Agriculture Sector

Agriculture is the mainstay of Nepalese economy. It provides livelihood to approximately 80% of the population and accounts for 45% of the Gross Domestic Product (GDP). Due to rugged terrain, only 20 per cent of the total land is arable.

In fact, Nepal has the lowest per capita arable land (0.17 ha) in the world. Agriculture is mainly confined in the Terai region of the country, whereas the cultivation in mountainous region is mostly for local consumption. Agricultural products include rice, corn, wheat, sugarcane, root crops, etc. Rice is the most important crop as it is the staple diet of Nepal.

From the fifth five-year plan agriculture was given top priority. In order to increase the agricultural production and diversify the agricultural base, the government has focused on improving irrigation facilities, providing credit facilities to the farmers and encouraging the use of high yielding varieties of seeds, fertilizers, insecticides and pesticides, etc.


Despite these measures, agriculture grew at a dismal rate of 2.4% and failed to keep pace with the population growth rate, which was to the tune of 2.6% per annum. The absence of efficient distribution system and environmental degradation due to unscientific agricultural practices also adversely affected the agricultural progress in Nepal. Industry

Nepal has a limited industrial base. Industries contribute nearly 20 per cent of the GDP. Most of the industries are agro-based industries like sugar, jute and tea. Other industries are dependent on the raw materials, which are imported from abroad, especially India.

The major manufacturing industries are jute, sugar, beer, oilseeds, carpet, garments, cigarette, shoes, matches, chemicals, paper, etc. Most of the manufacturing industries are small-scale or cottage in nature. Intermediate and capital goods industries are very few in Nepal. Majority of the manufacturing industries of Nepal are located in the Kathmandu and in the eastern Terai region.

The large-scale enterprises are concentrated in the Kathmandu valley, Hetauda, Birganj, janakpur, Biratnagar and Jhapa. Textile, engineering, construction, food processing industries, timber and forest-based industries, sugar, cigarette, match and metal works industries are the prominent industries in this industrial corridor. A few industrial centres like Nepalganj, Birganj, Biratnagar, Janakpur and Bhairawa are situated close to the Indian railheads providing an easy access to Calcutta and other Indian markets.


Apart from Hetauda, which was established as a new industrial centre, the geographical pattern of industries remained the same despite government’s policy to bring about balanced regional industrial development. Industrial Policies

Nepal endeavoured to promote industrial development by encouraging investments in different industries. The 1957 Industrial Policy statement declared many steps to enhance industrial investments like tax relief for new ventures, repatriation of profits by foreign investors, development of infrastructure, suitable labour legislation, providing power and raw material at low and confessional rates, providing land for establishing industrial plants, tariff protection, etc.

The Industrial Enterprises Act of 1961 offered 10 years tax “holiday” for new venture and various other incentives to encourage industrial investments. In the 1960s, the industrial estates of Balaju, Hetauda and Patan were established to promote industrialization.

The government also encouraged the establishment of public sector undertaking as it realised that private industries were incapable of meeting the goals of industrial growth. In 1985-86, the industrial policy was reviewed. The new policy simplified registration procedures for the industries, emphasised resource-based industries, provided incentive to export oriented industries.


The government also initiated the privatisation process. However, due to low level of profits in the public sector undertakings, there were few takers of the shares of these undertakings. Since the liberalisation of the economy in the early 1990s, there are efforts to strengthen the participation of the private sector in the industrial development of the country.

One of the major causes for low level of industrialisation is inadequate capital for investment. Other reasons include the geographic remoteness of the country, limited market base, lack of natural resources, untapped energy resources like hydro-electricity, paucity of skilled labour, absence of entrepreneurial and technical skills, high level of import dependence. Despite providing incentives, Nepal failed to attract foreign investments in the industrial sector.


Tourism is the largest industry- of Nepal, attracting 15 per cent of total foreign exchange earnings of the country. It provides direct and indirect employment to over 300,000 people in Nepal. Nepal is endowed with natural scenic beauty, rich cultural heritage and diverse sites for sightseeing and adventure opportunities.


Tourism was introduced in the 1950s, which got a further boost when restrictions on the entry of the foreign nationals were lifted. Since then there has a steady rise in the number of tourist visiting Nepal from all over the world.

Most of the tourists are however, from Asia especially from India followed by Japan. The tourists come for holidaying, trekking and mountaineering purposes. In the recent years, the slowing down of global economy, Maoist insurgency and terrorist attacks in different parts of the world have adversely affected the flow of tourist in Nepal. Foreign trade of Nepal is characterised by the import of manufactured products and export of agricultural raw materials. Nepal exports carpets, garments, leather goods, jute goods and grains.

Imports into Nepal mainly consist of gold, machinery and equipment, petroleum products, fertilizers, etc. India is the main trading partner of Nepal. Nepal exports nearly 48 per cent of its goods to India followed by United States and Germany with 26 per cent and 11 per cent of the total exports of Nepal respectively. Similarly, Nepal import 39 per cent of its goods from India followed by Singapore with 10 per cent and China with 9 per cent of the total imports.

To increase exports, Nepal had undertaken many fiscal and monetary measures like Export Entitlement Programme and Dual Foreign Exchange rate together with tax relief and cash grants. Imports however, have registered an increase over the years. In 1989, Nepal initiated the Structural Adjustment Programme to address among other things, the trade deficit and sought to increase the economic development of the country.