BBA-3rd-Sem-Chapter-2.pptx bba important

Business Environment in
Nepal
BBA 3rd Semester
Unit – 2 Macroeconomic
environment

Economic Environment in Nepal
🠶 Concept of economic environment
🠶 Economic system and dimension of economy
🠶 Major problems and challenges facing Nepalese economy
🠶 Employment trend and labour market issues
🠶 Trends and issue of foreign employment and remittance
🠶 Concept of economic development plans
🠶 Overview of the economic development plan of Nepal (16th)
🠶 Features, contribution, issues and challenges of Nepalese agriculture
sector
🠶 Structure and performance of Nepalese Industrial sector
🠶 Concept and objectives of SEZ
🠶 The industrial/tourism/trade policies and issues of Industrial sector in
Nepal
🠶 Concept of economic policy and reforms
🠶 Liberalization of Nepalese economy

Economic Environment in Nepal
🠶 Concept of Economic Environment :
refers to the sum of external economic factors that affect
the operation, performance and decision making of the
business.
remains the
Being an economic entity economic environment
most important environmental components for
business.
 Economic system: is a mechanism which deals with the production,
distribution and consumption of good and services in a particular
society and involves of people, institutions and their relationship. It
addresses:
 What to produce? How to produce? What quantities and to whom
to produce?

Dimensions of the economy
Dimensions of an economy refers to the factors of economy of a country. An
economic development reflects through: demographic forces, income level,
income distribution, growth of agricultural and industrial activities, development of
service sectors, level of employment, balance of payment, rate of inflation,
urbanization, and globalization. These factors collectively determine the
soundness of any economy. They may be analyze through following four
dimensions

Major Problems and challenges facing Nepalese Economy
🠶 Resource Management
🠶 Industrial Development
🠶 Employment opportunity
🠶 Concentration of
Investment
🠶 Energy Management
🠶 Development of
agriculture
🠶 Use of land
🠶 Development of
Infrastructure
🠶 Reconstruction work
🠶 Dependencies on
foreign aid
🠶 Control Inflation
🠶 Promotion Social

Employment
Trends
🠶 Rural migration
🠶 Increase in foreign e
m
p
l
o
y
m
e
n
t
🠶 Increased in Skilled Manpower
🠶 New Employment opportunities
🠶 Shift from traditional education
🠶 Fair treatment

Labor Market
Issues
🠶 Employment dominated by agriculture sector
🠶 Higher Number of women in the labor Force
🠶 High Unemployment
🠶 Discrepancy in gender (wage payment)
🠶 Child labor
🠶 Forced labor
🠶 Increase in Labor force participation rate

Migration foreign employment - Trend and
issues
🠶 Federal and provincial policies of foreign employment
🠶 Productive utilization of remittance
🠶 Use of informal remittance
🠶 Skill development of the migrant workers
🠶 Safe and decent employment environment
🠶 Social cost (Disintegration from family, children, parents
e
t
c
.
)
🠶 Absence of human resource in the country

Remittance situation in
Nepal
Year 2019/20 2020/21 2021/22 2022/23 2023/24
GDP (in Billion) 3,888.70 4,352.55 4,976.56 5,348.53 5,704.84
Remittance Inflow 875.00 961.00 1,007.00 1,086.00 1,445.32
Rem % on GDP 22.50% 22.08% 20.23% 20.30% 25.33%
0.00
%
5.00
%
10.00
%
15.00
%
20.00
%
25.00
%
30.00
%
-
1,000.0
0
2,000.0
0
3,000.0
0
4,000.0
0
5,000.0
0
6,000.0
0
2019/20 2023/24
2020/21
GDP (in
Billion)
2021/22
Remittance
Inflow
2022/23
Rem % on
GDP

Economic Development plans of Nepal
🠶 Economic development plan: Economic development plan was initiated from the
U
S
S
R (Union of Soviet Socialist Republics) Soviet Union in 1928. It aims to achieve the
economic goals of the country through proper policy and resource mobilization.
🠶 Economic develop plans in Nepal and objectives:
1. First Five years Plan (1956-1961): To increase production and
maximize
employment opportunities. It was the foundation for economic developments.
2. Second three years plan (1962-1965): Similar to the first plan.
3. Third Five years plan (1965-70): To increase agriculture production, develop
basic infrastructures, develop industrial sector and foreign trade.
4. Fourth five years plan (1970-75): To increase the production, establish
economic infrastructure, expansion and diversification of foreign trade and
utilization labor force available.

