Features of Nepal's Economy (Characteristics of Nepalese Economy)

Nepal's economy is characterized by a few key aspects that shape its development and challenges. These features include:

1. Dominance of the Agricultural Sector (Dominance of Agriculture)

Agriculture is considered the primary sector of Nepal's economy, followed by industry, tourism, hydropower, and foreign employment. According to the 2011 census, approximately 66% of the population is directly or indirectly involved in agriculture. In terms of contribution to the economy, the agricultural sector accounts for about 27.6% of the country's Gross Domestic Product (GDP). 

Nepal's diverse geographical landscape, from the Himalayas to the Terai, and across all seven provinces, supports a wide range of agricultural products, including food crops, cash crops, fruits, and livestock. Agriculture is not just an occupation for most Nepalese; it's a way of life.

2. Low Industrial Development

The industrial sector, including electricity, gas, and water resources, holds the second position in Nepal's economy. However, establishing industries requires significant capital investment, which has been a persistent challenge for a developing nation like Nepal. Factors such as low national income, dependence on foreign aid, and technological backwardness have hindered the establishment of large-scale industries. 

Many state-owned industries established in the past have been privatized, leading to increased import dependence. The existing industries are mostly small and medium-sized enterprises focused on producing consumer goods. The industrial sector contributes only about 5.4% to the country's GDP.

3. Underutilization of Natural Resources

Nepal is rich in natural resources, including hydropower, minerals, and forests. However, due to the inability to utilize these resources effectively, the country relies heavily on imports for most consumer goods. In the case of hydropower, despite an estimated potential to generate around 44,000 megawatts of electricity, only about 990.5 megawatts have been produced. 

Nepal is recognized as the second richest country in the world in terms of water resources. However, the inability to maximize the utilization of available water sources has resulted in a continuous shortage of clean drinking water and a lack of irrigation for agriculture.

4. Lack of Capital Investment

Nepal is classified as a least developed country. Approximately 28.6% of its citizens live below the absolute poverty line, and a significant portion of the population remains trapped in a vicious cycle of poverty. The per capita income of Nepal was reported as USD 1004 in the Economic Survey of 2019. This low per capita income leads to low savings and investment, trapping the country in a vicious cycle of poverty. 

Small-scale industries that have been established with limited capital struggle to thrive due to an unfavorable business environment, often leading to their failure. Both domestic and foreign investors are hesitant to invest large sums of money due to the lack of an investment-friendly climate. Consequently, the potential of domestically available natural resources and labor remains underutilized due to insufficient capital investment and an unfavorable investment environment.

5. Dependence on Foreign Aid

The revenue generated from Nepal's internal sources, including taxes, is insufficient to meet the administrative and development expenditures of the country. Foreign aid accounts for approximately 30% of the total budget. This aid is received as grants from friendly nations, as well as concessional loans from international financial institutions. 

Foreign aid has become not just necessary but essential to meet the growing demands of the country's administrative and development expenses.

6. Technological Backwardness

Nepal lags behind in terms of technological development. Only about 78% of the population (above 6 years of age) is literate, and a significant portion of this literate population lacks practical skills and knowledge despite having theoretical knowledge. The number of institutions providing technical education in the country is also negligible. 

Nepal is often forced to hire foreign technicians for highly technical positions. Production relies more on manpower than technology, leading to low productivity of labor and capital, which has slowed down the country's economic development.

7. Unfavorable Balance of Trade

Nepal has been experiencing a trade deficit for decades, with imports consistently exceeding exports. Nepal exports raw materials, primary goods, and low-value products, while it imports processed goods, luxury items, and expensive machinery. 

This results in a significant trade deficit every year, as the value of imports far surpasses that of exports.

8. Underemployment and Disguised Unemployment

Underemployment refers to a situation where an active worker is willing to work at the prevailing wage but is not able to utilize their labor and time fully in productive work, or is employed for fewer hours than desired. Disguised unemployment refers to a situation where individuals appear to be employed in a particular job, but are willing to leave their current job and take on a new one if a better opportunity arises. 

In Nepal, individuals engaged in agriculture, students pursuing higher education, and housewives working within their homes are often categorized under disguised unemployment.

9. Unequal Distribution of Income and Wealth

Nepal's economy exhibits a dual character. While some individuals possess a substantial amount of wealth, a significant portion of the population is landless and lives in poverty. A limited segment of society receives substantial income from various sources, allowing them to spend freely on desired goods and services. 

However, a large majority of the population struggles to meet basic needs like food, shelter, and clothing despite working hard day and night. Economic policies that favor the rich becoming richer and the poor becoming poorer have widened the gap of economic inequality between the rich and the poor in Nepali society.

10. Landlocked Country (Inland Country)

Nepal is one of the seven landlocked countries in the world. It is bordered by China to the north and India to the east, south, and west. Having no direct access to the sea, Nepal is dependent on neighboring countries for import and export with third countries. 

While air transport is expensive, Nepal is forced to use the land routes of India and Bangladesh for its international trade. This increases the cost of foreign trade, contributing to a significant trade deficit.