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Rapid Assessment
Impact of Global Financial and Economic Crisis in Nepal
By
Dilli Raj Khanal (Dr)
Submitted toILO Office Kathmandu
March 2009
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Table of ContentsTable of Contents....................................................................................................................2
Section I: Introduction....................................................................................................................3
1. Introduction...............................................................................................................................3
Section 2: Recent Trends in the Economy........................................................................................5
2.1 Major Income Sources to GDP.................................................................................................5
2.2 Overall Sectoral Composition, Trends and Employment..........................................................5
2.2.1 Overall Growth Trend and Sectoral Composition......................................................5
2.2.2 Pattern of Employment.............................................................................................5
2.3 Specific Trends in Finance/Banking..........................................................................................5
2.4 Social Development and Poverty Trends.................................................................................5
Section 3: Probable Impact and Measures Taken............................................................................5
3.1 Probable Impact in 2008/09 and 2009/10...............................................................................5
3.1.1 Exports and Tourism.................................................................................................5
3.1.2 Foreign Employment and Remittances.....................................................................5
3.1.3 Banking and Financial Institutions.............................................................................5
3.1.4 Foreign Direct Investment.........................................................................................5
3.1.5 Exchange and Interest Rates.....................................................................................5
3.1.6 Revenue, Foreign Aid and Budget.............................................................................5
3.1.7 Overall Growth and Employment..............................................................................5
3.2 Steps Taken to Cope with Continued Crisis..............................................................................5
3.3 Responses from the Donors.....................................................................................................5
Section 4: Some Suggestive Measures.....................................................................................5
4.1 Short Term Measures..............................................................................................................5
4.2 Medium to Long Term Measures.............................................................................................5
4. 3. Parallel Initiatives...................................................................................................................5
4.3.1 Support of Development Partners............................................................................5
4.3.2 Involve Social Partners in Policy Formulation...........................................................5
References.....................................................................................................................................5
Appendices....................................................................................................................................5
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3
Section I: Introduction1. Introduction
The world wide financial crisis of enormous magnitude continues. It has spread to the developed, middle and low income countries alike, threatening years of progress in poverty reduction (IEG, 2008). Defaulters on securitized sub-prime mortgages as a result of a real estate market bubble burst led to failures of several financial institutions and a collapse of inter-bank and commercial paper markets. A tightening of credit, combined with declining consumer confidence has brought on worldwide recession. There is a fear of prolonged recession in the global economy as recently revised forecasts of IMF indicate (IMF, 2009). The forecasts show that the growth in the global economy will be just 0.5 percent on the average in 2009 with negative growth rate in most of the developed countries. Despite un-certainty, there is some hope that the recovery will begin from 2010 as a result, among others, the positive impact of bail out plans and fiscal stimulus packages which are underway in both developed and developing countries.
Most worrisome phenomenon of deepening of recession is that companies or enterprises are increasingly laying off workers in huge numbers every day. This is manifesting at a time when there is already a declining employment trend amidst structural problems in the labour market of many developing countries. Recently published ILO report shows that in 2008, an estimated 6.0 percent of the world’s workers were not working but looking for a job, up from 5.7 percent in 2007. More pressingly, in many developing countries, well over half of the workforce is employed in conditions that fall short of decent work, leading to growing vulnerability in employment (i.e. unpaid contributing family workers and own-account workers) characterized by low and insecure employment, low earnings and productivity (ILO, 2009). In such a situation, the global recession has added a big challenge to many developing countries to minimize the vulnerability in the labour market and safeguard the workers working right.
The economic and labour market conditions of Nepal indicate on the possibilities of increased crisis in various fronts of the economy as well. Nepal is one of the most liberalized countries in the South Asian region. Both tariff rates and openness indicators corroborate this (Khanal, 2009). The total trade share in GDP is fairly high at about 35 percent. There is also high trade concentration with a single country-India. With some yearly fluctuations, the share of trade with India is more than 60 percent. In that the export share is equally high. On the other hand, only few commodities constitute the highest share in exports to other countries. Fragile export base, a few commodity concentration and high dependency on a single country for trade shows that any slowdown in exports due to economic crisis in trading partners would have wide-ranging impact. So much so, almost 60 percent of total tax revenue comes from external trade. Similarly, tourism industry is one of the principal sources of foreign exchange earnings and employment. It contributes almost 2.5 percent to GDP with more than 0.8 million people directly engaged in it. Despite relatively low level, the role of foreign direct investment is extremely important owing to low size of total investment and domestic savings1. Any disruption in the FDI will have far reaching negative impact on the Nepalese economy at a time when Nepal is engaged in harnessing abundant water resources for rapid
1 Latest national accounts estimates show that the domestic saving to GDP ratio is 11.5 percent for 2008 against the gross investment GDP ratio of 32 percent leading to almost 20.5 percent of GDP as a resource gap.
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socio-economic transformation. The foreign aid is the principal source of development budget as almost 60 percent of it is funded by the external aid. In addition, billions of Rs. comes through NGOs and INGOs. The contribution of technical assistance is also equally high. The reduction in aid, thus, would have both near and long term adverse effect on ongoing development endeavours.
The structure of the economy and employment pattern further shows that the Nepalese labour market is characterized by high vulnerability. The reduction in the contribution of agricultural value added to the total GDP has not accompanied by similar reduction in the dependency of people in the agricultural sector. The agriculture sector’s contribution to GDP has now reduced to about 32 percent where as people’s dependency in agriculture is still in the neighbourhood of 66 percent. The pattern additionally conceals some serious structural problems persisting in the Nepalese labor market. When the employment status is examined it is found that the ratio of self-employed in total employed is still 62.7 percent. Moreover, as revealed by the labour survey (CBS, 1999), out of the total self-employed, 78 percent are engaged in agriculture related works. Among them 43.3 percent are engaged in own-family works without any pay. This is persisting at a time when underemployment in the agriculture sector is still very high at about 32.3 percent (NPC, 2002). Similarly, of the 23.9 percent labour force in the non-agriculture sector, 73.3 percent is employed in the informal labour market. Assuming the entire agriculture sector as informal sector, job ratio in the formal sector works out at a mere 6.4 percent (UNDP, 2004). About two-third of the workers in the informal sector do not receive any kind of training whatsoever from any organization. The ownership pattern of informal sector is dominated by male proprietorship (87 percent) (Mainali, et al 2002). At the same time, wage differentials between the male and female workers are equally high (ILO, 2002). Although improvement in the wage level has been reported by the NLSS survey of 2004, wage differences between the skilled and unskilled workers is increasing with reduced real wage level of the urban non-agriculture unskilled workers. In the informal agriculture also despite increase in the real wages on the average the share of wage income of the poor workers reduced considerably during the same period (CBS, 2006).
Amidst these, the youth unemployment is also relatively high. Unemployment rate among the 15 to 19 age group is 5.7 percent against 3.8 percent national average. In the age group of 20 to 24 the unemployment rate is even higher at 6.4 percent (CBS, 2004). Due to rising youth unemployment coupled with job insecurity in the predominant informal market characterized by very low wages, the outflow of people to seek job has risen enormously in recent years. Now foreign employment has been a major source of people’s livelihood. Although there is a long history of Nepalese people going to India for employment, in recent years the outflow to Malaysia, Gulf countries and South Korea has risen markedly. The tendency to go to Europe and US is also increasing. The earnings from such sources have risen to more than Rs 142 billion in an annualized basis (NRB, 2008). Although the magnitude is unknown, the unrecorded inflow is also considered to be equally high. Understandably, any adverse effect on such an employment would be quite large and overwhelming from both near to long term perspectives.
Indeed, the massive inflows in remittances have contributed immensely to the proliferation of banking and financial sectors in Nepal. Amidst more opening up and liberalization policies, now the share of financial assets has outstripped the total GDP of the country. The inflows have enhanced the capacity of both deposits and lending of the financial institutions. The big increase in urban centric financial investment, most predominantly in business and real estate
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related activities, have had strong spill over effects on consumption induced economic activities with some near to medium term positive impact on both income and employment. A study (Khanal, 2007) on the role of banking in growth shows that financial deepening has had positive impact on growth in the Nepalese context. The study also shows that despite some reduction of employment in state owned banks as a part of financial sector restructuring, the employment in non-state banks has expanded rapidly with more positive contribution on gender mainstreaming. Therefore, the adverse impact on foreign employment, followed by the reduction in remittances inflow, could aggravate the economic crisis in Nepal with more pervasive adverse effect on the labour market conditions.
The increased economic activities in organized sectors, in turn, have had some positive impact on some structural transformation of the economy. Now the employment in the agricultural sector has reduced to about 66 percent in recent years from 81 percent in 1991. The contribution of non-agricultural sectors in the total GDP has increased to more than 67 percent. However, despite these positive developments, the informal sector employment is extremely high at almost 94 percent (UNDP, 2004). Amidst this, the vulnerability in the labour market is added by new entrants as more than 0.3 million labour forces come into the labour market every year. The increased migrants to the urban centres seeking jobs and other opportunities add to the enormous pressures to the labour market in the urban areas posing problems for decent employment. Thus, any down turn or recessionary trends in the economy would have very adverse direct effect on the living condition of the workers.
Against these backgrounds, the rapid assessment study concentrates on examining the ongoing and likely trends in the major areas of the economy in the aftermath of global financial crisis. The study also attempts to evaluate various steps taken by the government and other concerned agencies. The responses of the major donors have also been taken into account in the course of the analysis. The employment implication forms the principal basis of the analysis. Secondary data, focussed group discussions and assessments of concerned stakeholders on the outlook of the economy are the methodological approaches followed in the study.
In the next section, the general economic trend of the Nepalese economy has been discussed. The third section is devoted to assess the likely impact of financial and economic crisis in various fronts of the Nepalese economy. The fourth section examines the policy responses of the government. This is followed by a brief discussion on the interagency coordination. Some suggestive measures are proposed in the last section.
This is a part of the study initiated by the ILO office in New Delhi. The ILO has commissioned rapid assessment studies in South Asian countries to examine the impact of financial and economic crisis with the aim of assisting member countries to cope with enormous challenges faced by them.
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Section 2: Recent Trends in the Economy2.1 Major Income Sources to GDP
A drastic shift in the income source of a household has taken place during the period 1996 to 2004 (CBS, 1996 and 2004). In 1996 the share of farm income in total household income was 43.4 percent. It reduced to 29.5 percent by 2004 (Table 1). The share of agricultural wage income has also reduced considerably during the same period. Conversely, a phenomenal rise in the share of remittances income has taken place in the same period, from 7.6 percent in 1996 to 13.8 percent in 2004. There has also been rapid rise in the share of non-agricultural enterprises and wage income. The income source and its composition thus indicate that any adverse effect on employment induced wage income and remittances would have very adverse effect on a household’s livelihood and economic wellbeing.
