ALLIANCE ASCENT COLLEGE

DEGREE: MASTER OF BUSINESS ADMINISTRATION

COURSE: MACROECONOMIC ENVIRONMENT AND POLICY

PROJECT: MACROECONOMIC FUNDAMENTALS

TOPIC: NEPAL

NATURE OF SUBMISSION: PROJECT REPORT

COURSE MENTOR: DIVYASHRE HEGDE

GROUP -5

TEAM MEMBERS:

ROSHAN BOHDAR
AKSHAYA K
GOKULA KRISHNAN D
SALMA RAHAMAN
HARSH KOSHTA
SHREYAS BANDODKAR

MARKETING A SECTION

MBA II SEMSETER (2024 -2026)

Introduction to Nepal's Economy
Nepal is a landlocked nation located in South Asia, between China and India. Its economy
revolves around agriculture, remittances, tourism, and an expanding services sector. In spite
of its rich cultural and natural heritage, Nepal is still among the least developed nations
globally.
1. Overview
Nepal's economy, worth approximately $40 billion, is dominated by agriculture, remittances,
tourism, and hydropower. Agriculture provides 25-30% of GDP and has 60% employment,
and remittances account for more than 25% of GDP due to Nepalese migrant workers.
Tourism, with Mount Everest and cultural heritage, is a major sector but is plagued by
political unrest and natural calamities. Although there is 80,000+ MW hydropower potential,
only a fraction is being harnessed. Nepal has a high trade deficit and poor industries but
potential in hydropower, tourism, and intra-regional trade to achieve future growth.
2. Major Economic Sectors
Nepal's economy is diversified with its contribution from various sectors including:
• Agriculture – Accounts for 25-30% of GDP and provides employment to 60% of the
population, and among the major crops include rice, maize, and wheat.
• Remittances – Contributes to more than 25% of GDP, led by Nepalese labour working
abroad, predominantly in Gulf nations, India, and Malaysia.
• Tourism – Dominant sector with tourists visiting for Mount Everest, trekking, and
cultural heritage.
• Hydropower – Nepal boasts 80,000+ MW potential but only a small fraction is
harnessed; exports to India and China are increasing.
• Manufacturing & Trade – Small sector producing textiles, cement, and processed food
heavily dependent on imports.
3. Economic Growth and Development
The economy of Nepal has been expanding at the average rate of 4-6% annually on the back
of remittances, infrastructure, and tourism. Despite this, political instability, industry
weakness, and a trade deficit check progress. Investment in hydropower, industrial
development, and regional trade alliances are the keys to sustainable development.
Government policy in the areas of infrastructure, digital economy, and foreign investment can
further enhance the economic growth of Nepal.
4. Trade and Investment
Nepal has a large trade deficit, depending on imports such as petroleum, electronics, and
machinery, and exporting tea, cardamom, carpets, and textiles. Nepal's largest trading partner
is India, followed by China and the U.S.
There is low foreign investment because of bureaucratic bottlenecks and infrastructure
problems, but industries such as hydropower, tourism, and IT have high potential. There is
investment promotion under FITTA and trade partnership by the government to enhance
economic growth.
5. Challenges and Opportunities
Challenges: Nepal faces a high trade deficit, political instability, poor infrastructure, limited
industrialization, and natural disasters, which deter economic growth and investment.
Opportunities: The nation has good potential in hydropower (80,000+ MW), tourism, foreign
investment, regional trade, and the digital economy. With improved policies and
infrastructure, Nepal can attain sustainable growth.

