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planning process – Cost-benefit analysis, internal rate of return, financial and economic analysis, logical
framework analysis; Challenges of economic development in Nepal.
A plan is a set of things to operate in a systematic order to achieve the definite target. Planning is the process of making
decisions to achieve the goals or target.
Development planning is defined deliberate government attempt to implement, monitor, supervise as well as co-
ordinate economic decisions made on economic issues of a nation. It is also known as economic planning of a nation.
The concept of development planning was first introduced in 1917 A.D. in the former Soviet union.
Dalton says, "Economic planning in the widest sense is the deliberate direction by persons in charge of large resources
of economic activity towards chosen ends."
The basic objective of development planning is to achieve sustainable economic development in primary, secondary
and tertiary sectors of the nation.
Development planning helps in the of poverty alleviation through the creation of employment opportunities and social
opportunities like education, health, etc.
Human Resource Development
Human development resource is the most important factor in implementing the plans and policies successfully. It states
various effective programs to get benefits for those people directly or indirectly.
Economic Growth
One important aim of planning is to increase economic condition of a country. Without the growth of economic condition,
it is not possible to attain and maintain economic prosperity.
Reducing Regional Imbalance
There is a vast economic imbalance between regions of a country and also between rural and urban areas. So the
main importance of planning is to reduce this imbalance by implementing effective plans and programs.
Others
Besides the above-mentioned importance, development planning provides the following benefits to the country
Diversification of Agricultural Sector
Manpower Training
Population control
Industrial development
Promotion of Tourism Sector
Employment Opportunities
Monitoring and Evaluating, etc.
Background
In Nepal, planned development started in 1956. The nation has seen the implementation of nine five-year plans and
three three-year plans. This plan was a contribution to the economic and social development of the country, problems
such as poverty, economic disparity, and social exclusion still needs to be addressed. Nepal is considered a least
developed country but if development efforts are accelerated and political environmental commitment is for the coming,
Nepal may be upgraded to a developing country.
Long-term Vision
The vision of this plan is to upgrade Nepal as a developed country from least developed by 2022.
Goal and Objective
The main goal is to decrease the proportion of the population living below the poverty line by triggering broad-based,
employment-oriented, inclusive and equitable economic growth that would help alleviate poverty and establish a
sustainable peace. Its objective is to bring about a direct positive change in the living standards by reducing the
economic and human poverty prevalent in the nation.
Process of Plan Formulation
Plan formulation is a process of making new plan with reference to the previous evaluation of plans including evaluation
and monitoring of existing plan. A good plan formulation requires following steps:
1. Evaluation of past plans and estimation of new plan
The planning authority should evaluate previous plans. In the process of evaluation success and failure of
current and the past plans are evaluated.
3. Discussion
The most important step in plan formulation is the discussion on the current plan as well as on the proposed
plan. The discussion program takes place among National Development Council, National Planning
Commission Ministries, etc.
Nepal is a small landlocked country having area 147181 square km with length about 500 miles and wide 100 miles,
and population about 30 million with the annual population growth rate of 2.37 percent. She has neighbors China in
the north and India in the south, east and west. Nepal is a developing country in the world with small size of the
economy having Rs 550 billion GDP and $ 561 per capita income in FY 2009/10. The gross domestic savings and
investment are about 7 percent and 5 percent respectively, which are very low compared to other nations. Nearly one
third of the people live below absolute poverty line in Nepal. Historically, Nepal hinges upon the foreign aid for its
economic development. Because of the lack of infrastructure, small domestic market, and limited natural resources,
Nepal’s trade deficit is very high and widening rapidly over time. As a developing nation, Nepal has been facing several
challenges in the path of economic development. There are so many development issues entailed to be addressed as
far as possible through economic policy measures. These development issues and challenge can be outlined as
follows.
Mass Poverty and Inequality: Reducing the percentage of people below absolute poverty line, narrowing
the ever widening poverty gap between rich and poor with implementation of the poverty reduction measures,
at present, is one of the major development issues in Nepal. Data reveals that 25.4 percent Nepalese people
live below absolute poverty line in FY 2008/09 whereas inequality, measured by Gini coefficient, increased
from 0.41 in FY 2004/05 to 0.46 in FY 2008/09. Alarming figure of extremely low per capita income and mass
poverty present an awful image of the overall economic condition. Low growth rate about only 2 percent in
the last 50 years period reveals the presence of the structural bottlenecks in the economy. Against this
backdrop, one of the major development challenges to Nepal at present is to break the vicious circle of poverty
and underdevelopment through rapid economic growth along with equitable distribution of the income.
