekkers handled by trekking agencies will be allowed to visit such areas under fixed annual
quotas. - Controlled Trekking Area: Areas in the high-Himalayan region which are out of
modern civilization and have very sensitive natural environments, and ancient indigenous
cultures will be categorized as controlled trekking areas. Only group trekkers handled by
trekking agencies and accompanied by a government deputed liaison officer will be permitted to
visit such areas.
Expectation of New Tourism Policy
The present policy expects to introduce Nepal as an attractive, beautiful and safe destination in
the international tourism map with increased employment opportunity for livelihood,
productivity and living standard of general public and economic growth along with contribution
in the revenue due to the increase in various activities and enterprises of tourism sector such as
airlines, hotel, travel and tour. by providing opportunity of livelihood and productivity to
common people, by increasing the diverse tourism activity and enterprise like airlines, hotel,
travel and tour along with improvement of people’s living standard and economic development
and contribution to revenue. This will develop ownership of local community especially in the
area or rural tourism and competitiveness in quality services. Furthermore, it will improve the
operation of existing infrastructure of the tourism sectors and promote and encourage the
investment in the infrastructure development of new potential tourism area. It will also provide
an opportunity to learn the best practices of other countries due to the opportunity to market the
established social and cultural tradition through tourists from other countries. Additional
encouragement in the tourism sector may also be attained due to conservation and propagation of
cultural, natural, archeological and biological heritages of various sectors thereby facilitating the
easy dissemination of specialty of Nepal.
 Hydropower Development Policy, 2058 (2001)
Water resources are important natural resources for the economic development of Nepal.
Availability of abundant water resources and geophysical features provide ample opportunities
for hydropower production in Nepal. Out of the total hydropower generation capacity of about
83,000megawatt (MW) in the country, about 42,000 MW of power generation appears feasible to
date from financial–technical perspectives. In view of the
Internal consumption and export possibility of hydropower in the context of the overall
development of the country, an investment friendly, clear, simple and transparent policy is
necessary to enhance the development process of hydropower. An open and liberal policy
pursued in the hydropower sector after restoration of democracy has started yielding positive
indications in the field of hydropower development. Based on the experiences gained in the
course of implementing the emerging new concepts in the international market and their impacts,
technological development, possibility of export of hydropower energy, possibility of foreign
investment and commitment in environmental protection with a view to make it clear,
transparent, practical and investment friendly; revision and improvement of the hydropower
policy has become imperative principles followed by the Hydropower Development Policy, 2049
(1992),Hydropower shall be developed to achieve the following objectives:
3.1 To generate electricity at low cost by utilizing the water resources available in the country.
3.2 To extend reliable and qualitative electric service throughout Nepal at a reasonable price.
3.3 To tie-up electrification with the economic activities.
3.4 To render support for the development of rural economy by extending the rural
electrification.
3.5 To develop hydropower as an exportable commodity.
2.1 To supply electricity as per the demands of the people in urban and rural areas through the
development of the high potentiality of the water resources that exists in the country.
2.2 To enhance the development of hydropower to meet the energy needs required for the
industrial development in the country.
2.3 To motivate the national and foreign private sector investment for the development of
hydroelectric power.
Policies
3.1 To carry out hydro power projects of various standards and capacities to meet the interim and
long term electricity requirements.
3.2 To give emphasis to the programme of rural electrification in order to render assistance in the
development of agricultural production and cottage and small scale industries in the hill and terai
regions.
3.3 To give emphasis to the development of transport system to be run by hydroelectric power in
order to substitute the petroleum products.
3.4 To utilize the indigenous labour, skill and resources as well as foreign investment and
technology for the development of hydropower.
3.5 To export hydroelectricity produced in excess to the national demand.
3.6 To extend the use of electricity for making the minimum utilization of fuel wood and to
render necessary assistance in the conservation of forest and environment.
3.7 To diversify the utilization of electricity.
3.8 To make the supply and distribution of electricity regular and reliable.
3.9 To have maximum control in the leakage of electricity.
 3.10 To make electricity sufficiently available to the people and to make the tare of electricity
tariff more practical.
Works to be done for the Development of Hydropower
Establishment of Hydroelectric Projects, Investments, Operation Procedures of Hydroelectric
Projects, Hydroelectric Project not to be nationalized, Construction of Hydroelectric Project by
the Government, Royalty, Income Tax, Customs, Sales Tax & Excise Duty, Facilities Relating to
the Exchange of Foreign Currency, Selling Rate of Electricity, Export of Electricity Institutional
Arrangement, Use of Electric System, List of Hydroelectric Projects, Acquisition of Land, Local
Labor and Skill to be utilized, Transfer of Technology, To Benefit the Local People, To
Minimize the Environmental Hazards