6. Key Economic Indicators

The economy of Nepal is based on remittances, agriculture, and tourism, with increased
attempts to enhance industrialization, trade, and investment.
Macroeconomics Turnaround for the Economy
Nepal's macroeconomic reversal will happen in 2025-2030, targeting infrastructure,
industrialization, and financial soundness. Growth through increasing hydropower, industry,
and tourism and with good monetary and fiscal policy can sustain itself. Improvement in
regional trade and diminishing dependency on remittance will also make the economy stable.
Economic Growth and Investment Trends
• Nepal's economy is expanding at the rate of 4-6% per year on average through
remittances, tourism, and infrastructure expansion. Investment trends indicate rising
demand for hydropower, manufacturing, IT, and tourism but slow progress through
bureaucratic obstacles and poor infrastructure. Foreign direct investment (FDI) is
encouraged by the government through policies such as FITTA and trade alliances
with India and China.
• To make Nepal's economy stronger, emphasis should be on infrastructure, industrial
development, and expansion of hydropower. Increasing foreign investment, tourism,
and trade relations with India and China is important. Development of the digital
economy and agricultural modernization will ensure sustainable growth and economic
stability.
Monetary Policy and Inflation Control in Nepal
• Interest rates and money supply are regulated by the Nepal Rastra Bank (NRB) to
manage inflation, which has been averaging 6-7% over the past few years. The Cash
Reserve Ratio (CRR) is kept at about 4%, and the Statutory Liquidity Ratio (SLR) is
10% for commercial banks. Nepal has foreign exchange reserves of over $10 billion,
which account for almost 9 months of imports. Consolidating banking reforms,
enhancing foreign reserves, and encouraging investment-friendly policies will all
contribute towards long-term economic stability.
Foreign Investments and Industrial Partnerships in Nepal
• Nepal attracted $250+ million FDI (2023) in hydropower, tourism, IT, and
manufacturing. India, China, and South Korea are major investors. The government is
enhancing business regulations and encouraging industrial partnerships in energy,
infrastructure, and technology to enhance exports. Trade agreements and human
capital will strengthen more investments and spur growth.
Challenges and Social Response in Nepal
• Nepal has high unemployment (11%), poverty (20%), political unrest, poor
infrastructure, and trade deficits. Climate change and disasters contribute to the
challenges. The government is responding by increasing infrastructure, foreign
investment, and entrepreneurship, while social programs target education, skill
development, and poverty alleviation. Effective governance and citizen participation
are critical to progress.
 • In short, they are confronted with unemployment, poverty, poor infrastructure, and
trade deficits, compounded by climate issues. The government is invest infrastructure,
foreign investment, and entrepreneurship while social initiatives target education, skill
development, and poverty alleviation for sustainable development.

DATA ANALYSIS
Gross Domestic Product (GDP):
Trend Analysis:
Nepal’s GDP has mostly increased over the years, showing steady economic growth.
However, there were ups and downs due to global events, natural disasters, and government
policies. The biggest drop happened in 2016 and 2020, but the economy bounced back
afterward.
Growth Analysis:
Nepal’s economy has mostly grown, but the growth rate has gone up and down at times.
There were strong growth years like 2017-2019, but also slow years like 2016 (0.43%) and
2020 (-2.37%), mainly due to the earthquake and COVID-19. The economy is recovering
well, with good growth in 2021 and 2022.
Comparison:
Compared to other developing countries, Nepal’s GDP growth has been stable. Some
countries have grown faster at times, but Nepal has shown strong recovery from economic
problems, proving its resilience and future potential.
GDP per Capita (2004-2022)

Graph: Nepal GDP per Capita (2004-2022)