Table 1: Sources of Household Income in Nepal, 1995-96 and 2003-4 (average per capita income at 1995-96 prices)
In NRs 1995-96 % 2003-04 %Farm income 3,122 43.4 2,983 29.5Agricultural wage income 672 9.3 547 5.4Nonagricultural wage income 1,016 14.1 1,880 18.6Nonagricultural enterprises 859 11.9 1,489 14.7Property income 55 0.8 111 1.1Remittances income 544 7.6 1,401 13.8Housing income 757 10.5 1,282 12.7Other Income 167 2.3 437 4.3Total 7,191 100.0 10,129 100.0
Source: NLSS of 1996 and 2004, CBS
With gradual openness of the economy, the external income sources to GDP have increased considerably. Among the major sources, exports of goods and services including tourism, foreign aid, FDI and remittances are most noticeable. As obvious, these sources are affected by the ups and downs in the global economy.
In 2008, the share of trade in GDP stood at 35 percent in which the share of exports and imports were 7.4 and 27.6 percent respectively. Unlike many countries, there are some peculiar phenomena in the Nepalese trade. The trade with India is predominant at 63 percent of which 30.4 percent consists of exports. Similarly, only a few commodities form the bases of exports, indicating lack of export diversification and fragility in the export trade (Figure 1).
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Figure 1
Share of Trade in GDP
0.0
10.0
20.0
30.0
40.0
2004 2005 2006 2007 2008
Years
Export Import Trade
Figure 2
Share in Total Trade
0.000
5.000
10.000
15.000
20.000
25.000
30.000
2004 2005 2006 2007 2008
Years
Export Eport India Export Other Countries
Figure 3
Share of India and Other Countries in Total Export
0.010.020.030.040.050.060.070.080.0
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
Years
Shar
e in
%
India Other Countries
8
In addition to commodity export, tourism is extremely important in the Nepalese economy from the standpoint of foreign exchange earnings and employment generation. As reported in the table 2, total tourist arrival (excluding Indian tourists’ travelling by land) reached 0.526 million in 2007. Recent data indicate that in 2008 the number exceeded 0.88 million. The tourist inflow decelerated after 2000 with some fluctuations when the conflict was escalating. The peace process has positively contributed to the revival of the tourism industry. As shown in the table, the direct foreign exchange earning from tourism was in the order of Rs 12073.9 Million in 2000. It went down to Rs 8654.3 million in 2004. It stood at Rs. 10125 million in 2007. It is estimated that it has now surpassed 2.5 percent of GDP (GoN, 2008).
Table 2: Number of Tourist Arrivals, Length of Stay and Foreign Exchange Earnings
Year Total Number
Tourist Arrival by
Air
Average Stay (in days)
Annual Growth
Rate (%)
Direct Foreign Exchange Earnings
from Tourism
2000 463,646 376,914 11.88 -5.70 12,073.92001 361,237 299,514 11.93 -22.10 11,717.02002 275,466 218,660 7.92 -23.70 8,654.32003 338,132 275,428 9.60 22.70 11,747.72004 385,297 297,335 13.51 13.90 18,147.42005 375,398 277,346 9.10 -2.60 10,464.02006 393,950 283,819 9.50 4.90 9,556.02007 526,000 360,713 10.02 33.52 10,125.0+ Indian tourists from land are not includedSource: Ministry of Culture, Tourism and Civil Aviation ( 2008).
Another critical variable that may affect the Nepalese economy in the event of continued crisis in the global economy is foreign aid. In 2003/04 total foreign aid inflow was in the order of Rs. 18.91 billion. According to the revised estimates, the level increased to Rs 34.06 billion in 2007/08. The projected foreign aid for the fiscal year 208/09 is Rs. 65.79 billion (MOF, 2008/09). The share of foreign aid in total expenditure comes out to be 27.9 percent for the current fiscal year 2008/09 (Figure 4). This means that the budgetary implication of foreign aid is enormous. In recent years, the share of grant has increased with the possibilities of some ease on debt servicing in the years to come. However, steep rise in loan component during the SAP and ESAF period has resulted in growing debt servicing obligations.
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Figure 4
Share in Total Expenditure
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2004
2005
2006
2007
2008
2009
Years
Shar
e in
%
Recurrent Expenditure Capital Expenditure Principal Re-payment
Revenue Foreign Aid Domestic Loan
As shown in the figure 5, most worrying phenomenon is that the resource gap in the economy is rising enormously especially after 2005. The deceleration in exports amidst poor performance of the industrial sector has had some adverse effect on domestic saving. This evidently proves that how badly the external sources are necessary to fill such an increased gap.
Figure 5
Share of Domestic Saving and Total Investment in GDP
0.005.00
10.0015.0020.0025.0030.0035.00
2003 2004 2005 2006 2007 2008
Years
Shar
e in
Per
cent
age
Domestic Saving Total Investment (Capital Formation) Resource Gap
One of the external roots to affect the Nepalese economy is foreign direct investment. In 1993 total approval of FDI was in the order of Rs 3083.7 million in which the share of India and China was 44.2 and 2.4 percent respectively. There was some fluctuation thereafter with some peak up in 2001. But generally there was no rise in the inflow in commensurate with the liberal and more open up policies pursued by Nepal. This was partly due to violent conflict which continued for more than 10 years beginning from 1996. Now after the
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restoration of peace the approval has again started picking up as the data of 2007 and 2008 indicate (Figure 6). One interesting phenomenon is that the share of India has surpassed 63 percent and that of China more than 15 percent (DOI, 2009).
Figure 6
Trends of Approved FDI
0.02000.04000.06000.0
8000.010000.012000.0
2003 2004 2005 2006 2007 2008
Years
Rs i
n m
lns Total
India
ChinaOthers
An assessment on the operational status of FDI projects also indicates that the majority of approved projects have come into operation. The majority of them are in the manufacturing sector. Up to 2005 966 FDI projects with cumulative FDI of US $ 535.02 million have come into Nepal (DOI, 2008). About 41.5 percent of FDI projects are reported to be currently in the operation. They provide employment to 50,176 persons (Figure 7). Of the total, only 10 per cent projects have been either closed or cancelled. Remaining FDI account for about 3.5 percent and belong to construction.
Figure 7
A quick review of Nepal Manufacturing Census 2002 reveals that out of the total, 1.9 percent are FDI firms. These firms provide employment to 6.3 percent in total. At the same time, per labour value added is higher in the FDI industries than in the non-FDI industries (CBS b, 2002). A study examining the linkage between FDI, Non-FDI and employment further
11
Trends of Employees in Approved FDI
0.02000.04000.06000.08000.0
10000.012000.0
2003 2004 2005 2006 2007 2008
Years
Num
bers
Total
India
China
Others
indicates that employment elasticity of investment in FDI firms is higher than in non-FDI firms (IIDS and IPRAD, 2006). The results thus show that any drastic reduction in FDI would have adverse impact on employment considerably. Nonetheless, as the data indicate, Nepal has been unable to attract higher level of foreign direct investment. As obvious, this has adversely affected rapid industrialization. Rigid procedural rules, absence of strong enforcement mechanism and smuggling, policy unpredictability, labor policy rigidities, trade regime biases against local manufacturers, weak institutions, poor access to finance, poor and costly infrastructures, low internal markets have been identified as major problems in this sector (GoN/UNIDO, 2002). The high transit cost, poor and costly infrastructures and absence of enabling environment have been particularly cited for failures to attract foreign investors in Nepal (IFC and World Bank, 1998, Dahal and Aryal, 2003). Although Nepal's lower wage costs provide an important competitive advantage, this is offset by the country's significantly lower labor productivity (GoN, 2004).
The low level of FDI has now been more than compensated by massive inflow of remittances. In 2003 the inflow was in the order of Rs 54.2 billion. In 2008 it rose to more than Rs.142.68 billion. This comes to around 17.4 percent of GDP (Figure 8 and 9). This is in addition to unofficial flows which are believed to be more than one third of official flows. Thus, the role of foreign employment and remittances has become very crucial in the Nepalese economy in recent years. This is one of the major transformation mechanisms through which Nepalese economy is affected.
Figure 8
Remittances Inflows
020000400006000080000
100000120000140000160000
2003 2004 2005 2006 2007 2008
Fiscal Year
NR
s in
mill
ins
Remittances (RRTN)
Figure 9
12
Share of Remittance Inflows in GDP
0.0
5.0
10.0
15.0
20.0
2003 2004 2005 2006 2007 2008
Share
2.2 Overall Sectoral Composition, Trends and Employment
2.2.1 Overall Growth Trend and Sectoral Composition
The Nepalese economy was stagnating at below 4 percent growth rate for last several years (Figure 10). Only in the last fiscal year 2007/08, growth rate was albeit higher at 4.7 percent. The agriculture sector with growth rate of 5.7 percent was main contributor to this. In the non-agricultural sector, financial intermediation and other communities and services together with hotel and restaurants2 are registering higher growth rate in recent years. This is clearly reflected in the sectoral growth trends (Figure 11). However, the manufacturing sector has still been unable to pick up (MOF, 2008). Persistence of security threat, less harmonious industrial relation and adverse investment environment is said to be mainly responsible for this3. Now the energy crisis has emerged as a major constraint in a way to revive the manufacturing sector. No electricity supply for 12 to 16 hours a day is creating havoc in the industrial sector. This has compelled industries to reduce utilization capacity drastically. If such a crisis prolongs without reliable alternative arrangements, it may have effect on both wages and employment of the workers.
Figure 10
Average Growth Rate
2 In the hotel and restaurants, tourism is one of the main sub-sectors. 3 In the course of discussions with industrialists, these issues came out repeatedly.
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0.01.02.03.04.05.06.07.0
2004/05 2005/06 2006/07 2007/08
AgricultureNon-agricultureGDP Producer Price
Figure 11
Sectoral Growth Rate
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2004/05 2005/06 2006/07 2007/08
Agriculture
Manufacturing
Wholesale and retail trade
Hotels and restaurants
Financial intermediation
Real estate, renting andbusiness activitiesPublic administration anddefence
Others
Gross value added
With the speed of growth rate in some sectors compared to the rest, a gradual shift in the economic structure also took place in the Nepalese economy. The share of agriculture sector reduced to 32.1 percent in 2007/08 from 36.1 percent in 2000/01. In the non-agricultural
14
sector, the value added share of financial intermediation, transportation and education sectors went up considerably, from 2.7, 7.4 and 4.1 percent in 2001 to 4.8, 9.3 and 6 percent in 2008 respectively. Likewise, the share of real estate sectors increased to 9.9 percent in 2008 from 8.3 percent in 2001. Contrarily, a deceleration in the share of manufacturing and trade sector took place during the same period, from 9 and 16.4 percent to 7 and 13.6 percent respectively.