5. Fifth five years plan (1975-80): Concept of decentralization emerged. Problems
of poverty was addressed for the first time. Priority was
Agricultural development.
6. Sixth five years plan (1980-85): Agriculture was top priority and followed by
social services.
7. Seventh five years plan (1985-90): Encouraged private sector participation in
the economy. Aimed at increasing productivity of all sectors, expanding
employment opportunity and fulfilling minimum basic needs.
8. Eighth five years plan (1992-97): This was the first plan after restoration of
democracy. Main objectives were to obtain sustainable development of the
country through poverty alleviation and reduction of regional imbalance.
9. Ninth five years plan (1997-2002): It aimed poverty alleviation and economic
and social empowerment of the people.
10. Tenth five years plan (2002-07): Aimed at the Poverty reduction.
11. Eleventh three years plan (2007-08 to 2009-10): To reduce unemployment,
poverty and inequality existed in the country.

12. Twelfth three years plan (2010-11 to 2012-13): Aimed at poverty alleviation,
establishment of sustainable peace and equitable economic growth.
13. Thirteenth three years plan (2013-14 to 2015-16): To upgrade Nepal from least
developed to developing country by achieving millennium development goal.
14. Fourteenth three years plan (FY 2016-17 to 2018-19): Focuses on reducing
absolute poverty, sharing economic prosperity post earthquake reconstruction and
rehabilitation, development of physical infrastructure and good
governance.
15. Fifteenth five years plan (FY 2019-20 to 2023-24): The slogan was “Generating
Prosperity and Happiness”. Set a target to achieve a minimum average
economic growth of 10.3% per annum in the next five years.

National objectives and Strategies of 15th Plan
🠶 Objectives:
i. Poverty alleviation
ii. Education
iii. Health
iv. Gender equality
v. Physical infrastructure and energy
Strategies:
vi. Employment oriented economy growth
vii. Quality health service and education
viii. Social Security arrangements
ix. Mobilization and uplift of natural resources
x. Improvement in public service
xi. Poverty eradication and socio economic equality
xii. Improvement in public service, provincial balance and national
unity

Features of agriculture sector in
Nepal

Hindering factor/Issues for agriculture
development in Nepal

Challenges of agriculture development in
Nepal

Industrial sector of Nepal
🠶 History: The history of modern industrialization in Nepal was started in 1936 (1993
BS) with the establishment of Biratnagar Jute Mill. Afterward, Cotton Mill, Morang
(1941), Morang Sugar factory (1946), Raghupati Jute mill (1946).
🠶 Industrial development was accelerate in Nepal after democracy in 1950 (AD) (2007
BS)
🠶 Industrial sector plays pivotal role in reducing trade deficit by transforming import
b
a
s
e
d
economy to production and export oriented economy of the country.
🠶 The industrial Enterprise Act, 2020 has classified Nepalese industries into the f
o
l
l
o
w
i
n
g
category:
🠶 Classification based on nature of output and service:
🠶 Energy based industries: Water resource, wind, solar, coil, natural oil, gas, boi gas
etc..
🠶 Manufacturing industries: Produced goods by utilizing or processing raw materials.
🠶 Agro and forest based industries: Based on agriculture and forest, poultry, cattle
farm
and leasehold forest.
🠶 Mineral Industries: Industry involves mineral excavation or processing.

🠶Tourism industries: Business related to tourist lodging, motel, hotel, restaurant, r
e
s
o
r
t
,
travel agency, para gliding, water rafting, trekking, hot air ballooning golf and riding.
🠶Telecommunication and broadcasting: Involved in providing information, knowledge
and communication services by using technology.
🠶 Service Industries: Workshop, press, public transportation, h
o
s
p
i
t
a
l
,
nursing home, education and training institutions, laboratory, air service bank
and insurance.
Industry Classification based on investment:
 Micro industries: Industries with fixed assets of Rs, 2 million except land and building,
annual transaction <10 Mil, workforce up to 9 people including the owner.
 Cottage industries: related with national tradition, art and culture by utilizing specific
skills or local raw materials and resources.
 Small industries: Industries with a fixed asset up to Rs.150 Million.
 Medium industries: Industries with a fixed asset between Rs.150 Mil to 500 Mil.
 Large Industries: Industries with a fixed asset more that 500 Million Rupees.