Trend analysis:
Nepal’s GDP per capita has steadily increased from $311.5 (2004) to $1114 (2022), with a
slight drop in 2020 due to COVID-19 but a quick recovery.
Growth Analysis:
Growth has been consistent, with a big jump in 2017 ($833). Despite some slowdowns, the
overall trend is positive, improving income levels.
Comparison:
Nepal’s per capita GDP is growing steadily, though slower than some developing countries,
showing economic resilience and future potential.
DEMOGRAPHY (2004-2024)
Trend Analysis:
Nepal’s population and urbanization have consistently increased from 2004 to 2024. The
population grew from 26 million to over 31 million, while urbanization rose from 13.8% to
26.2%. In recent years, urbanization has accelerated at a faster rate, reflecting increased
migration to cities and urban development.
Growth Analysis:
The population increased by 5.2 million over 20 years, though the annual growth rate has
slightly declined due to demographic changes. Urbanization, on the other hand, nearly
doubled, especially after 2010, indicating Rapid City expansion and infrastructure growth.
Comparison of Population and Urbanization Trends:
While the population has steadily grown, urbanization has increased at a much higher rate,
highlighting rural-to-urban migration. This shift indicates rising demand for housing, jobs,
and infrastructure, shaping Nepal’s urban future.
Gross Capital Formation (% of GDP) (2004-2022)
1. Trend Analysis:
Nepal’s Gross Capital Formation (GCF) as a percentage of GDP has shown volatility from
2004 to 2024. It increased from 26.5% in 2004 to 38.3% in 2009, followed by a sharp decline
in 2010. Fluctuations continued through the 2010s, peaking at 41.4% in 2018 before dropping
in 2019-2020. Recent years (2021-2024) indicate a moderate recovery, stabilizing at around
34%.
2. Growth Analysis:
Nepal saw significant investment growth in the mid-to-late 2000s and late 2010s, but declines
in 2010 and 2019 were likely due to political instability and economic slowdowns. The post-
2020 recovery suggests a more stable investment environment, though not at previous peak
levels.
3. Comparison with Emerging Markets:
Unlike other emerging economies with stable investment patterns (30-35% of GDP), Nepal's
GCF fluctuates, indicating irregular investment surges and contractions. Countries like India,
Bangladesh, and Vietnam maintain steadier growth, supporting more consistent economic
development.
Inflation Rate (Consumer Price Index - CPI) (2004-2022)
1. Trend Analysis
Nepal’s inflation has fluctuated significantly, with major spikes in 2008 (13.2%) and
2016 (9.9%) due to global price hikes, economic crises, and natural disasters. It
remained stable between 2017-2021 (around 4-5%) but surged again in 2022 (7.65%)
due to rising global costs and post-pandemic recovery.

2. Growth Analysis
Inflation growth has been uneven, driven by food prices, fuel costs, and remittance
inflows. While periods of stability exist, external shocks like supply chain disruptions
and trade imbalances often cause inflationary spikes.

3. Comparison
Nepal’s inflation is more volatile than India’s (4-6%) and Bangladesh’s due to its high
import dependency. Strengthening local production, stabilizing monetary policies, and
reducing trade deficits are essential for long-term inflation control.
Unemployment Rate in (2004-2022)
Graph: Unemployment Rate (2004-2023)

1. Trend Analysis
Nepal's unemployment rate remained constant at 2.5% between 2004 and 2015 but started to
increase after 2016 and touched 3.6% in 2019. The COVID-19 pandemic led to a sudden
peak to 13.16% in 2020, then gradually recovered to 10.92% in 2022.
2. Growth Analysis
The rise in unemployment is attributed to sluggish industrial growth, poor job opportunities,
and excessive labour migration. Although remittances sustain the economy, domestic
employment generation is poor, resulting in underemployment and dependence on foreign
employment.
3. Comparison
Nepal's unemployment rate is below international standards but is high in terms of
underemployment. In contrast to India and Bangladesh, which enjoy more robust job
markets, Nepal faces the challenge of job creation because of its dependence on agriculture
and remittances. It is essential to develop stronger industrial sectors and skill development
initiatives to combat unemployment.
Fiscal Deficit (% of GDP) (2004-2022)
1. Trend Analysis
The fiscal deficit of Nepal has gone up and down in the years, with periods of surpluses and
sharp deficits. It was low during the early 2000s but began increasing after 2013, reaching its
highest deficit of -5.83% in 2018. The deficit continued to be high in the following years, at -
3.12% in 2022, because of heightened government expenditure on infrastructure and social
programs.
2. Growth Analysis
The widening deficit is caused by large public spending, poor revenue mobilization, and
foreign aid dependency. Though the government has boosted development spending,
inefficient taxation policies and increasing import dependency have curbed the growth in
revenue, widening the fiscal gap.
3. Comparison
Nepal's fiscal deficit is greater than that of some of its neighbouring countries such as India
and Bangladesh, which have more robust revenue-generating systems. To attain more fiscal
stability, Nepal requires improved tax collection, managed government expenditure, and
policies conducive to self-sustaining economic growth.
Foreign Direct Investment (FDI) in Nepal (% of GDP) (2004-2022)
1. Trend Analysis
FDI inflows of Nepal were negligible until 2009 when they began rising to 0.57% of GDP in
2016. FDI was however unstable, with its highest being 0.87% in 2021 before falling again to
0.29% in 2022 as a result of bureaucratic delays, policy volatility, and external economic
factors.
2. Growth Analysis
Nepal's FDI growth has been sluggish because of poor infrastructure, policy risk, and
complicated regulations. Although hydropower, tourism, and IT industries have received
some investment, foreign investor confidence is low relative to regional counterparts.
3. Comparison
Nepal is behind India and Bangladesh in terms of FDI inflows because of its small market
size, regulatory issues, and political instability. To increase FDI, Nepal requires investment-
friendly policies, infrastructure development, and simplified approval procedures.
Current Account Balance in Nepal (% of GDP) (2004-2022)
Graph: Current Account Balance Trend in Nepal (2004-2022):