At a time when there is urgency on the revival of the manufacturing and trade sectors, any external shock would have very adverse growth as well as employment implications. From the point of employment promotion, the role of small enterprises in exports is crucial. As reported in the Appendix table 1, in 1990 the total exports to India was in the order of Rs. 666.6 million. Out of the total, the share of major exports of small enterprises was almost in the order of Rs. 339.4 million. This comes to 50.9 percent in total exports to India. Assuming other miscellaneous exports as products of small enterprises, the share of small enterprises comes out to be almost 95 percent. In the aftermath of liberalization there was big surge in exports (Figure 12). There was almost 5 fold increase in exports in five years. The share of major exports of small enterprises to India reached at 53.9 percent in 1995 despite some deceleration in the share of miscellaneous categories. But the export share of small enterprises went down markedly thereafter. In 2007/08, it stood at 16 percent excluding miscellaneous exports. Now aluminium, vegetable ghee, jute goods, textile, thread, wire and Zink sheets have overtaken the traditional primary products. The trade treaty with India in 1996 played a big role on this. Despite free access to markets on a non-reciprocity basis, the small enterprises could not take advantages of this. Most of the raw material import based exportable industries could flourish which was also a major bone of contention between Nepal and India, leading to complete reversal of the treaty in 2002. Although the quota arrangement has given some leeway, the small industries have been most disadvantageous. The quarantine provision along with less incentive to such enterprises vis-à- vis low value addition type industries have played a detrimental role. Some studies also point out that abrupt abolition of subsidy to the agricultural products amidst high subsidy in India followed by fixed exchange rate arrangement additionally constrained the expansion in exportable traditional small industries (UNDP, 2004 and Khanal and Kanel, 2005).
In other country exports also, the role of small enterprises has been very predominant. In 1990, the share of major exports including carpets was in the order of Rs. 355.3 million. In terms of share, the contribution of major exports comes to almost 60 percent. In this, the share of carpet is very high. Assuming 50 percent medium to large carpet enterprises also, the role of small enterprises becomes still high. Although in the post liberalization period there has been steady increase in the exports, the role of small enterprises has simultaneously reduced. Similarly, there is increased role of traditional primary products like nigerseed and pulses together with handicrafts, herbs, tanned skin, silverware and jewellery. A more unexpected trend is that in recent years, the contribution of both pashmina and carpet has significantly decreased. The entire structure shows a very fragile and oscillatory trend in the exports to third countries. This is more so as in the post garment phased out period, the future of the garment industry is at stake which still constitutes one of the major items to other country exports. This means that the potentials of internal resource based - agro and forestry based industries - have not been properly tapped considering long term perspectives required to do so. The pattern further corroborates the findings that, among others, the cascading tariff structure has encouraged low value addition processing industries (GoN, 2004 and Khanal, 2008).
Figure 12
15
Share of Major Exports in Total
0
10
20
30
40
50
60
70
80
Woo
len
Car
pets
Rea
dym
ade
Gar
men
ts
Pash
min
a
Veg
etab
le G
hee
Thr
ead
Jute
and
Jut
e G
oods
Tex
tiles
Poly
este
r ya
rn
Zin
c Sh
eet
Cop
per
Wir
e R
od
Sub-
tota
l
1980199020002004200520062007
Source: Economic Survey (Various Year), MOF and Quarterly Economic Bulletin (Various Year), Nepal Rastra Bank.
2.2.2 Pattern of Employment
Along with the structural changes in the economy (including some compositional changes in exports), a shift in the employment pattern has also taken place in the Nepalese economy (Table 3). In 1981 as much as 91.1 percent of the active population was engaged in agriculture and related activities. This ratio gradually decreased to 81.2 percent in 1991. Changes in the employment structure were phenomenal during the period 1991 to 2001. During this period employment in the agriculture sector reduced to 65.7 percent. This became possible particularly due to high rate of labour absorption in the manufacturing and trade sectors. These sectors absorbed 9 and 9.9 percent of the economically active population in 2001. A gradual expansion of employment also took place in the finance and business services sectors. In 1981 only 0.1 percent of the economically active population was engaged in this sector. The contribution of this sector in total employment reached 0.8 percent in 2001 (CBS a, 2002).
Table 3: Employment by Industry
Industrial Group/Year 1981 Share in Total
1991 Share in Total
2001 Share in Total
Total 6,850,886 100.0 7,339,586 100.0 9,900,198 100.0Agriculture. 6,244,289 91.1 5,961,788 81.2 6,504,689 65.7Mining and manufacturing 971 0.0 152,418 2.1 888,301 9.0Electricity, gas and water 33,029 0.5 11,734 0.2 148,218 1.5Construction 3,013 0.0 35,658 0.5 286,418 2.9Commerce 2,022 0.0 256,012 3.5 984,662 9.9
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Transport and communication 109,446 1.6 50,808 0.7 161,638 1.6
Finance and business services 7,424 0.1 20,847 0.3 76,687 0.8
Personal & communication. Services 9,850 0.1 752,019 10.2 663,737 6.7
Others 31,3570 4.6 28,004 0.4 163,412 1.7Industry not stated 127,272 1.9 70,298 1.0 22,395 0.2Source: CBS. Various Population Censuses (1981, 1991 and 2001).
There are two additional positive trends in the labour market. The labour force participation rate among both male and female has increased overtime (Table 4). Now the labour force participation rate among male and female is 87 and 73 percent respectively. At the same time, there is also a tendency of decline in the unemployment rate among both male and female. This is true in both rural and urban areas. Even among the poorest quintiles, there is a tendency of decline in the unemployment rate. However, these trends conceal many structural characteristics of the Nepalese labour market4.
Table 4: Labour Force Participation Rate among Male and Female and Unemployment
Male Female 1996 2004 1996 2004Labour Force Participation RateAll 84.6 86.9 71.4 72.9Urban 76.3 78.8 45.9 52.5Rural 85.4 88.7 73.4 76.9Poorest 40% 87.2 89.7 74.2 77.7Unemployment RateAll 5.4 4.1 3.8 3.8Urban 9.5 7.0 17.4 13.5Rural 5.1 3.6 3.2 2.5Poorest 40% 5.5 3.3 5.0 2.5
Source: NLSS 1995/96 and 2003/04
First of all, the employment by age structure shows that the unemployment among the youth has remained fairly high. More pressingly, the unemployment among those in above class 10 has increased overtime (Table 5). This corroborates the view that the unemployment among the educated is rising at a fast rate. This also partly reflects that the employability among the educated youth is relatively poor partly due to the predominance of general type of education.
Table 5: Participation Rate and Employment by Age Group and Educational Level (in percent)
4 Unemployment in a country such as Nepal does not indicate the real labour demand and supply mismatch of a labour market, as the majority is active in the informal economy.
17
Employed UnemploymentParticipation
RateUnemployment
Rate 1996 2004 1996 2004 1996 2004 1996 2004Age Group 10-14 35.5 50.1 3.1 1.8 38.6 51.8 7.9 3.415-19 61.2 67.7 4.5 4.1 65.7 71.8 6.9 5.720-24 73.2 77.8 6.2 5.3 79.4 83.1 7.8 6.425-44 85.4 88.3 3.5 3.3 88.9 91.6 4 3.645-59 80.5 86.3 2.4 1.6 82.9 87.9 2.9 1.960+ 49.3 60.7 0.5 1.1 50 61.9 1.3 1.7Education Attainment Illiterate 73.5 79.9 3.3 2.2 76.8 82.1 4.3 2.7School-Literate 54.9 71.5 1.5 2 56.4 73.5 2.6 2.7Class 03-05 55.2 67.1 3.5 2.4 58.6 69.5 5.9 3.5Class 06-10 60.8 69.9 4.4 3.4 65.2 73.3 6.8 4.6Above 10 Class 68.4 72.4 6.8 7.5 75.2 79.9 9 9.4Nepal 67.2 74.3 3.4 2.9 70.6 77.2 4.9 3.8
Source: NLSS 1995/96 and 2003/04Note: Unemployment rate is the ratio between ‘unemployed’ and ‘participation rate’.
More worryingly, the employment status among the economically active population shows that the labour market in Nepal is vulnerable. Although the share of self employed has decreased overtime from 85.5 percent in 1981 to 62.7 percent in 2001, the share of unpaid family workers has increased to 8.8 percent in 2001 from 2.5 percent in 1981 ( Table 6). More interestingly, the labour force survey (CBS, 1999) reveals that out of the total self-employed, 78 percent are engaged in agriculture related works. Among them 43.3 percent are engaged in own-family works without any pay. This is persisting at a time when underemployment in the agriculture sector is still very high at about 32.3 percent (NPC, 2002). The labour force survey of 1998/99 further reveals that out of the total labour force 76.1 percent5 is still engaged in the agriculture sector. Similarly, of the 23.9 percent labour force in the non-agriculture sector, 73.3 percent is engaged in the informal sector. Assuming the entire agriculture sector as informal sector, job ratio in the formal sector works out at a mere 6.4 percent. In the informal non-agriculture sector too, ratio of rural labor force is as high as 77.4 percent. Some studies show that the situation in the informal labor market is worse. About two-thirds of the workers in the informal sector do not receive any kind of training whatsoever from any organization. The ownership pattern of informal sector is dominated by male proprietorship (87 percent). About 70 percent of the informal sector workers work 12 hours a day and earn in the range of Rs. 1,000 to 3,000 per month (Mainali et al, 2002). This sector neither guarantees job security nor allows any collective bargaining power to the workers in fixing wage rates. At the same time, wage differentials between the male and female workers are equally high (ILO, 2002). Although improvement of wages has been reported in latest survey, the deeper analysis of survey findings indicates widening the wage gap between the skilled and unskilled workers including reduced wages of the urban non-agriculture unskilled workers. Real wages of the non-agriculture unskilled workers
5 Unlike the population census, the survey shows a higher dependency on the agriculture sector based on labor force criteria as opposed to economically active population criteria followed in the population census.
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reduced by 6 percent against more than a 2 time increase in the real wages of skilled workers during the period 1996 to 2004. In the informal agriculture also despite an increase in the real wages on the average, the share of wage income of the poor workers reduced considerably during the same period (CBS, 2006).
Table 6: Economically Active Population 10 Years of Age and Over, by Employment Status
Employment Status
Area, Sex & Age GroupsTotal
Economic. Active
Employer Employee Self Employed
Unpaid Family
Workers
Not Stated
1981 6,850,886 46,968 621,432 5,860,419 172,789 149,278Share in total 0.7 9.1 85.5 2.5 2.21991 7,339,586 41,455 1,571,300 5,522,827 171,631 32,373Share in total 0.56 21.41 75.25 2.34 0.442001 9,900,198 376,349 2,438,328 6,210,841 874,678 Share in total 3.80 24.63 62.73 8.83 0.00
Source: CBS. Various Population Censuses (1981, 1991 and 2001).
