Social Studies and Life Skills · Chapter 10
Study notes aligned to the official NEB syllabus.
The economy is the system through which a society produces, shares and uses goods and services. Nepal is mostly an agricultural country. It is also landlocked and still developing. To understand its economy, we must see how it uses its resources, earns income and tries to raise living standards.
This unit covers several topics. First, it looks at the foundations of Nepal's economy. Next, it studies the three sectors that are meant to drive the economy. Then it explains the role of remittance (vipreshan) and the different ways people carry out transactions. After that, it looks at the main productive sectors and the state of the labour force. Finally, it shows how the government raises and spends money for social development.
Nepal is basically an agricultural country. The largest share of the working population still depends on farming for a living. Agriculture (krishi) gives a large part of the national income. This is roughly a quarter to a third of Gross Domestic Product (GDP). GDP is the total value of all goods and services a country produces in a year.
Farming in Nepal is mostly subsistence based. This means families grow food mainly for their own use. Farms are small, and farmers depend on the monsoon rain. Common crops are paddy, maize, wheat and millet. Cash crops include sugarcane, tea, cardamom and ginger. So the economy rests on a sector that gives many people work. But this sector is still not modern and has low productivity.
Tourism (paryatan) is a second pillar of the economy. It is also a major earner of foreign exchange. Foreign exchange means money in foreign currency. Nepal has high mountains, including Mount Everest, the highest peak in the world. It has religious and cultural heritage, such as Lumbini, the birthplace of Gautam Buddha. It also has scenic places like Pokhara and wildlife areas like Chitwan. These attract many visitors from other countries. They support hotels, trekking, aviation and handicrafts.
Industry (udyog) in Nepal is still small. Most industries are agro-based or small-scale. Examples are food processing, textiles, cement, bricks and iron.
Trade (vyapar) in Nepal has a large and lasting trade deficit. A trade deficit means a country buys more from other countries than it sells to them. Nepal imports far more than it exports. It imports fuel, vehicles, machinery and consumer goods. India is its largest trading partner.
Here is an example. A typical hill family may grow its own grain and vegetables for the year. It may earn extra cash by hosting trekkers in a homestay. It may still buy imported cooking gas and factory goods from the market. This one family shows the mix of agriculture, tourism and trade in the whole economy.
Nepal is also in the process of graduating from Least Developed Country (LDC) status. This is a sign of gradual progress.
The Constitution of Nepal (2015) aims for a socialism-oriented economy. Three pillars work together to drive it. They are the public sector (sarkari), the private sector (niji) and the cooperative sector (sahakari).
The public sector means businesses and services owned and run by the government. Examples are the Nepal Electricity Authority and Nepal Oil Corporation. This sector should provide essential services and build infrastructure.
The private sector means businesses owned by individuals and companies. They work to earn profit. This sector is seen as the main engine of investment, new ideas and jobs. It includes large industries and small shops.
The cooperative sector means organisations owned by their members (sahakari). In them, ordinary people pool their savings and resources to help one another. Cooperatives are common in savings and credit, dairy and agriculture.
The idea behind the three-pillar model is balance. The private sector brings energy and efficiency. The public sector guarantees services and fixes problems that markets cannot fix. The cooperative sector spreads economic opportunity to village communities. This makes growth more inclusive.
For example, think of one rural municipality. A government health post serves the public. Private shops and a small hydropower company provide goods and electricity. A local savings cooperative gives farmers small loans. These farmers could not easily get such loans from a distant bank. All three pillars work side by side here.
Remittance (vipreshan) is money that Nepalis working abroad send home. It has become one of the most important foundations of the national economy.
Millions of Nepali workers have jobs in other countries. Many go to the Gulf countries, such as Qatar, Saudi Arabia and the United Arab Emirates. Many go to Malaysia. Large numbers also work in India. They do construction, security, service and labour jobs. The money they send home is a very large part of national income. It is around a quarter of GDP. This is among the highest remittance-to-GDP ratios in the world.
Remittance has many positive impacts. It has reduced poverty. It has raised household spending. It pays for children's education and healthcare. It helps families build houses. It also supplies the foreign currency Nepal needs to pay for its heavy imports. At the national level, it supports the balance of payments and the foreign-exchange reserves. The balance of payments is the record of all money coming into and going out of the country.
But remittance also brings concerns. The economy depends on foreign labour markets. If those economies slow down, Nepal suffers. Much of the money is spent on daily needs and imported goods. Not enough is invested in productive businesses at home. Young workers leave the country. This reduces the labour force at home and separates families.