Lack of Physical Infrastructure: Inadequate and disproportionate development of the physical infrastructure
like transportation, communication, electricity is also a major development issue which has retarded the overall
development of the nation. Majority of the rural areas in Nepal have not been integrated into the mainstream
of the economy because basic infrastructure including road, electricity, communication have not yet reached
out to these areas. We have been facing the severe problem of energy crisis including huge burden of load
shedding despite the huge hydroelectricity potential within the country. Failure to match demand with
adequate production and supply of electricity has adversely affected all sectors of the economy. There is a
lack of drinking water and inadequate development of the irrigation system within the economy. One of the
challenges to the economy is, thus, how to develop adequate physical infrastructure in proportionate manner
in the economy including expansion of the agricultural roads, access of remote districts to the road networks,
production and supply of hydroelectricity as per the demand through the investment in this area.
Widespread Unemployment: Issue of unemployment, disguised unemployment, and underemployment is
also serious one. About 400000 workers are added annually in the labor market in Nepal. But, the
opportunities for entrepreneurship, quality skill development and creation of employment opportunities are
extremely low in the economy. We all know that youth force is one of the major prospective resources of our
country. Unfortunately, because of the lack of employment opportunities within the nation Nepalese youth are
compelled to engage in painful foreign unemployment. Brain drain of the educated and trained manpower is
also alarming. Therefore, it has become a major challenge to generate employment opportunity for the youths
including those who are marginalized from the mainstream of development and make all to participate in the
process of development. In addition, the challenges in this sector are: producing the skilled manpower capable
of competing in the international labor market, doing help and protection of workers going abroad for foreign
employment, increasing access to employment opportunities for marginalized groups like women, Dalits,
Tribes, Madhesis, disables etc, developing and creating the sector generating more employment.
Stagnation of Agriculture: One of the major identified causes of underdevelopment and poverty is
stagnation of agriculture. Despite agriculture sector being a source of employment for about 68 percent of
manpower, its contribution to GDP is only 34 percent. Poverty is widespread among the people engaged in
agriculture since the per capita output is low in agriculture. Since majority of the Nepalese people are engaged
in agriculture, poverty alleviation is possible only when we are able to increase agricultural productivity and
shift the excess manpower from agriculture to other sectors of the economy by way of creating opportunities
of gainful employment. Agricultural production still remains capricious due to high dependency on monsoon
owing to weak irrigation facility. Nepalese agricultural sector has low competitiveness in the international arena
because of the dearth of fertilizer, seeds, irrigation and other facilities necessary for raising productivity.
Therefore, one of the prime development challenge to Nepal is to push up the agricultural growth alongside
the increased agricultural productivity through various policy measures( like commercialization of the
agriculture, expanding irrigation facilities, road networks, storage, fertilizers and inputs etc) and to sustain its
competitiveness by giving continuity to emphasis on investment and subsidy facilities being provided to this
sector.
Economic Dependency: Growing economic dependency of Nepal on foreign nation is one of the grave
issue entailing solutions as far as possible. The trade deficit has been growing annually at an astronomical
scale. We are importing not only capital goods but also the basic goods of daily necessities at large scale.
Imports exceed exports by about 6 times resulting trade deficit of Rs 31352 crores. About 60 percent of total
foreign trade has been with India in the last 10 years suggesting poor country wise trade diversification and
excessively high dependency on India. In the national budget also, the huge portion is also funded by the
foreign aid due to meager mobilization of the domestic resources. For example, about 10 percent of the budget
in FY 2011/12 is expected to be funded through foreign aid. Since the outstanding foreign debt is also very
high and at an ever increasing state, the debt servicing (principal repayment and interest) is in the growing
trend. Balance of payment deficit was observed in FY 2009/10 for the first time in the previous eight years. It
has resulted the gradual depletion of the foreign exchange reserve and exerted the pressure with added
challenge of sustaining the external sector. Economic dependency is, thus, on rise in all sectors. In the face
of economic dependency and time of transition, it a major challenge for Nepal to reduce such economic
dependency and build nationally self-reliant economy.
Political Stability and Good Governance: It is observed that corruption is rampant, in various forms and
from the lower to the upper level of the government machinery. Since Nepal is in transition directed toward
building a new constitution, she has suffered from the high degree of political instability including frequent
changes in government, programs and policies, conflict due to presence of several interest groups. Problem
of governance includes weak institutions and procedures, lack of ownership of development projects and
programs, lack of accountability and mismanagement of the resources, deteriorating law and order, absence
of well functioning judicial system etc. Thus, the key challenge is to make peace process reach logical
conclusion by building a new constitution based on common consensus and also in line with the aspirations
of all class, caste, gender and the suppressed and neglected communities and region. In addition, creation
of corruption free environment to ensure radical improvement in the public service delivery mechanism has
become a challenge.
Low Level of Savings and Investment: Slight concern of most of policy makers goes to the worst state of
savings and investment. It is observed that Nepalese economy is slowly becoming consumption oriented
because of increased flow of remittance income and thereby resulting hopeless drop in savings and
investment rates. For example, consumption to GDP ratio has been 93.3 percent in FY 2010/11, which has
resulted savings rate down to 6.7 percent. Consumption oriented economy gradually leads to increased
economic dependency on others resulting scarcity of resources for investment. Thus, it is a challenge to create
the foundation of the economic growth through raising levels of savings and investment by discouraging
unnecessary consumption.