Although a recent estimate (Khanal, 2008) which was made based on extrapolated census data, indicates some increment in the employment elasticity at the aggregate level, at the sectoral level, many unexpected trends prevail. During the period 1990 to 2005 manufacturing employment elasticity rose to 1.778 from 1.197 during the period 1981 to 1990. Some incremental trends also persisted in the agriculture sector during the same period. However, during the same period, employment elasticity in the services sector declined noticeably. At the same time, the same study (Khanal, 2008) finds that in recent years the productivity in the manufacturing sector has declined sharply. In the services sector, there was rapid rise in the labour productivity during the period 1990 to 2000. After 2000, a deceleration in the productivity growth started. Informalization of labour market amidst predominance of unskilled workers in the services industry might have contributed to this. The increase in the participation rate followed by reduction in the unemployment rate also partly explains to this.
Amidst such a trend, a very unique employment pattern is found among the poorest quintiles in Nepal. As reported in the NLSS, self-employment in agriculture has risen overtime among both men and women. At the same time, wage employment in agriculture has decreased in both groups. As reported in the Table 7, in other activities like trade and services, no major increment in employment pattern is observed. Indeed, women employment in manufacturing and trade has decreased in 2004 compared to 1996. Problem of wage employment in agriculture, together with limited employment opportunities in other sectors, poses a big challenge to the poorest quintiles. This indicates the severity of the problem in the labour market from the standpoint of more equitable access of poor to the employment opportunities.
Table 7: Employment Patterns in Nepal, 1995-96 and 2003-04 (percent)
Men Women1995-96 2003-04 1995-96 2003-04
Poorest 2 quintilesSelf-employment agriculture 58.4 63.5 79.4 83.4
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Self-employment manufacturing 3 4 1.6 0.8Self-employment trade 4 1.8 1.4 0.8Self-employment services 1.2 1.9 0.1 0.4Wage employment agriculture 18.3 13 15.7 13Wage employment skilled non-agriculture 0.5 0.8 0.1 0Wage employed unskilled non-agriculture 14.6 15 1.6 1.6Total 100 100 99.9 100
Source: CBS, NLSS 1996 and 2004
A tendency of decline in the real wages and rise in unemployment among the unskilled workers partly explains such a state of affairs in the labour market. In urban areas non-skilled agriculture wage decreased by about 6 percent during the period 1996 to 2004 as opposed to more than two fold rise in the wages of skilled workers. During the period 1996 to 2004, there was some shift in the employment structure as well. Both in urban and rural areas, unskilled agricultural workers moved to self-employment in the agriculture. At the same time, there was some reduction in the share of unskilled non-agricultural workers in the urban areas followed by increment in the share of skilled workers (CBS, 2006). These phenomena clearly indicate the absence of suitable income, wages and employment policies at place, revealing the possibilities of rise in the vulnerability of labour market in a situation of abrupt external shocks.
The manufacturing census results provide more insight into employment and wage earnings. The census results show that after some pick up in the employment in the post liberalization period, there has been a continuous fall in the level of employment. More recent manufacturing results further corroborate this (Graph 13 and 14). The manufacturing census results indicate that after 2002 there has been continuous reduction in the number of establishments. Except some subsidiary industries mostly from Indian investors and a few others like carpet and handicrafts directed to exports, many industries have either collapsed or faced survival problems in the post liberalization period. As indicated by many studies6, incentive structure and institutional arrangement for support services lacked during the period of intensive liberalization. Although some incentives were provided to the cottage and small scale industries, they were far from adequate. The cascading tariff structure was equally detrimental to promote resource based and skill intensive industries (GoN, 2004). As pointed out below, in the absence of enabling environment, most of the banking sector investment increasingly went to the unproductive sectors. The adverse environment also hampered foreign investment in both manufacturing and infrastructural projects as pointed out above. Quite often there is a tendency of firms moving to small categories to avoid the Labour Law compliance. Interestingly, a recent study (Khanal and Dahal, 2008) based on secondary data did not find any bunching or growth trap type. The study corroborated the findings of many studies that non-labour regulations and business environment are critically important for the growth of manufacturing sector in Nepal.
Figure 13
6 Many studies including studies by ILO have shown that there is little enabling environment to the business/ enterprises in Nepal. See FNCCI/World Bank (2002), Khanal and Shrestha (2008) and ILO (2005). Both reduction in the number of establishment and employment was outcome of this.
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0 2000 4000 6000
1992
2002
2007
Total number of establishments
Total number ofestablishments
Figure 14
0 100000 200000 300000
Number
1992
2002
2007
Yea
r
Comparision of Inter Census Persons Engaged and Employes
Total number ofemployeesTotal number ofperson engaged
The pressures in the labour market have reduced due to massive outflow of working labour force to a greater extent. A recent information indicates that by April, 2007 total foreign employment number outside India reached 0.94 million (Table 8). Out of this total number, 3,67,615 went to Malaysia followed by 2,553,221 to Qatar, 1,81,798 to Saudi Arabia, 1,00,211 to United Arab Emirates, 11,454 to Kuwait, 6,359 to the Republic of Korea, 6,338 Bahrain, 3650 to Hong Kong, China ( MOF, 2008 and Graph 15). Nepal Living Standards Survey reports indicate that out of the total, about 6.6 percent of labour force was employed abroad in 2004. Such a percent was 3.7 percent in 1996 (CBS, 2004).
Table 8: Outflow of Nepalese Workers (Excluding India)In Number
2005 2006 2007 2008Malaysia 66,291 82,798 73,743 49,445Qatar 42,394 58,266 58,828 83,888Saudi Arab 13,366 18,261 36,916 42,214UAE 12,726 15,441 24,588 43,828Kuwait 1,789 655 2,093 1,459South Korea 327 131 679 0Oman 330 28 556 2,120Others 2,473 6,463 16,961 18,150Total 139,696 182,043 214,364 241,104
Source: Nepal Rastra Bank (Memo)
Figure 15
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There is a report that around 656 persons per day were going abroad before the global crisis. In October alone more than 20 thousand people had out migrated for the job (THT, 2009). These numbers are in addition to daily outflow of people to India. Given the open border and no restriction to free movement between Nepal and India, there is no official record showing exact number of people working in India. Therefore, the recession or economic slowdown in the major destination of out migrants would have serious adverse implications on both employment and earnings.
2.3 Specific Trends in Finance/Banking
During the post-liberalized regime, the financial system rapidly developed and diversified in Nepal. At the beginning of 1980s there were only two commercial banks and two development banks. By the end of mid July, 2008, altogether 235 banks and non-bank financial institutions licensed by NRB are in operation. Out of them, 25 are "A" class commercial banks, 58 "B" class development banks, 78 "C" class finance companies, 12 "D" class micro-credit development banks, 16 saving and credit co-operatives, and 46 NGOs (Figure 16).
Figure 16
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The total financial asset of the financial system has increased markedly. This is true in case of deposit and credit ratio as well. In terms of market share also a rapid change in share structure in banking system is taking place in recent years. This has been possible as a result of increase in the market share of private banks. In 2006, Rs 289 billion was the total deposits of the commercial banks. It rose to Rs. 421.5 billion in 2008. Similarly, the total lending of the commercial banks has increased to Rs. 420.2 billion in 2008 from Rs. 307.5 billion in 2006. The sectoral lending pattern shows that there is steady decline in the credit to the production sectors amidst fast growth in credit to the real estate related activities (Figure 17). The lending capacity of the entire banking system enhanced along with increased inflow of remittances. Foreign aid and export earnings also partly contributed to this.
Figure 17
23
Trends of Sectorwise Credit Flows of Commercial Banks
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
2003 2004 2005 2006 2007 2008
Years
Shar
e in
%
Agriculture ProductionConsturction Metal, TransporationWholesaler and Retailers Finance, Inusrance and Fixed AssetsReal Estates Others
After the introduction of comprehensive financial sector reform, the performance of the banking system has markedly improved (Table 9). This is true in case of state owned banks as well. The non-performing loan of commercial banks declined significantly to 6.08 percent in mid July, 2008 from 29.3 percent in 2001. There is also marked improvement in the profitability ratio. Although this partly indicates relatively low risk in the Nepalese banking system, various means often used to show low NPA ratio indicates that continued vigilance in the operating system of entire banking system is essential.
Table 9: Soundness Indicators of Commercial Banking System
Indicators 2001 2002 2003 2004 2005 2006 2007 2008
Profitability (Rs in million)
-7,843 -9,428 -3,317 3,707 5,205 7,983.51 8,797.9 11,911.7
NPL as Percentage of Total Loan
29.3 30.4 28.8 22.8 18.94 14.22 9.65 6.08
Total Capital Funds as Percentage of RWA
-5.49 -9.88 -12.04 -9.07 -6.33 -5.30 -1.71 4.04
Source: Banking and Finance Statistics, Nepal Rastra Bank.
A rigorous regression analysis carried out by a study to examine the effect of financial sector liberalization on the economic growth shows a positive link between financial deepening and economic growth from both short and long term perspective. The results, at the same time, show the direction of causality from trade liberalization to financial deepening. The long run elasticities derived evidently prove that greater liberalization of services trade would have a significant positive effect on financial deepening and economic growth even in less developed countries like Nepal (Khanal, 2007). These results, thus, additionally corroborate the view that any slow down in the growth of banking and finance would have wide-ranging negative spill over effects. Additionally, it is worth noting that the financial sector in Nepal is
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less integrated with the global or regional financial system. Therefore, main transmission mechanism impinging the banking system and thereby on the economy will have through the effect on inflow of remittances to a greater extent.
2.4 Social Development and Poverty Trends
Nepal has made steady progress in the areas of social development and poverty reduction despite many obstacles and constraints. The primary school net enrolment rate which was 64 percent in 1990 rose to 87.4 percent in 2007. Literacy rate above six years reached 63 percent (51 percent female and 77 percent male). Such a rate for age above 15 was 49.6 percent in 1990. Literacy Gender Equality Index has reached 0.61 as in 2007 (NPC, 2007). There has been slow but steady rise in girls’ enrolment for all three levels of schooling. The gender gap has narrowed down in primary and secondary levels of education. Infant mortality rate has also declined to 48 per thousand in 2007 from 108 in 1990 (NPC, 2007).
During the period 1996 to 2004, a considerable progress has been made in the poverty front as well. The population below the poverty line was 42 per cent in 1996. It reduced to 31 per cent in 1996 (CBS, 2006). Remittances income mainly contributed for this. According to the CBS study (2006) out of the 11 percent reduction in the poverty level, the contribution of remittances alone was as much as 7 percent.
Most worrying phenomenon amidst such positive developments is that the achievement is highly uneven. The school enrolment rate is quite low for poor, deprived people particularly downgraded and indigenous people. In the higher education, the gender gap is still very high. The number of girls with graduate and higher degrees is still less than 23 to 100 boys, which has remained almost constant since early 1990s. Gender Development Index and Gender Empowerment Index still are in the range of 0.452 and 0.391 respectively. Many women are engaged in informal, subsistence, household and non-wage activities. Time spent by women for outside household activities has been 36.3 hours per week, while 42.6 percent for men. The share of women in income has been 30 percent and in administrative service just 12.7 percent (NPC, 2007).