Economic diplomacy
Diplomacy that employs clear policy guidelines and adequate resources to promote national
economic and business interests in other countries is defined as economic diplomacy. Nepal can
benefit greatly by conducting sound economic diplomacy in its multiple diplomatic dealings.
Nepal’s abundant water resources, tourism, biodiversity, agriculture, minerals, ICT, health and
education are the most promising sectors where investment could help revive the ailing national
economy and attain higher, broad-based and sustained economic growth. However, all these
sectors have remained underutilised, unexploited and untapped due to lack of adequate capital,
modern management skills and technological know-how.
New foreign policy dimension Although economic diplomacy was adopted as a new foreign
policy dimension with the introduction of globalisation, liberalisation and privatisation after the
restoration of democracy in 1990, it has not been able to produce the desired outcome in the
national economy. The economy has been continuously affected by the extreme load-shedding
problem, dwindling economic growth, burgeoning unemployment, widening trade deficit,
increasing foreign debt-servicing burden and existing balance of payments problem, which are
fueling political unrest, social rift, ethnic conflict, armed struggle, smuggling, kidnapping,
intimidation, extortion and the like in the [Link] economy has not been able to benefit from
Nepal’s ever expanding, developing and diversified diplomatic relations. The country’s external
engagements seem more concentrated on garnering foreign assistance to carry out national
development activities, discussing issues of national political development, supporting other’s
candidacy to multiple international forums, and ensuring international legitimacy for the
incumbent government rather than promoting, enhancing and strengthening our national
economic interests. It would not be unfair to say that the term “economic diplomacy” is popular
only in pronouncement, not in action in the Nepalese diplomatic spectrum.
Although the government has been focusing on mobilising Nepalese diplomatic missions abroad
in the conduct of sound economic diplomacy so that it can contribute to improving the nation’s
economy and people’s life, most of their activities related to economic diplomacy are primarily
concentrated on the promotion of national tourism. Seeking a market for Nepali products,
pursuing prospective foreign investors to invest their capital, technology and management skills
in multiple attractive national investment areas, and exploring new lucrative labour destinations
to absorb the growing youth force have not gained currency in the diplomatic parleys. The lack
of clear-cut, country-wise policy priorities and strategies, a shortage of skilled manpower, and
meager financial and technical resources in the missions are the major impediments behind this
scenario.A major determinant in shaping international relations between states in the
contemporary globalised world, the conduct of sound economic diplomacy is essential to protect
and promote the broader national interests. Our handicapped geographical situation also calls for
sound economic diplomacy to promote Nepal’s socio-economic well-being that is primarily
focused on developing, deepening and strengthening trade and commercial relations with
friendly countries by avoiding mutual differences and misunderstandings as well as exploring a
common ground for mutual [Link] reason traditional rivals like India and China, the US
and Russia, and China and the US have adopted a policy of cooperation, instead of confrontation,
is because of the growing importance of trade and investment in contemporary global affairs.
The marathon race by high-level dignitaries from the developed and developing countries to
other countries to explore new avenues for expanding and promoting their national economic
interests is also a clear manifestation of this new trend. All the developed and developing
countries are vigorously pursuing their economic diplomacy backed by adequate financial,
technical and other necessary support for their diplomatic apparatus to deepen and strengthen
economic relations with other countries and serve the broader national socio-economic, security
and strategic [Link] slowly growing national economy does not provide a sound basis for
creating a peace, prosperous and just Nepal. The country needs a solid political vision, will and
determination along with broader national consensus on issues of national economic policy,
foreign policy execution and diplomatic dealings despite the ideological differences, guiding
principles and policies for the [Link] the government’s initiatives to attract foreign
direct investment (FDI) by introducing various policy measures and legal instruments and
establishing institutional mechanisms, prospective foreign investors do not seem to be confident
in investing here and are in a state of wait and see because of the existing political situation in
the country.
Lucrative destination Nepal offers a lucrative destination for investors given that 50 per cent of
the population makes up economically active young people who can provide cheap labour and a
well-developed capital market and financial institutions and huge market potential in its
immediate neighbourhood, India and China, with whom Nepal enjoys good cordial relations,
besides the conclusion of the most favorable bilateral trade and transit agreements. Ye the inflow
of FDI has remained negligible in comparison with other developing economies. The
accumulated capital, knowledge, skills, outreach and technical know-how of the Non-resident
Nepalis (NRN) - the most viable and sustainable source of investment - have yet to be injected
into the national economy.
In the new emerging regional and global context, Nepal cannot remain an exception and should
employ sound economic diplomacy with specific policy priorities and guidelines, adequate
manpower, financial, technical and legal resources to benefit from its ever expanding
international relations. It is also essential to attract foreign investment, advanced technology and
management skills and knowledge to exploit the abundant national resources.
Forging close coordination, cooperation and collaboration between the concerned stakeholders
and avoiding the culture of appointing near and dear ones instead of competent diplomats is just
as crucial to make our economic diplomacy more result-oriented, prudent and meaningful. It
will ultimately contribute to reviving our national economy, achieving the much touted double-
digit growth, improving the people’s living standard, reducing poverty and generating
employment.