Natural Resources Utilization: one of the key development issues in Nepal is how to harness the natural
resources available in the economy. We are rich in some resources such as water, forest, minerals etc. Nepal
has about 6000 rivers and rivulets. Theoretical potential hydro power of Nepal is estimated to be about 83000
MW whereas sites those are technically feasible for development could generate 44000 MW. However, Nepal
has so far been able to produce only a small fraction of this potential resource- only 697MW up to FY 2009/10.
We have also minerals deposits of Iron, limestone, Zink and others in many places in the economy, but no
detailed survey of these resources has been conducted yet. We have also land with different altitudes capable
of producing several type cash and food crops, medicinal herbs, flowers, fruits; vegetables etc. Harnessing
forest alongside bio-diversity could also become a potential resource. We can harness water resources
through hydroelectricity generation and exporting it to India, and expanding irrigation and drinking water
facilities. Nepal has been a tourists’ paradise for many years because of incredible natural beauty and man-
made to some extent. Nepal can create tourists magnetic atmosphere and can earn huge amount of foreign
exchange if the government and private sector both take initiative in constructing tourism infrastructure
development. It is also a challenge of developing a country as a tourist destination by conserving and
expanding the existing tourists’ locations with adequate publicity; and exploration, identification and expansion
of the new tourist’s sites. Thus, a major challenge to the economy is to harness available natural resources in
optimum manner and preserve the renewable as well as non-renewable resources for future generation.
Human Resources: Nepal has a huge potential of human resources, which, if utilized effectively, can be a
major source for the factor of development. But, large portion of the people are still illiterate, and there is lack
of skilled and trained manpower in the different field. Human development indicators are also very worse
compared to other nations in the south Asia. Due to the lack of employment opportunities within the country,
about 250000 people leave the country for foreign employment and the number is on the rise. Even though
foreign employment is a major source of foreign exchange earnings and sustaining the BOP, we are supplying
only untrained, unskilled or semi-skilled workers for foreign employment. It is also necessary to make this
sector systematic and making institutional arrangement for imparting training and skill for raising the demand
for Nepalese workers at the international level. Now it is a challenge of engaging the youths in the nation’s
development by creating employment opportunity within the country itself. Furthermore, one of the major
challenges is to eradicate illiteracy by ensuring production of efficient manpower to cope with the need of the
time and production and utilization of the manpower needed for the modern and developed economy.
Benefiting from Globalization: The issue of taking advantage from liberalization and globalization is also
a prominent one. Privatization of public enterprises and liberalization of the sectors like foreign trade, financial
sector are in progress. Nepal is a member of WTO, SAFTA and BIMISTIC. We cannot move ahead without
the integration of our economy with global economy. Trade liberalization in Nepal has become only import
liberalization because of the many reasons like poor infrastructure, low competitiveness of domestic products
etc. The export sector is in the severe problems due to lack of physical infrastructure, failure in maintaining
the set quality and standards in the production of exportable goods, failure to identify niche products and niche
markets for export promotion, low competitiveness in the international market. There is lack of investment and
trade friendly environments due to weak peace and security situation, uneasy labor relations, and shortage of
energy in the country. Thus, raising the level of production and employment of the industrial sector by
attracting domestic and foreign investment through investment friendly environment has become also a
challenge. In the face of globalization, it is a challenge for our nation to take maximum advantage of greater
degree of liberalization and globalization by ensuring appropriate policies, legal and structural reforms,
adequacy of physical as well as administrative infrastructures etc.
In addition to the above mentioned issues and challenges, there are so many development challenges we are facing
continuously in the path of building a well-advanced, egalitarian and discrimination-free society. In the financial sector,
we are facing a problem of weak institutional governance of the financial institutions. Therefore, one of the challenges
is to build financial sector strong and stable alongside making institutional governance and self regulatory system of
the banks and financial institutions effective. Addressing the issue of financial inclusiveness is also prominent one
because of the difficulty in increasing access to banking and financial services of the ultra poor, remote and rural areas.
One additional challenge is of simultaneously sustaining both monetary and demand management for avoiding the
undesired pressure on the price level. As a least developing country, Nepal has several development changes in its
way of economic development, which needs immediate policy consideration and implementation from all Nepalese.
Relevance of Planning:
The meaning of economic planning differ from country to country and person to person. Keeping in view the various
definitions we can say that aim of all the plans is to utilize the available resources more effectively achieving the well
defined objectives during given period of time.
2. Superior Decisions :-
The decision of planning authority are more superior as compared to the individuals. Planning authority keeps in view
the interest of the whole nation. It prepares the plan keeping in view the economic condition of the country.
7. Balanced Economy :-
If one sector of the economy is developed the country will not achieve maximum rate of development. Through
planning resources of the country can be allocated in such a manner that it provides balance to the economy.