As a corollary, there are two very adverse phenomena in the poverty front. The income inequality has risen in an unprecedented way during the period 1996 to 2004. The gini- coefficient which was 0.34 in 1996 rose to 0.41 in 2004. At the same time, the decline in poverty was slower (from 43 to 34 percent) in rural areas and faster (from 22 percent to 10 percent) in the urban areas during the same period. Poverty at disaggregated level also remained highly disproportionate. Some social groups and geographic regions have high intensity of poverty-- 45 percent of the dalits (so-called untouchables), 44 percent of the hill Janajatis (indigenous people), and 41 percent of the Muslims are still below poverty line. On the other extreme, poverty in Tarai higher caste group and Newar community is about 12 and 14 percent respectively. The same for Hill dalits is about 48 percent (CBS, 2006). The poverty in Nepal has gender, spatial and occupational dimensions along with social ones. Women are poorer than men. Most poor households are located in the areas, which are not connected by road, telecommunication and electricity and where service delivery in education, health, and drinking water is poor ((UNDP, 2004). All these additionally indicate the extent of vulnerability in social and poverty fronts.
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Section 3: Probable Impact and Measures Taken
3.1 Probable Impact in 2008/09 and 2009/10
The first four months data of the current fiscal year 2008/09 indicate that the major sectors of the economy so far are almost buoyant. In the first four months, total exports have increased by about 39.9 percent comprising 24.4 and 70.8 percent growth in export to India and other countries respectively (NRB, 2009). The revenue of the government has increased by more than 34 percent against the targeted growth of 32 percent (MOF, 2008/09). The steep rise in imports has contributed markedly to such a growth to a greater extent. The imports rose by 38.9 percent on the average during the first four months of this fiscal year. The foreign aid inflow was equally remarkable with grants components rising by 52.4 percent on a cash flow basis. Other indicators also show positive trends in the economy. The total deposits of the commercial banks increased by 6.4 percent in first four months of this fiscal year against 7 percent during the same period last year. Likewise, the loans and advances rose by 6.4 percent against 6.9 percent last year. The private sector credit which is one of the indicators of expansion in the private investment indicates that in these months it increased by 9.7 percent against 6.9 percent during the same period last year. The year end data show that the total tourist inflow was 0.88 million in 2008 against 0.53 million in 2007. The travel income increased by 72 percent in the first four months of this fiscal year from 54.4 percent in the same period last year. Equally, interesting is that the remittances rose by 65.9 percent from 20.8 percent during the same period. The approval of FDI funded projects has also increased considerably during the period under consideration. Apparently, all these would have made some positive contribution on the generation of additional employment opportunities.
Despite such positive trends so far, there are many downside risks potentially emanating from the deepening global financial and economic crisis and their contagion. The structure of the economy, fragile export bases, too much dependency on external aid for funding of the development budget amidst rising debt servicing, remittances led expansion in economic activities including banking operations, a tendency of gradual rise in interest rates and continued depreciation in the exchange rate indicate toward such possibilities in the days to come. Understandably, the magnitude of both first and subsequent round employment effect of all them would be enormous.
3.1.1 Exports and Tourism
Despite the rise in commodity exports, no noticeable rise in the major commodity exports to India has taken place in the first four months. The rise has been due to some increment in the miscellaneous categories comprising of hundreds of commodities. Neither they have higher bases nor they are reliable. One of the major exports-jute is in the verge of collapse due to declining production and market. The indecisiveness of the government on promoting jute industry and acute labour problems are making almost impossible to this industry to survive or expand. Some jump in the export of readymade garment to India has taken place. This is partly due to cheap labour and certain tax concession. Therefore, the sustainability of exports of garment is most unlikely. Moreover, India itself is major exporter of garments. After the phasing out of quota, thousands of labourers have lost their job. A study shows that during the peak in 2001, more than 50,000 thousand workers were employed directly by the readymade garment industry. By 2006 the number reduced to just five thousand (UNDPRC,
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2007). Another item which recorded unexpected jump in exports to India is GI pipe. This was primarily due to steep rise in steel prices amidst some extra facilities to the Nepalese products in the Indian market. There is uncertain on its sustainability. With regard to exports to other countries, a major contribution has been made by pulses followed by pashmina, paper, herbs, tanned skin, handicraft and woollen carpets. Except herbs and pulses, all other commodities had registered negative growth during the same period of 2007/08. The high transaction cost, low quality, problem of trade mark protection and inadequate incentive to the exporters amidst security threat through various disturbances created problems to the major exporting industries. There was also certain demand shift from major importing countries as well. Due to these various reasons exports are vulnerable with low bases and very fluctuating trend. The gradual slowdown in Indian economy along with prolonged recession in the western industrial countries would start exerting adverse effect on the exports front after four to five months7. This will happen as a result of slow down in the demand for Nepalese products. The down turn in exports would have some dampening effect on employment particularly in view of many exportable industries being labour intensive. At the same time, the backward linkages factor would make some dents on farmers as well as industries supplying raw materials.
Now there is also a tendency of reduction in tourists’ inflow slowly. The tourism industry which was showing some revival from third quarter of 2008 may not continue for long. The high occupancy rate in hotels is gradually receding with likely negative effect on foreign exchange earnings and employment.
3.1.2 Foreign Employment and Remittances
There are already indications that Gulf-countries may reduce the demand for foreign workers. Some of the companies in Qatar have started sending back Nepalese workers8. South Korea has informed that it will postpone hiring Nepalese workers for at least two months with effect on already selected more than 3000 workers. Malaysia has not only decided not to hire Nepalese workers any more but they have also started sending back Nepalese workers. Also increased flow to Europe and US has started decelerating. Australia has also introduced some stringent rules in order to discourage people going to that country for either study or seeking for job. There are also indications that the increased Nepalese labour absorption will be halted in India along with slowdown in the economy. Taking all these factors together, gradually the panic in the labour market is growing. The foreign employment agencies are highly worried. Now government has realized that apart from sharp reduction in the outflow of workers there will be considerable reduction in the remittances inflow too in the days to come. It is anticipated that in six months time9, the effect will become albeit pervasive. As obvious, once the sharp deceleration in the remittances inflow begins, it will have wide-ranging economy-wide effect.
7 Group discussion with both entrepreneurs and business people indicates that they are very worry about the likely negative impact very soon. Now they are pressuring the government to come up with some stimulus packages to the industry and trade. 8 There was revelation of such steps in the local media. There is also information that the Qatar government has put pressure on companies not to terminate the foreign workers from the job without notice and prior approval from the government.9 Some of the organizations involved in foreign employment and industrial sector indicate more early effect.
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3.1.3 Banking and Financial Institutions
The reduction in remittances inflow would have a very pervasive first round effect on the operation of the banking and financial system from the point of view of deposit mobilization and lending capacity of such institutions. Along with stock market crash, the banks lending and re-lending options will also be greatly constrained with increased credit crunch problem affecting real sectors of the economy. As the proliferation of banking and financial institutions has enhanced the prospects of highly paid jobs, such a possibility will gradually evaporate. In totality, a slow down in the economy will start as a result of reduction in the bank lending capacity. This in turn will dampen import with very adverse effect on government revenue. This eventually will limit government’s capacity to expand developmental activities. In this way the subsequent round effect will be quite large with very dampening effect on the level of employment.
3.1.4 Foreign Direct Investment
In the post peace period, foreign investors had shown great interest to make huge investment in water resources sector of Nepal. Due to these reasons the current year budget has made commitments that in 10 years period 10 thousand MW of electricity will be generated. Now there are indications that many investors have started rethinking of investing as per earlier commitments after the aggravation of crisis10. There is also the possibility of effects in other sectors including industry and other infrastructures.
3.1.5 Exchange and Interest Rates
Since the beginning of the financial crisis, the depreciation of Nepalese currency has continued. Compared to exchange rate of July, 2008, the exchange rate has depreciated by almost 20 percent. Although this will have some positive effect on the exports and earnings of the workers abroad, the deprecation would have high debt serving liability. It is estimated that this will add more than Rs 1 billion debt servicing in this fiscal year than earmarked by the budget. Likewise, the balance held by commercial banks which amounted more than Rs. 47.1 billion by the end of Mid-November would earn less money as a result of decline in the interest rate in the USA. There are also indications of rise in inter-bank and 91-day Treasury bill rates. These rates increased to 5.34 and 5.55 percent by the end of Mid-November this fiscal year from 3.73 and 3.03 percent during the same period last year. Gradually, credit crunch may also become a problem. This may affect industries including labour intensive small trade and industries.
3.1.6 Revenue, Foreign Aid and Budget
Once the impact is transmitted to the imports amidst deceleration in economic activities, this would have effect on the revenue as the share of trade based revenue is almost 60 percent. This would have some adverse affect on the budget. Since the recurring expenses can not be reduced, the direct effect will be on the development programs including programs expanded in the areas of social security and safety nets. However, it is expected that the way both bilateral and multi-lateral donors have made commitments to provide grants even after the deepening of global crisis; it seems the foreign aid effect will be minimal at least for this fiscal year. Although commitments of donors to support from the point of view of durable peace may work positively to some extent, there are indications of slow down of aid to the developing countries. This may have effect on next year’s budget. At the same time, in the event of fall in the revenue mobilization, the paucity of counter parts fund may also affect foreign aided projects to a greater extent.
10 Based on discussions, highest level government authorities indicate such a possibility.
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3.1.7 Overall Growth and Employment
Various external factors and their transmission mechanism clearly indicate that if the global economic and financial crisis prolongs, the growth and employment effect will be quite large in the Nepalese economy in the coming days. Although the real effect will be felt after 3 to 4 months, as various recent indicators reveal, it will become pervasive in the next year in view of prolonged crisis in the industrial countries. As pointed out above also, there are at least five channels through which growth and employment effect will be transmitted to the Nepalese economy. As shown in the Chart 1, with the pronged crisis in the global economy, the demand for the Nepalese exportable products will decline. There will also be simultaneous reduction in the tourist inflow. As a result, the firms will be compelled to cut employment including reduction in the wages. Similarly, reduction in foreign employment and remittances inflow will have wide-ranging economy wide effect. At first, the saving and investment capacity of the baking system will decrease substantially. This will also have a direct effect on imports with immediate adverse effect on government revenue. As a consequence, the investment capacity of both government and private sectors will reduce considerably with negative effect on social and infrastructural development including construction related works which provide direct employment substantially. The low FDI and likely reduced foreign aid would deepen that process. As obvious, the combined effect on growth and employment will be quite large with increased vulnerability in the labour market as this will enhance the process of informalisation in the labour market further11.
11 No employment cut by industries has been noticed so far. But once the crisis impinges in various sectors of the economy, the labor retrenchment, wage cuts could the common practices. So far there is no any reaction form the trade unions too. The recent minimum wage hike has been taken by the trade unions positively.