Industry
report
published
by
Confedera
tion of
Nepalese
industries
(CNI) July
2024

Performance of Industrial sector of Nepal
Industry
report
published
by
Confedera
tion of
Nepalese
industries
(CNI) July
2024

Industrial sector of Nepal - Issues
Industry
report
published
by
Confedera
tion of
Nepalese
industries
(CNI) July
2024

Special economic zone (SEZ)
🠶 A special economic zone (SEZ) is an area in which the business and trade laws
are different from the rest of the country. SEZs are located within a country's
national borders.
🠶 Government of Nepal (GoN) has adopted the concept of SEZ to attract foreign
a
n
d national investors to invest and establish industrial and business units, which
contribute in increased promotion of export.
Objectives of SEZ:
I. To attract domestic and foreign capital
II. Promotion of export of goods and services
III.To create employment opportunities
IV. To widen the export trade all over the world
V. To develop competitive capacity of export oriented goods and services in
the internal market
VI. To control the gap of foreign trade deficiencies (Import and export)

Issues of industrial sector in Nepal
🠶 Political instabilities
🠶 Government policy and r
e
g
u
l
a
t
i
o
n
🠶 Lack of energy
🠶 Lack of security
🠶 Quality of product
🠶 Weal technology
🠶 Low capacity utilization
🠶 Lack of physical infrastructure
🠶 Labor regulations and labor
u
n
i
o
n
s

Economic policy and reforms
🠶 Economic policy: refers to the actions and guidelines of the government for
t
h
e economic development of the country. Economic policy encompasses a
broad range of strategies employed by governments to optimize economic
performance.
Some notable economic policies in Nepal are:
1. Industrial policy 2010: attempts to cope with the challenges posed by globalization,
address the increasing role of service industries in the economy of the country,
involvement of private sector in building physical infrastructure and human resource.
Objectives of industrial policy 2010:
I. To increase export of industrial products with growth in national income
and employment
II. To increase contribution of industrial sector in the balance national and regional
development
III.To develop productive human resource and managerial capacity
IV. To develop the country as an attractive place for investment in the region and
world
V. Poverty eradication and trade balance

2. Commerce/Trade policy 2015: This policy was issued in 2015 by replacing earlier
commerce policy, 2008. I
t aims to achieve inclusive and sustainable economic
growth through export promotion. The policy envisaged to constitute “Board of
Trade” at central level in private sector’s participation and harmony between policy
and Nepal trade integration strategy, enhancing supply related capacity, increasing
production and productivity, protecting and promoting service, trade and intellectual
property.
Strategies/Objectives:
I. Government shall play the role of coordinator, facilitator and regulator to enhance
active participation of the private sector.
II. Enhance competitive capacity of the product and for export promotion.
III. Reduce trade deficit by strengthening supply side capacity.
IV. Enhance the competitive capacity of exportable service sectors.
V. Reduce transaction cost through trade facilitation and institutional strengthening.
VI. Mainstream to establish trade as a major component of economy.
VII.Link trade in goods and services to regional and global production network.

Tourism policy 2008: This policy aims to develop tourism as an important sector of the
national economy by developing linkages between tourism and other sector.
Objectives:
III
.
I. To develop tourism as an important sector of national economy by developing linkages
between tourism and other sectors.
II. To diversify tourism down to rural area so as to improve employment opportunities,
foreign currency earnings, growth of national income and regional imbalance.
To improve natural, cultural and human environments and expand the tourism industry.
IV. To maintain good image of the nation in the international community by providing
quality service and sense of security.
V. To develop and promote Nepal as an attractive tourism destination.
Characteristics :
VI. Emphasis on rural tourism, community based tourism and home stay, II. Emphasis
on promotional activities, III. Priority on international tourism, IV. Diversification, growth
and expansion of tourism, V. Development of air services, VI. Private sectors
participation in tourism, VII. Focus on human resource development, VIII. Extensive
use of information technology and data in tourism management, IX. Focus on tourist
security.