Foreign direct investment

 According to the International Monetary Fund, foreign direct investment, commonly known as
FDI, "... refers to an investment made to acquire lasting or long-term interest in enterprises
operating outside of the economy of the investor." The investment is direct because the investor,
which could be a foreign person, company or group of entities, is seeking to control, manage, or
have significant influence over the foreign enterprise.

When a firm controls (or have a strong say in) another firm located abroad, e.g. by owing more
than 10% of its equity, the former is said "parent enterprise" (or "investor") and the latter
"foreign affiliate".Foreign Direct Investment (FDI) is the financial investment giving rise and
sustaining over time the investor's significant degree of influence on the management of the
affiliate.

Foreign Investment in Nepal

Foreign investment in Nepal is regulated and administered by the Foreign Investment and
Technology Transfer Act and Industrial Enterprises Act. The Department of Industries (DOI) is
the sole agency for administration and implementation of the Foreign Investment and
Technology Transfer Act in Nepal.
Forms of Foreign Investment (FI)
FI can be made in any industry in the following forms: Investment in shares (equity);
Reinvestment of the earnings derived from equity; Investment made in the form of loans or loan
facilities; and Investment in kinds, e.g. machineries and equipment. However, as per the
decision of the Governemnt made on September 5, 2012, the minimum amount of FDI has
increased to NPR 5 million for each investor from USD 20,000 ( Approximately NPR 1.6
million).
Areas allowed for FI Foreign investors are permitted to own up to 100% equity share in any
industries except the following:
1. Cottage industries (except industries using electricity more than 5 kW)
2. Personal service businesses (e.g. hair cutting, beauty slaon, tailoring, driving training, etc.)
3. Arms and ammunition industries
4. Gunpowder and explosives
5. Industries related to radio-active materials
6. Real estate business (excluding construction industries)
7. Film industries (national languages and other recognized languages of Nepal)
8. Security printing
9. Bank notes and coins
10. Retail business (excluding international chain retail businesses with business in at least two
countries)
11. Tobacco (excluding more than 90% exportable)
12. Internal courier service
13. Atomic energy
14. Poultry
15. Fisheries
16. Bee keeping
17. Consultancy services (e.g. management, accounting, engineering, legal services); (Maximum of
51% FI is allowed)
18. Processing of food grains on rent
19. Local catering Services
20. Rural tourism
Entry Conditions on Investment
FITTA 1992 allows foreigners to invest only in private limited companies and in public limited
companies registered with the Company Register Office (CRO). They are not allowed to invest
in proprietorship or partnership firms.
"Private Limited Company" means a company which by its articles:
1. Limits the number of its shareholders from 1 to 50, excluding persons who are in the
employment of the company, and
2. Prohibits any invitation to the public to subscribe in its shares.
"Public Limited Company" means a company that:
1. Has a minimum number of 7 shareholders (there is no maximum limit), and
2. Offers shares and debentures to the public through a prospectus which complies with the
requirements of the Companies Act 2006 and Securities Act 2007.