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Chart 1
Channels, Transmission Mechanism and Economy-wide Effect
Global Economic/Financial Crisis
Decline in Export Demand
Decline in Foreign Employment/ Remittance Inflow
FDI Deceleration
Lower Imports
Low Saving/ Investment in Financial System
Growth and Employment Effect
Lower Government Investment
Lower Employment/ Growth Effect
Economic Slowdown
Reduction in Tourist Inflow
Probable Foreign Aid Decline
Retrenchment/ Wage Cut etc / Growth Effect
Informalisation of Labour Market/ Vulnerability
Lower Govt. Revenue Employment
Cuts/ Growth Effect
Informalisation and Vulnerability
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More specifically, the current budget has set the growth target of 7 percent for this fiscal year 2008/09. The IMF forecast shows that Nepal will grow at a rate of 5.5 percent in this year 2008/09. Very recently, government has conceded that the growth rate may be in the neighbourhood of 5 percent12. This may still be at the high side. More realistic forecasts could be in the order of 4.5 percent. In the next year 2009/10, the growth rate could be further reduced to about 4 percent as the foreign employment effect has already started to impinge on the Nepalese economy.
Given the estimated employment elasticity of about 0.363 at the aggregate level and possibilities of more direct adverse employment effect in many sectors including effect on the foreign employment, the overall dampening effect would be quite large. In view of high employment elasticity in industries and their stagnating trends amidst very low elasticity in services sector, such a possibility is quite strong.
Our rough estimates on the basis of average employment elasticity show that if the growth rate settles at 5 percent in the current year 2008/09, the employment growth will be around 1.81 percent. Similarly, if the growth rate further goes down to 4.5 percent, the employment growth will be about 1.63 percent. In view of growth of labour force rising by more than 2.3 percent13, the growth rate will be highly inadequate to provide employment to more than 3 lakh new entrants in the labour market apart from those who are unemployed and seeking jobs. In the next year, if growth rate goes down to 4 percent, the employment growth will be only 1.4 percent. In this way, there will be big pressures in the labour market with more vulnerability of unskilled workers particularly women and youths. This will be more so in view of predominance of informal labour market. In the course of deepening crisis, some sectors will be affected more badly than others. The employment effect will be more pervasive if the labour intensive sectors are more adversely affected. The point to be made is that the effect may be more serious than the indicative numbers reveal. This demands more proactive role by the government in many fronts particularly with focus on job security of the workers as well as employment to the new entrants including to those out migrants who are compelled to return after termination of their job.
3.2 Steps Taken to Cope with Continued Crisis
In view of some positive trends in the economy so far, the government has taken no serious steps solely directed at mitigating likely adverse effect on the economy. Almost four months back, government had constituted a high level committee under the chairmanship of the vice-chairman of National Planning Commission to monitor the possible effect of global crisis and suggest necessary measures to the government. Although the Committee is engaged in some internal home works, no formal suggestions have been made to the government so far.
Nonetheless, some steps have been taken by both monetary authorities and the government. After sharp reduction in the prices of plastic granules, vegetable oil, billet and soybean in the international markets, Nepal Rastra Bank increased TR period for these commodities from 90 days to 180 days while opening the LC for importing such commodities. The Nepal Rastra Bank has also directed all financial institutions to submit their lending status in 11 different categories on monthly basis to reduce their risk exposure. The lending areas include real estate, team loans, overdrafts trust receipt loans, construction and working capital loans,
12 Recently (Second week of March) Finance Minister told the media that the growth rate will be around 5 percent. 13 It is quite natural to assume that the labor force growth rate of at least 2.3 percent in view of population growth rate of about 2.25 percent.
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margin lending, loans for residential buildings, hire purchase, lending for deprived sector and bills purchase.
Additionally, the central bank has adopted a more stringent approach in the areas of supervision and regulation. Project viability criteria adopted followed by cross check of non-performing asset ratio of banks are regularly checked with strong actions against those banks which violate the set standard norms. Similarly, the strict rules for granting licence has also been adopted in which the income source has to be shown clearly while purchasing share of a proposed new bank. In the stock exchange also, besides some transparent systems, a system of selling and buying of shares through bank account has been introduced with the aim of controlling of misuses of shares by the brokers.
The government is busy with making some ongoing programs effective. One of the noticeable features of this year’s budget is that it has adopted albeit expansionary approach with earmarking of more resources to the safety net and social security related programs. These include, hiking of allowance to the elderly citizens accompanied by inclusion of deprived castes living in the remote areas in the safety net program. Similarly, employment to about 3 lakh people in the rural areas has been envisaged by the budget apart from earmarking of budget for literacy program in which youths will be involved in such programs. It has also introduced public private partnership program. Likewise, a massive inflow of FDI has been assumed by the budget especially for harnessing abundant water resources. Some big infrastructural projects with focuses on road expansion are also proposed in the budget. These programs are intended to stimulate the economy.
Government has also fixed minimum wages to the workers. The minimum wages will be Rs. 4600 per month. This is a major step in protecting the interest of the workers. Reluctant industries to implement such a wage scheme have been directed to follow the new wage scale strictly.
Recently, the government has declared that the expenses of out migrants forced to return within six months of their job will be compensated by the government. The details of this are yet to be made public.
At the same time, government is in the final stage of declaring a new industrial policy. The policy is directed to create favourable industrial environment. It distinctly focuses on the micro and small enterprises to promote employment. The problems of policy coordination and cumbersome administrative procedures have been particularly addressed. Some new incentives are also proposed in the new policy14.
A major reform, from the standpoint of promoting investment in the energy sector, has also been pursued through many policy initiatives. The cumbersome procedures of project licensing and approval have been simplified along with VAT facilities up to the electricity projects of 10 MW.
Finally, the government has planned development partner’s meeting in May to assess the performance of donor funded programs and seek new commitments from the donors. This 14 The discussion with highest authorities gives the impression that the perceived adverse effect of global slowdown in the industries have also been taken into account. Some safeguard measures to the micro and small scale industries have been proposed through some tax concession and rebate facilities. For ensuring markets to the local producers, some tax rebates vis-a-vis the similar imported products have also been proposed. The skill development program has also been emphasized by the policy with proposed reforms in institutional aspects as well. Going through the document followed by more detailed discussion with people involved in framing the policy it seems that no direct reference to the crisis and accompanying policy measures is there.
32
will be a big opportunity to assess and present the likely effect of global recession on the Nepalese economy and request donors to provide generous support accordingly.
3.3 Responses from the Donors
The donor community has remained in a watch and see position. No special packages have been offered so far. In October 2008, IMF had given some suggestions especially in the financial sector (www.imf.org/nepal) with focus on the necessity of strengthening supervisory and regulatory role of the central bank. Even in the crisis prone period also, donors are providing generous support. In that way they are helping Nepal to avoid possible crisis. At the same time, they are now busy with preparing their internal documents to be presented to the donors meeting. In that meeting they may come forward with new pledges to support Nepal in mitigating probable crisis.
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Section 4: Some Suggestive Measures
In view of prolonged recession in developed countries and contagion affect in developing countries, some precautionary measures are necessary in order to avoid slowdown in the economy, reduction in foreign employment and safeguard workers from compulsion to get rid of employment. The business and industrial community is also pressurizing government for some stimulus packages including measures to create favourable business environment15. The already established high level committee has to come forward with specific immediate to long term measures necessary to introduce by the government. Considering the vulnerability of the economy and possible wide ranging adverse effect, flowing both short term and long term measures would be essential16.
4.1 Short Term Measures
4.1.1 There is a need of up scaling of existing social security related programs like monthly pension to the elderly, widow, disabled, dalits and people living in remote areas. The age bar of 70 for elderly pension has to be further reduced across the board though it is now 60 to the dalits living in the most remote districts. The informal workers are still excluded from the social security and safety net programs. A special package will be necessary to them as well.
4.1.2 The targeted poverty alleviation program under poverty fund supported by the World Bank may be used with better targeting of vulnerable groups like migrants workers and workers who are gradually loosing the jobs because of crisis.
4.1.3 Program of additional support to the poor families in sending children to the school would be equally desirable. The food for education program could further be extended along with more scholarships to the targeted groups. In stead, a broad based zero hunger program like the one implemented by Brazil very successfully could be initiated. The program is designed in a way that the government support to the family is tied with sending of children to the schools and regular medical check up in the health centres.
4.1.4 The deprived sector credit program has to be made more effective with more easy access to the financial services of the poor and the vulnerable groups. It is necessary to up scale group based credit program focussing on women and other vulnerable groups. For the crisis period, a program of interest subsidy could be reintroduced.
15 Both FNCCI and CNI are demanding such a package. Now there is continuous dialogue between the government and industry and business people. Government has now agreed to ban strikes in sensitive areas- producing or distributing essential commodities. The potential impact of global crisis also prompted government to agree on this agenda which was a key demand of them since several years. After this, government may come up with some stimulus packages as demanded by the industrial and business community. 16 The suggestions below are partly based on group discussion with FNCCI and CNI people apart from discussion with high level government officials. Discussion with central bank people was also carried out. In recent days, there is realization among many concerned stakeholders that the crisis is gradually transmitting to the Nepalese economy. As pointed out already, the continuous return of out migrants, a symptom of reduction in tourist inflow and reluctance of the foreign investors to invest in mega electricity projects are some of the examples of this. The traders have now started complaining of slowdown in the demands for Nepalese products.
34
4.1.5 Many countries have introduced insurance scheme in the employment with some mixed outcomes. In countries where the informal labour market is predominant, it may have limited coverage and impact. Therefore, minimum employment guarantee scheme could be the best option for countries like Nepal as some countries have successfully done so. Such a program in the beginning could be targeted to the most vulnerable for which resource involvement could be relatively low in a situation of paucity of resources.
4.1.6 There is also some scope of either removing or reducing VAT in the essential commodities used by the most poor and vulnerable groups.
4.1.7 The fiscal stimulus package also could be used to provide employment to the retrenched workers or workers who have returned from abroad forcefully. This could be done by implementing pipeline projects with priority.
4.1.8 Skill development program could also be designed and implemented targeting educated youths and other vulnerable groups especially to assist them in self-employment related production and services activities. At the same time, some specific skill oriented training programs could also be made a part of this program based on the labour market assessment.
4.2 Medium to Long Term Measures
4.2.1 In the monetary front, review of interest rate policy followed by less monetary tightening approach will be required considering beyond traditional neo-liberal views based policy prescriptions in order to avoid likely credit crunch problem. While adopting an easy monetary policy, it will also be essential that supervisory and regulatory systems are further tightened and improved for preventing loans to the unviable or wrongly designed projects.
4.2.2 A topmost priority has to be given to restructure the investment pattern of the entire financial system. More enabling environment has to be created to the banking system to divert their resources from unproductive to the productive areas. They should be particularly encouraged to invest in the micro and small enterprises. A new approach of financial inclusiveness in the financial system will be essential.