1. Trend Analysis
The current account balance of Nepal oscillated between positive and negative figures over
time. It was positive up to 2011, reaching an all-time high of 4.06% of GDP during 2011, but
became negative from 2012 onwards as imports rose and exports dipped. The deficit
deteriorated sharply, standing at -8.06% in 2018 and registering a record low of -12.89%
during 2022 due to high import dependence and poor export performance.
2. Growth Analysis
The growing current account deficit is fuelled by rising trade imbalances, excessive
dependence on remittances, and high import expenditure on fuel, machinery, and consumer
items. Although foreign currency reserves provide short-term stability, the economy is still
exposed to external shocks.
3. Comparison
Nepal's current account deficit is larger than that of India and Bangladesh, which enjoy more
powerful export bases. Nepal must diversify exports, enhance domestic output, and curb
import dependence, especially on non-essential items, to widen the balance.
IDENTIFY KEY DRIVERS
1. GDP Growth and Economic Structure
Nepal’s economy is primarily based on agriculture, remittances, tourism, and manufacturing.
The country is transitioning towards industrialization, but agriculture still employs a
significant portion of the workforce.
2. Domestic Consumption
Household consumption is a key driver of economic growth, supported by remittance inflows
from Nepali workers abroad, which contribute significantly to disposable income and
spending.
3. Government Expenditure and Fiscal Policy
The government plays a crucial role through public investments in infrastructure, education,
and health, along with fiscal policies to manage inflation and economic stability.
4. Exports and Trade Balance
Nepal's major exports include textiles, carpets, tea, and handicrafts. However, the country has
a trade deficit due to high imports, particularly of petroleum products and consumer goods.
5. Global Economic Conditions
Nepal’s economy is highly dependent on global trends, particularly in India and China, as
well as the demand for labour in the Middle East and Southeast Asia, which affects
remittances.
6. Consumer Expenditure
• Growing Middle Class: Rising incomes in urban areas have led to increased
spending on retail, housing, and consumer goods.

• Shifting Consumption Trends: Demand for modern retail, electronics, and digital
services is increasing.

7. Labour Market
• Young Workforce: A large and young workforce provides potential for growth but
also poses employment challenges.

• Migration: High labour migration to Gulf countries and India affects the domestic
labour supply.

• Employment and Wages: Wage growth is moderate, with employment challenges in

rural areas.

8. Business Environment and Entrepreneurship

• Small and Medium Enterprises (SMEs): SMEs are the backbone of Nepal’s
economy, requiring better financing and government support.
 • Start-up Growth: A growing entrepreneurial ecosystem, particularly in technology,
e-commerce, and tourism.

9. Government Policies and Regulation

• Taxation: Tax reforms influence business operations and consumer spending.

• Subsidies and Support: Government subsidies in agriculture and energy impact

production costs and inflation.

• Trade Policies: Import duties and export incentives shape local industries.

10. Trade and Global Demand

• Exports and Imports: Nepal’s exports are mainly agriculture-based, while imports
include fuel, machinery, and electronics.

• Currency Exchange: The Nepalese Rupee is pegged to the Indian Rupee, affecting
trade competitiveness.

11. Technology and Digital Transformation

• E-commerce Expansion: Growth in online shopping and digital payment systems.

• Fintech Development: Mobile banking and digital wallets are improving financial
inclusion.

12. Agriculture and Natural Resources

• Agricultural Output: Agriculture remains the largest employment sector, with major
crops including rice, wheat, and tea.