Nepalese context of development the role of remittance and trade deficit.

contribution of tourism sector

Tourism comprises the activities of persons traveling to and staying in places outside,
their usual environment for not more than one consecutive year for leisure, business
and other purposes (WTO, 1999). Over the past several decades international tourism
has gained distinct importance around the globe. World tourism recovered strongly in
2010 even exceeding the expectations. The tourists ' arrivals grew by 6.7 percent in
2010 against the 4.0 percent decline in the previous year – the year hardest hit by the
global economic crisis (UNWTO, 2011). Similarly, tourism receipt remained at US $
852 billion in 2009 (UNWTO, 2010). In Nepal, despite the belated start of formal
tourism after the restoration of democracy in 1952, it gained remarkable growth over
the years. In 1962, 6,179 tourists travelled Nepal (MOTCA, 2010). It is estimated to
be around one million in 2011 including the arrivals of foreigners by land. Nowadays,
Nepal caters more than half million tourists and earns foreign curre ncy equivalent of
about NRs. 16,825 million. The sector provides employment for about 20 percent of
economically active population and contributes about 3.0 percent on gross domestic
product (GDP).
Tourism has impacted the Nepalese economy by virtue of demand for goods and
services, transportation and communication, purchase of handicrafts, trekking and
mountaineering, rafting, sight-seeing, city tours and involving in varied other activ
ities. This is reflected in the value of the tourism receipts multiplier calculated for
Nepal, Because of the high import content in the touristic consumption of goods
and services, the magnitude of the multiplier effects on the income and employment
generation through the backward and forward linkages is gauged at less effective in
making the economy vibrant than it might be.

Economic Vulnerability Index (EVI) is determined by several factors. Some of those can be
influenced by means of the implementation of domestic policy measures such as influencing the
size of population, diversifying the export products and markets, and enhancing the contribution
of trade, increasing the productivity of agriculture, forestry and fisheries as well as trying to
reduce instability in agriculture production. Other components of EVI such as location
remoteness and trade shock are largely determined by external factors in which the role of
domestic policy measures is probably very low or virtually non(existent.
Government Expenditure
The role of a government to economic growth is mostly depicted on through their choice of
monetary and fiscal policies.

Wagner's Law

Wagner's Law is named after the German political economist Adolph Wagner (1835-1917), who
developed a "law of increasing state activity" after empirical analysis on Western Europe at the
end of the 19th century. He argued that government growth is a function of increased
industrialization and economic development. Wagner stated that during the industrialization
process, as the real income per capita of a nation increases, the share of public expenditures in
total expenditures increases. The law cited that "The advent of modern industrial society will
result in increasing political pressure for social progress and increased allowance for social
consideration by industry."

Wagner (1893) designed three focal bases for the increased in state expenditure. Firstly, during
industrialization process, public sector activity will replace private sector activity. State functions
like administrative and protective functions will increase. Secondly, governments needed to
provide cultural and welfare services like education, public health, old age pension or retirement
insurance, food subsidy, natural disaster aid, environmental protection programs and other
welfare functions. Thirdly, increased industrialization will bring out technological change and
large firms that tend to monopolize. Governments will have to offset these effects by providing
social and merit goods through budgetary means.

In his Finanzwissenschaft (1883) and Grundlegung der politischen Wissenschaft (1893), Adolf
Wagner pointed out that public spending is an endogenous factor, which is determined by the
growth of national income. Hence, it is national income that causes public expenditure. The
Wagner's Law tends to be a long-run phenomenon: the longer the time-series, the better the
economic interpretations and statistical inferences. It was noted that these trends were to be
realized after fifty to hundred years of modern industrial society