4.2.3 There is a need of fiscal stimulus package besides making budget provisioned programs effective. Investment in infrastructure, health and education with focus on poverty stricken rural areas and above all employment oriented programs will be essential.
4.2.4 In order to minimize the probable effect of external demand for Nepalese products, fiscal stimulus package has to be accompanied by some rebates in corporate tax and VAT. Similarly, this has to be accompanied by some facilities through banking system to minimize the probable credit crunch problem.
4.2.5 Public-private partnership in key sectors like roads, bridges, airports, electricity projects will provide new impetus to the economy as a whole with both growth and employment inducing effect.
4.2.6 More enabling environment to the investors with focuses on small and medium industry will also be essential. The new industrial policy has to ensure that separate policies
35
are evolved to the cottage and small scale industries. Assurance to policy coordination and fast track strategy for creating enabling environment will be the key for the effectiveness of new policy. Access to credit and other incentives through very effective one window system making built in accountability system will be the key for the successes of the upcoming new industrial policy.
4.2.7 There is a need to formulate especial incentive package to the exporters including steps to secure markets to the Nepalese products.
4.2.8 Nepal is situated between two major locomotives of the global economy, India and China. Nepal has to take steps to get especial support from these countries.
4.2.9 Despite increased FDI commitments, actual inflow is less with stagnating trends in recent years. This has to be changed through more enabling environment strategy. Now Nepal needs attracting FDI in Water Resource and other sectors for sustained growth, higher exports and increased opportunities of decent employment.
4.2.10 Massive skill development programs along with proactive initiatives to ensure regular outflow of workers will be required. This, in addition to others, will require more economic diplomacy at the international level for exploring new employment markets.
4.2.11 Some amicable solution to the labour law dispute has to be explored. Extreme views by both industrialists and some overly politicized labour unions have made this problem standstill for last few years.
4.2.12 From a medium to long term perspective, there is a need of paradigm shift from export led growth to more domestic led growth and development. This will need internal market expansion and augmentation in the purchasing capacity of the poor through massive drive on infrastructure development, extensive use of domestic resources and employment centric policies and programs. The present crisis driven by neo-liberalism indicates for such a necessity.
4. 3. Parallel Initiatives
4.3.1 Support of Development Partners
A continuous support from the development partners will be essential to cope with likely economic crisis emanating from global recession. The development partners meeting to be held in coming month will be a great opportunity for this. Nepal has to get assurance from donors that there will be no disruption of aid to Nepal. While getting assurance, support for both immediate stimulus packages and long term development programs have to be sought side by side.
4.3.2 Involve Social Partners in Policy Formulation
Involvement of social partners in policy formulation or design to address potential crises will be the most suitable approach. It is necessary to institutionalize such a course to build trust and ensure policy coordination at different levels. Particularly, it is necessary that trade unions and business as ell as entrepreneur’s associations are involved in various stages of designing fiscal stimulus and other policy packages.
36
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CBS (1996 and 2004), Nepal Living Standard Survey, Kathmandu: Central Bureau of Statistics.
CBS (2006), Resilience Amidst Conflict: An Assessment of Poverty in Nepal, 1995-96 and 2003-04, Kathmandu: Central Bureau of Statistics.
Dahal, M. K. and Aryal, Shankar (2003), Improving Nepal- India Economic Relations: A Study of the Impact of Foreign Direct Investment (FDI) and Transfer of Technology in Nepal, Kathmandu: IIDS.
DOI (2008 and 2009), Statistics on Foreign Direct Investment, Kathmandu: Department of Industry.
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GoN (2008), Economic White Paper, Kathmandu: Ministry of Finance
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IEG (2008), Lessons from World Bank Group Responses to Past Financial Crises, Independent Evaluation Group, Washington: World Bank
IFC and World bank (1997), Nepal Attracting Foreign Direct Investment to Nepal's Infrastructure, Kathmandu: World Bank.
IIDS and IPRAD (2006), A Study of the Impact of Foreign Direct Investment Policy of Rich Countries on Poverty Reduction of Developing Countries: A Case Study of Manufacturing Sector of Nepal, Kathmandu: IIDS and IPRAD.
ILO (2002), Decent Work for Poverty Reduction: An ILO Contribution to the PRSP in Nepal, Kathmandu: ILO Office:
ILO (2005), A Report on Micro and Small Enterprise Policy Review in Nepal, Geneva: International Labour Organization.
ILO (2009), Global Employment Trends, Geneva: ILO.
IMF (2009), Global Financial Stability Report, Washington: IMF.
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Khanal, D. R. (2009), Public Finance Implications of Trade Policy Reforms in Nepal, A Report Submitted to UNDP Regional Centre, Sri Lanka.
Khanal, D. R. (2008), Nexus of Growth, Investment and Decent Work: A Critical Assessment of Nepalese Experience (Mimeo), Geneva: ILO.
Khanal, D. R. and Shrestha, Prakash (208), Trade and Investment Policies Coherency and Small Enterprises Development in Nepal, A Report Submitted to ARTNeT, Bangkok: ESCAP/ARTNeT.
Khanal, D. R. and Dahal, Mahesh (2008), The Impact of Labour Laws and Business Environment on MSEs: A Country Review, A Report Submitted to ILO Office, Kathmandu.
Khanal, D. R. (2007), Banking and Insurance Services Liberalization and Development in Nepal, Malaysia and Bangladesh: A Comparative Assessment, ARTNeT Working Paper Series No. 41, Bangkok: ESCAP/ARTNeT.
Khanal, D. R. and Kanel, Nav Raj (2005), Macroeconomic Policies, Shocks and Poverty Reduction in Nepal: A Simulation- based Quantitative Analysis, Kathmandu: Institute for Policy Research and Development ( IPRAD).
Mainali, M. P. et.al (2002), Gender Dimension of Skill Development in Nepal, Kathmandu: ILO Office.
MoF (2008), Economic Survey, Kathmandu: Ministry of Finance.
MoF (2008/2009), Budget Statement, Kathmandu: Ministry of Finance.
NPC ( 2007), Three Year Interim Plan, National Planning Commission, Kathmandu.
NRB (2008), Economic Situation of 2007/08, Kathmandu: Nepal Rastra Bank. NRB (2009), Economic Situation of First Four Months of 2008/09, Kathmandu: Nepal Rastra Bank.
The Himalayan Times (2009), Fewer Migrant Workers, Kathmandu: THT Friday 10, 2009.
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UNDPRC (2007), Export Diversification in the Post-ATC Era: Perspectives from Asian LDCs, Colombo: UNDP Regional Centre.
www.imf.org/nepal
38
AppendicesAppendix Table 1 (a): Exports of Major Commodities to India
(Rs. In million)
1989/90 1994/95 1999/00 2004/05 2005/06 2006/07 2007/08P
A. Major Items 376.5 2460.7 19349.5 31824.7 31091.0 34294.6 32436.8
1 Aluminium Section 226.7 879.2 893.7 831.5 894.5
2 Batica Hair Oil 82.9 232.3 6.2 7.5 0.6
3 Biscuits 18.5 88.0 8.8 6.0 0.7 0.5
4 Brans 25.0 27.7 40.1 57.1 105.9 121.3 264.5
5 Brooms 0.0 56.8 81.5 69.7 43.9 56.8
6 Cardamom 14.0 137.7 223.0 607.0 608.1 848.1 1034.8
7 Catechue 11.0 7.5 199.3 438.7 382.4 542.8 543.7
8 Cattle-feed 38.9 200.9 547.4 454.6 80.9 164.0
9 Chemicals 27.4 1407.5 1057.5 950.2 221.8
10 Cinnamon 0.5 3.7 2.3 9.2 29.1 16.0 24.3
11 Copper Wire Rod 631.5 530.1 305.8 206.0 617.4
12 Dried Ginger 9.9 76.9 59.5 80.1 62.2 49.6 45.9
13 Fruits 2.6 14.2 1.8 1.2 0.1 0.1
14 Fresh Fish 3.2
15 G.I. pipe 65.1 424.0 519.3 127.8 242.7
16 Ghee (Vegetable) 2743.0 4635.9 3861.7 4136.5 2133.2
17 Ghee(Clarified) 7.8 49.6 37.6 83.1 103.0 110.9 89.6
18 Ginger 29.2 90.9 161.5 161.0 275.2 541.3 543.2
19 Handicraft Goods - 35.1 104.7 32.9 20.0 19.9
20 Herbs 4.5 41.7 61.2 132.4 133.5 105.6 147.4
21 Hides and Skins 37.9
22 Iron Scrapes 0.2
23 Juice 242.8 1091.3 1139.6 1591.3 1836.4
24 Jute Goods 231.1 1103.9 2693.5 2636.8 2756.8 2582.5
39
(a) Hessian 2.2 15.3 103.9 186.1 464.5 375.1 528.8
(b) Sackings 0.6 0.2 403.2 1456.2 1265.4 1408.6 1219.9
(c) Twines 1.7 215.6 596.8 1051.2 906.9 973.1 833.8
25 Jute Cuttings
26 Kachha
27 Live Animals 73.1 181.2 71.9 56.0 58.0 21.7 52.2
28 Maize 0.1
29 M.S. Pipe 425.3 316.6 105.7 761.9 979.5
30 Marble Slab 19.8 43.1 62.4 41.9 113.2 147.6
31 Medicine (Ayurvedic) 511.3 205.6 301.1 156.3 128.8
32 Mustard & Linseed 3.7 64.8 29.3 44.3 47.5 23.3 35.1
33 Noodles 0.2 41.7 126.8 369.3 414.7 237.4 532.9
34 Oil Cakes 22.6 105.6 222.4 317.1 291.6 318.1 404.7
35 Paper 131.1 169.7 95.5 131.6 120.2
36 Particle Board 296.4 335.3 227.5 206.8 135.4
36 Pashmina 3544.2 341.5 210.7 48.3 44.0
38 Plastic Utensils 302.5 1361.6 808.3 415.1 302.1
39 Potato 0.5
40 Polyster Yarn 251.5 630.3 1896.3 3476.3 2241.0 2617.7
41 Pulses 2.7 401.5 969.7 667.1 643.2 306.9 314.8
42 Raw Jute 117.5 86.0 0.0 0.0 0.5 1.6 31.1
43 Readymade garment 45.3 365.9 1137.3 765.0 478.1
44 Rice Husked
45 Ricebran Oil 5.1 121.2 45.0 199.0 112.6 178.3 196.5
46 Rosin 0.4 81.5 236.6 256.6 346.5 577.4 342.9
47 Salseed Oil
48 Shoes and Sandles 79.5 235.9 237.8 244.4 348.6
49 Skin 159.3 158.9 338.6 334.8 363.1 346.0
50 Soap 1083.5 368.0 363.6 502.7 424.2
40
51 Stone and Sand 0.1 24.5 67.3 249.1 321.3 425.6 208.2
52 Tarpentine 19.8 52.7 105.1 179.2 75.9
53 Textiles 138.0 2996.6 2154.6 3056.9 2113.9
54 Thread 1169.2 2213.7 1898.3 4055.9 4134.5
55 Tooth Paste 197.9 2262.9 1283.0 730.8 663.4 475.6
56 Turmeric 2.5 0.1 1.0 9.1 1.4
57 Vegetables 8.4 30.5 27.3 11.0 17.5
58 Vegetables and Fruits
59 Wheat Flours 0.2
60 Wire 132.7 1221.4 1504.1 1610.7 1546.7
61 Zinc Oxide 234.3 1.0 0.0 0.0 0.0
62 Zinc sheet 58.5 1663.2 2409.0 3579.9 4416.9
B. Others 290.1 663.6 1871.2 7092.2 9623.7 7434.2 6189.6
Total(A+B) 666.6 3124.3 21220.7 38916.9 40714.7 41728.8 38626.4
Source: Economic Survey, Ministry of Finance and Annual Economic Situation of 2007/08, NRB.