For instance, in many villages a son or daughter working in Qatar pays for the newest concrete house and the school fees. But the family fields lie empty because there are not enough workers. This shows both the benefit and the cost of a remittance economy.
People in Nepal carry out economic transactions in several overlapping ways.
Local transaction systems are small exchanges within a community. They keep daily life going. Examples are local markets (haat bazaar) and barter in remote areas. Barter means exchanging goods directly without money. Another example is parma, where neighbours take turns working on one another's fields.
Formal transaction systems work through registered and legally recognised channels. Their records are kept. Examples are banks and financial institutions, and registered businesses that issue bills and pay taxes. Licensed money-transfer companies and digital payment platforms are also formal. The state and the central bank regulate these transactions. They are also counted in official statistics.
Informal transaction systems work outside official records and rules. Examples are unregistered street vending, cash-in-hand labour and private moneylenders. The undocumented movement of goods and money is also informal.
A large part of Nepal's economy is informal. This means many people earn a living. But they have no legal protection and no social security. They also do not add to tax revenue.
For example, a vegetable seller on a city pavement buys and sells only in cash. She keeps no records. She is part of the informal economy. A supermarket issues VAT bills and deposits its earnings in a bank. It is part of the formal economy.
An important development goal is to bring informal activity slowly into the formal system. Then workers gain protection and the state gains revenue.
Each sector shapes the economy in its own way.
Agriculture is still the backbone of the economy. It gives work and food security to most households. It also gives raw materials to agro-industries. But its low productivity slows the growth of the whole economy.
Industry adds value by turning raw materials into finished goods. It creates better-paying jobs and reduces the need for imports. In Nepal, however, industry is still a small part of the economy. Several problems hold it back. These are limited electricity, difficult transport and small markets.
Construction (nirman) is now a big contributor. It grows through road building, hydropower projects and city housing. Remittance and public spending help pay for much of it. Construction gives a lot of employment. It also creates demand for cement, steel and labour.
The social sectors are mainly education and health. Spending on them is a productive investment, not just a cost. A healthier and better-educated population can do more and earn more over time. This raises long-term growth.
For example, hydropower and road construction have created local jobs in recent years. They have also opened remote markets. At the same time, investment in schools and health posts has improved human capital. Human capital means the skills and health of the people. Every other sector depends on it.
A balanced economy needs all of these sectors to advance together. Agriculture gives food and jobs. Industry adds value. Construction builds infrastructure. The social sectors develop the people.
The labour force is the part of the population that is able and willing to work. Nepal has a young population. So it has a large and growing labour force. This can be a big advantage.
But the home economy does not create enough jobs for all new workers. So under-employment is common. Under-employment means people work fewer hours or below their skills. It is especially common in agriculture during the off-season. Every year, many young people go abroad to find work. Much employment is also informal and insecure. It pays low wages and gives no social protection.
Entrepreneurship (udyamshilata) is the ability to start and run a business by taking careful risks. Many people now see it as the answer to Nepal's job problem. Young Nepalis need not depend only on foreign jobs or government service. They are encouraged to start small and medium businesses. They can also start agribusinesses, tourism ventures and technology startups. These create jobs at home.
For example, a migrant returns from the Gulf. She invests her savings in a commercial goat farm or a trekking agency. She gives herself a job. She also hires other people. In this way, remittance becomes a productive local business.
Skills training helps. Easy access to loans helps. A supportive business environment also helps. Together they can turn Nepal's youthful population into real economic strength.
Government finance (sarkari aarthik byawastha) means how the state raises money and how it spends it.
The main source of government revenue is taxes. Indirect taxes include Value Added Tax (VAT) and customs duties on imports. Direct taxes include income tax. The government also gets foreign aid and grants. It also borrows money from inside the country and from abroad. Nepal imports heavily. So customs and VAT on imports give a major part of its revenue.
Government spending is usually divided into three parts. Recurrent (ordinary) expenditure pays for salaries, administration and regular services. Capital expenditure builds roads, schools, hospitals and other lasting infrastructure. Financing covers the repayment of debt.
Nepal is a federal country. So revenue and responsibilities are shared among the federal, provincial and local governments. Money is sent down to the lower levels as fiscal transfers. This lets local governments give services close to the people.
The final purpose of public finance is social development. The government spends on education, health, drinking water and social security allowances. It also spends on infrastructure that improves citizens' lives and reduces inequality.
For example, the government pays a social security allowance to senior citizens. It also gives a budget to build a rural road or a health post. In both cases, the government turns tax revenue into a direct social benefit.