Peacock and Wiseman Theory of public expenditure

In 1961, Peacock and Wiseman elicited salient shaft of light about the nature of increase in
public expenditure based on their study of public expenditure in England. Peacock and Wiseman
(1967) suggested that the growth in public expenditure does not occur in the same way that
Wagner theorized. Peacock and Wiseman choose the political propositions instead of the organic
state where it is deemed that government like to spend money, people do not like increasing
taxation and the population voting for ever-increasing social services.
There may be divergence of ideas about desirable public spending and limits of taxation but
these can be narrowed by large-scale disturbances, such as major wars. According to Peacock
and Wiseman, these disturbances will cause displacement effect, shifting public revenue and
public expenditure to new levels. Government will fall short of revenue and there will be an
upward revision of taxation. Initially, citizens will engender displeasure but later on, will accept
the verdict in times of crisis. There will be a new level of "tax tolerance". Individuals will now
accept new taxation levels, previously thought to be intolerable. Furthermore, the public expect
the state to heal up the economy and adjust to the new social ideas, or otherwise, there will be the
inspection effect. Peacock and Wiseman viewed the period of displacement as reducing barriers
that protect local autonomy and increasing the concentration power over public expenditure to
the Central government. During the process of public expenditure centralization, the role of state
activities tend to grew larger and larger. This can be referred to the concentration process of
increasing public sector activities. Nowadays, the growth in public expenditure has become a
compulsion and thus, the disturbance situations matter little.

The Classical v/s the Keynesian approach of public expenditure

The classical economists believe that the government intervention brings more harm than good
to an economy and that the private sector should carry out most of the activities. In his Welfare
of Nations, Adam Smith (1776) advocated much on the "laissez-faire" economy where the profit
motive was to be the main cause of economic developments. According to the classical
dichotomy, an increase in the total amount of money leads to a proportionate increase in all
money prices, with no change in the allocation of resources or the level of real GDP, which is
known as money neutrality. The classical economists assumed that the economy was perfect: it is
always at full employment level, wage rate and rate of interest is self-adjusting and as a matter of
fact, the budget should always balance as savings is always equal to investment. Since they
believe that the economy was always at its full employment level, their objective was certainly
not [Link] the 1929-30 Great Depression, the classical economists that opposed
government interventions, argued that strong trade unions prevented wage flexibility which
resulted in high unemployment. The Keynesians, on the other hand, favored government
intervention to correct market failures. In 1936, John Maynard Keynes' (1883-1946) "General
Theory of Employment, Interest and Money", criticized the classical economists to put too much
emphasis on the long run. According to Keynes, "we are all dead in the long run". Keynes
believed depression needed government intervention as a short term cure. Increasing saving will
not help but spending. Government will increase public spending giving individuals, purchasing
power and producers will produce more, creating more employment. This is the multiplier effect
that shows causality from public expenditure to national [Link] categorized public
expenditure as an exogenous variable that can generate economic growth instead of an
endogenous phenomenon. Hereby, Keynes believed the role of the government to be crucial as it
can avoid depression by increasing aggregate demand and thus, switching on the economy again
by the multiplier effect. It is a tool that bring stability in the short run but this need to be done
cautiously as too much of public expenditure lead to inflationary situations while too little of it
leads to unemployment.

Maximum Social Advantage

The politics of public expenditure have gained new dimensions, namely welfare maximization.
The principle of maximum social advantage is derived from the principle of equi-marginal
utility. The law states that a rationale individual will distribute his given money income on two
or more goods in such a way, that the marginal utility of the last money spent on either good, is
the same. This law is based on ceteris paribus conditions.
Dalton's Condition
According to Dalton, "public expenditure in every direction must be carried just so far that the
advantage to the community of a further small increase in any direction is just balance by the
disadvantage of a corresponding small increase in taxation and in receipts from any other source
of public income. This gives the ideal of both public expenditure and public income". Hereby,
there will be a cycle where money collected from the public, directly or indirectly, will go back
to them in the form of pubic expenditure programmes. During this process, taxpayers suffer
those benefitting from these social welfare programmes gain.
Pigou's Condition
In his Economics of Welfare, Professor A. C. Pigou (1932) divided welfare economics into two
parts, namely, the production and the distribution. The pigou tax rate is used to internalize
negative externalities and taxes are used as subsidy for positive externalities. According to
Professor Pigou (1928), the condition of maximum social advantage is that situation in which,
"Expenditure should be pushed in a direction to the point at which satisfaction obtained from the
last shilling spent is equal to the satisfaction lost in respect of the last shilling paid as taxes to the
government."