Appendix Table 1 ( b): Share of Major Commodities in Total India Export
( in Percentage)
1989/90 1994/95 1999/00 2004/05 2005/06 2006/07 2007/08P
A. Major Items 56.5 78.8 91.2 81.8 76.4 82.2 84.0
1 Aluminium Section 0.0 0.0 1.1 2.3 2.2 2.0 2.3
2 Batica Hair oil 0.0 0.0 0.4 0.6 0.0 0.0 0.0
3 Biscuits 0.0 0.6 0.4 0.0 0.0 0.0 0.0
4 Brans 3.8 0.9 0.2 0.1 0.3 0.3 0.7
5 Brooms 0.0 0.0 0.3 0.2 0.2 0.1 0.1
6 Cardamom 2.1 4.4 1.1 1.6 1.5 2.0 2.7
7 Catechue 1.7 0.2 0.9 1.1 0.9 1.3 1.4
8 Cattle-feed 0.0 1.2 0.9 1.4 1.1 0.2 0.4
9 Chemicals 0.0 0.0 0.1 3.6 2.6 2.3 0.6
10 Cinnamon 0.1 0.1 0.0 0.0 0.1 0.0 0.1
41
11 Copper Wire Rod 0.0 0.0 3.0 1.4 0.8 0.5 1.6
12 Dried Ginger 1.5 2.5 0.3 0.2 0.2 0.1 0.1
13 Fruits 0.4 0.0 0.1 0.0 0.0 0.0 0.0
14 Fresh Fish 0.5 0.0 0.0 0.0 0.0 0.0 0.0
15 G.I. pipe 0.0 0.0 0.3 1.1 1.3 0.3 0.6
16 Ghee (Vegetable) 0.0 0.0 12.9 11.9 9.5 9.9 5.5
17 Ghee(Clarified) 1.2 1.6 0.2 0.2 0.3 0.3 0.2
18 Ginger 4.4 2.9 0.8 0.4 0.7 1.3 1.4
19 Handicraft Goods 0.0 0.0 0.2 0.3 0.1 0.0 0.1
20 Herbs 0.7 1.3 0.3 0.3 0.3 0.3 0.4
21 Hides and Skins 5.7 0.0 0.0 0.0 0.0 0.0 0.0
22 Iron Scrapes 0.0 0.0 0.0 0.0 0.0 0.0 0.0
23 Juice 0.0 0.0 1.1 2.8 2.8 3.8 4.8
24 Jute Goods 0.0 7.4 5.2 6.9 6.5 6.6 6.7
(a) Hessian 0.3 0.5 0.5 0.5 1.1 0.9 1.4
(b) Sackings 0.1 0.0 1.9 3.7 3.1 3.4 3.2
(c) Twines 0.3 6.9 2.8 2.7 2.2 2.3 2.2
25 Jute Cuttings 0.0 0.0 0.0 0.0 0.0 0.0 0.0
26 Kachha 0.0 0.0 0.0 0.0 0.0 0.0 0.0
27 Live Animals 11.0 5.8 0.3 0.1 0.1 0.1 0.1
28 Maize 0.0 0.0 0.0 0.0 0.0 0.0 0.0
29 M.S. Pipe 0.0 0.0 2.0 0.8 0.3 1.8 2.5
30 Marble Slab 0.0 0.6 0.2 0.2 0.1 0.3 0.4
31 Medicine (Ayurvedic) 0.0 0.0 2.4 0.5 0.7 0.4 0.3
32 Mustard & Linseed 0.6 2.1 0.1 0.1 0.1 0.1 0.1
33 Noodles 0.0 1.3 0.6 0.9 1.0 0.6 1.4
34 Oil Cakes 3.4 3.4 1.0 0.8 0.7 0.8 1.0
35 Paper 0.0 0.0 0.6 0.4 0.2 0.3 0.3
36 Particle Board 0.0 0.0 1.4 0.9 0.6 0.5 0.4
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36 Pashmina 0.0 0.0 16.7 0.9 0.5 0.1 0.1
38 Plastic Utensils 0.0 0.0 1.4 3.5 2.0 1.0 0.8
39 Potato 0.1 0.0 0.0 0.0 0.0 0.0 0.0
40 Polyster Yarn 0.0 8.0 3.0 4.9 8.5 5.4 6.8
41 Pulses 0.4 12.9 4.6 1.7 1.6 0.7 0.8
42 Raw Jute 17.6 2.8 0.0 0.0 0.0 0.0 0.1
43 Readymade garment 0.0 0.0 0.2 0.9 2.8 1.8 1.2
44 Rice Husked 0.0 0.0 0.0 0.0 0.0 0.0 0.0
45 Ricebran Oil 0.8 3.9 0.2 0.5 0.3 0.4 0.5
46 Rosin 0.1 2.6 1.1 0.7 0.9 1.4 0.9
47 Salseed Oil 0.0 0.0 0.0 0.0 0.0 0.0 0.0
48 Shoes and Sandles 0.0 0.0 0.4 0.6 0.6 0.6 0.9
49 Skin 0.0 5.1 0.7 0.9 0.8 0.9 0.9
50 Soap 0.0 0.0 5.1 0.9 0.9 1.2 1.1
51 Stone and Sand 0.0 0.8 0.3 0.6 0.8 1.0 0.5
52 Tarpentine 0.0 0.0 0.1 0.1 0.3 0.4 0.2
53 Textiles 0.0 0.0 0.7 7.7 5.3 7.3 5.5
54 Thread 0.0 0.0 5.5 5.7 4.7 9.7 10.7
55 Tooth Paste 0.0 6.3 10.7 3.3 1.8 1.6 1.2
56 Turmeric 0.0 0.0 0.0 0.0 0.0 0.0 0.0
57 Vegetables 0.0 0.0 0.0 0.1 0.1 0.0 0.0
58 Vegetables and Fruits 0.0 0.0 0.0 0.0 0.0 0.0 0.0
59 Wheat Flours 0.0 0.0 0.0 0.0 0.0 0.0 0.0
60 Wire 0.0 0.0 0.6 3.1 3.7 3.9 4.0
61 Zinc Oxide 0.0 0.0 1.1 0.0 0.0 0.0 0.0
62 Zinc sheet 0.0 0.0 0.3 4.3 5.9 8.6 11.4
B. Others 43.5 21.2 8.8 18.2 23.6 17.8 16.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Economic Survey, Ministry of Finance and Annual Economic Situation of 2007/08, NRB.
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Appendix Table 1 ( c): Export of Selected Commodities to Other Countries
(Rs. in Million)
1989/90 1994/95 1999/00 2004/05 2005/06 2006/07 2007/08P
A. Major Items 4043.7 13778.5 27418.1 14824.2 15241.0 13563.8 13110.5
1 Handicraft ( Metal and Wooden ) 48.2 145.4 218.1 644.2 430.9 250.2 178.2
2 Herbs 7.2 15.1 54.7 19.0 43.5 93.8
3 Nepalese Paper & Paper Products 2.7 0.0 168.4 239.8 257.0 190.6 346.1
4 Nigerseed 27.8 84.3 14.3 0.0 7.0 8.8 1.2
5 Pashmina 2665.0 1049.8 1577.8 931.0 643.4
6 Pulses 211.0 55.4 87.1 106.5 191.7 488.5 1458.4
7 Raw Jute 11.3
8 Readymade Garments 1409.9 5139.3 13942.4 6124.6 6204.1 5212.9 4746.2
9 Readymade Leather Goods 34.8 23.4 30.2 14.4 111.1 22.8
10 Silverware and Jewelleries 36.1 164.5 232.6 363.2 282.4 325.4 269.4
11 Tanned Skin 416.5 181.9 235.8 310.4 279.1 248.4
12 Tea 2.0 13.0 27.7 106.7 107.6 122.5 55.8
13 Woollen Carpet 2294.7 7718.1 9842.1 5868.7 5838.7 5600.2 5046.8
14.0 B. Others 345.3 736.4 1183.9 4964.6 4278.4 4090.5 9050.6
Total (A+B) 4389.0 14514.9 28602.0 19788.8 19519.4 17654.3 22161.1
Source: Economic Survey, Ministry of Finance and Annual Economic Situation of 2007/08, NRB.
Appendix Table 1(d): Share of Selected Commodities in Total Other Countries Export
(in percent)
(In Percentage)
1989/90 1994/95 1999/00 2004/05 2005/06 2006/07 2007/08P
A. Major Items 92.1 94.9 95.9 74.9 78.1 76.8 59.2
1 Handicraft ( Metal and Wooden ) 1.1 1.0 0.8 3.3 2.2 1.4 0.8
44
2 Herbs 0.0 0.0 0.1 0.3 0.1 0.2 0.4
3 Nepalese Paper & Paper Products 0.1 0.0 0.6 1.2 1.3 1.1 1.6
4 Nigerseed 0.6 0.6 0.0 0.0 0.0 0.0 0.0
5 Pashmina 0.0 0.0 9.3 5.3 8.1 5.3 2.9
6 Pulses 4.8 0.4 0.3 0.5 1.0 2.8 6.6
7 Raw Jute 0.3 0.0 0.0 0.0 0.0 0.0 0.0
8 Readymade Garments 32.1 35.4 48.7 30.9 31.8 29.5 21.4
9 Readymade Leather Goods 0.0 0.2 0.1 0.2 0.1 0.6 0.1
10 Silverware and Jewelleries 0.8 1.1 0.8 1.8 1.4 1.8 1.2
11 Tanned Skin 0.0 2.9 0.6 1.2 1.6 1.6 1.1
12 Tea 0.0 0.1 0.1 0.5 0.6 0.7 0.3
13 Woolen Carpet 52.3 53.2 34.4 29.7 29.9 31.7 22.8
14 B. Others 7.9 5.1 4.1 25.1 21.9 23.2 40.8
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Economic Survey, Ministry of Finance and Annual Economic Situation of 2007/08, NRB.
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