Monetary Policy : It is a macroeconomic policy and concerned with monetary system
of the country. It is formulated and implemented by the central bank of Nepal
and basically involves management of money supply and interest rate.
Objectives:
I. To stabilize the price level and fluctuations of uncertainty and instability to the
economy.
II. To increase investment for full employment.
III.To have rapid economic growth with stability.
IV. To maintain equilibrium in the balance of payment.
Instruments of Monetary policy
1. Bank rate policy
2. Open market operation
3. Variation in the reserve ratio
1. Fixing margin requirements
2. Consumer credit regulation
3. Publicity
4. Credit rationing
5. Moral suasion
6. Directives
Quantitative
Instruments
Qualitative
Instruments

Bank rate Policy : refers to the rate of interest levied by central bank to commercial banks. The
central bank increases the bank rate during inflationary situation and decrease the rate in
deflationary situation.
Open Market Operation: refers to the purchase/sale of short term and long term securities by the
central bank in the open market. The bank sells the securities under inflationary situations and
buys securities to address the deflationary situations.
Variation in the reserve ratio: The commercial banks required to keep certain proportion of their
total deposit as a cash reserve in the central bank. If the reserve ratio is high, the credit volume
of the bank will be low and, if the reserve ratio is low, available credit will be high.
Fixed Margin requirement: refers to the proportion of the loan not financed by the bank. A
change in a margin implies a change in the loan size.
Consumer Credit regulation: The central bank regulates the use of bank credits by the customers
to buy durable goods by influencing the down payment and repayment.
Publicity: The central bank express its view based on facts and figure by using public media.
Credit rationing: Credit is rationed by limiting the amount available for each commercial bank or
fixing upper limit of credit.
Moral suasion: It involves persuasion, suggestions, and request to the banks without strict action.
Directives: The central bank issues frequent directives and circulars to guide on lending policy.
.

Current Monetary Policy of
Nepal:
The primary objective of Nepal Rastra Bank is to maintain price and balance of payments
(BoP) stability for ensuring economic stability and sustainable economic development, by
formulating and managing necessary monetary and foreign exchange policies, as
mandated by the Nepal Rastra Bank Act, 2002. The bank has been announcing monetary
policy every year since 2002/03. The monetary policy for 2024/25 has been formulated
considering the policy provisions related to regulatory, foreign exchange and payment
systems.
Targets:
I. To contain inflation within 6.5 percent for 2023/24
II. Maintain the foreign exchange reserve for 7 months (now it is 12.6 months import)
III. The average base rate of commercial banks, development banks, and finance companies stood at
8.17 percent, 9.96 percent, and 11.46 percent respectively in mid-June 2024, which were10.18
percent, 12.47 percent, and 13.55 percent respectively in mid-June 2023.
IV. As per the IMF’s projection, the world economy, which expected to grow 3.2 percent in 2024.
V. The Indian and Chinese economy are projected to grow by 7
% and 5
% respectively in 2024.
VI. In the eleven months of 2023/24, the total merchandise exports decreased 3%, whereas the total
merchandise imports decreased 1.8%. As a result, the trade deficit has improved 1.7%.
VII. Remittance inflows increased 19.3% in Nepali Rupees and 17.3 percent in USD.
VIII. Merger of microfinance and regulation for cooperatives.

Liberalizatio
n
Liberalization Meaning: Economic liberalization is the gradual process of lessening
government regulation and restrictions in the economy. It advocates greater participation
of the privet sector in the economic activities. It involves combining the economy with
rest of the world. Liberalization is the removal of government controls to encourage
economic development.
In Nepal, the liberalization policies were implemented from 1990 with predominant
emphasis on privatization and open market policy. Subsequently, different acts and
policies were promulgated and implemented as a liberalization process, such as:
Industrial policy, 2010, Foreign investment policy, 2015, Labor act, 2017, and Tourism policy,
2008.
Effects of Liberalization on Nepalese Business:
I. Growth of private sector
II. Rise of financial institutions
III. Increase in FDI
IV. Rise of Multinationals
V. Rising trade deficit
VI. Development of capital market
VII.Changing role of the

Economic reforms in Nepal
Economic reforms involves reduction of government intervention in the economy. They
generally involve simplifying regulations, promotion of role of private sector and opening
up the economy to foreign competition.
Economic reforms of Nepal may be viewed from the following two perspectives:
Internal reforms External reforms
1. Financial sector reforms
2. Fiscal reforms
3. Monetary policy reforms
4. One window policy
5. Removal of subsidies
6. Public sector reform
7. Insurance sector reform
8. Capital market reform
1. Reforms in trade sector
2. Reforms in foreign exchange
• Current account reform
• Capital account reform

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