• Hydropower: Nepal has vast hydropower potential, with growing investment in

renewable energy.

13. Infrastructure Development

• Transport and Connectivity: Road and airport development projects are improving
domestic and international connectivity.

• Digital Infrastructure: Expanding internet and mobile penetration support economic

activities.

14. Market Competition

• Industry Competition: Growing competition in telecom, retail, and finance sectors
improves service quality.

• Price Sensitivity: Consumers are highly price-conscious, especially for essential

goods.
15. Inflation and Cost of Living
• Price Levels: Inflation is driven by food prices, fuel costs, and supply chain
inefficiencies.

• Production Costs: Fluctuating raw material costs impact manufacturing and service
industries.

16. Natural Resources and Commodities

• Hydropower and Minerals: Nepal has abundant hydropower potential, but
extraction of other resources remains underdeveloped.

• Agriculture and Forestry: Timber, herbs, and agricultural exports play a vital role.

17. Demographic Patterns

• Population Growth: Steady growth with increasing urbanization.

• Rural-to-Urban Migration: More people moving to cities for jobs, increasing

demand for housing and services.

• Aging Population: Still a young population, but aging trends will impact labor
markets in the future.

18. Foreign Direct Investment (FDI)

• Investment in Energy and Infrastructure: Hydropower and tourism attract foreign
investment.

• Global Supply Chains: Nepal is integrating into regional and global markets,
improving export potential.
INSIGHTS AND RECOMMODATION
Nepal's economy is growing but faces structural challenges. Key sectors such as agriculture,
remittances, and tourism play a dominant role, while industrialization and infrastructure
development are still in progress. The government and private sector must work together to
ensure long-term economic sustainability.
1. Economic Growth
Nepal has shown moderate economic growth in recent years, driven by remittances,
agriculture, and tourism. However, political instability and weak industrialization hinder
long-term growth.
Recommendation: Strengthen industrial policies, improve ease of doing business, and
promote manufacturing to diversify the economy.
2. Inflation and Monetary Policy
Inflation remains volatile, largely due to import dependency, supply chain disruptions, and
rising fuel prices. Nepal Rastra Bank has maintained a tight monetary policy, but price
fluctuations affect household consumption.
Recommendation: Enhance local production to reduce reliance on imports and improve
price stability through better supply chain management.
3. Currency Stability
The Nepalese Rupee is pegged to the Indian Rupee, which stabilizes trade with India but
limits monetary policy flexibility. Currency depreciation impacts import costs and inflation.
Recommendation: Diversify foreign exchange reserves and strengthen trade partnerships to
reduce dependency on any single economy.
4. Fiscal Policy and Public Debt
Nepal’s fiscal deficit is widening due to high public spending on infrastructure and social
programs. Revenue collection remains weak due to tax inefficiencies.
Recommendation: Implement better tax policies, digitalize tax collection, and ensure public
spending is directed toward high-impact projects.
5. Infrastructure Development
Poor infrastructure, particularly in transportation, energy, and digital connectivity, hampers
economic growth and industrial expansion.
Recommendation: Increase investment in roads, airports, and digital infrastructure to
improve connectivity and attract investment.
6. Trade and Exports
Nepal faces a trade deficit, relying heavily on imports from India and China. The country’s
export sector, including textiles, carpets, and agriculture, remains underdeveloped.
Recommendation: Promote export-oriented industries, provide incentives for local
production, and improve trade policies to balance imports and exports.
7. Labour Market and Employment
High youth unemployment and labour migration are major concerns. Many Nepalese workers
seek employment abroad due to limited domestic opportunities.
Recommendation: Develop skill-based training programs, promote entrepreneurship, and
create job opportunities in high-growth sectors like IT, tourism, and manufacturing.
8. Tourism Sector Growth
Tourism is a key revenue source but remains seasonal and highly dependent on external
factors such as global travel trends and political stability.
Recommendation: Develop eco-tourism, improve tourism infrastructure, and implement
global marketing strategies to attract year-round visitors.
9. Agriculture and Rural Economy
Agriculture remains the largest employment sector, but low productivity and outdated
farming techniques limit growth.
Recommendation: Modernize agriculture through technology adoption, irrigation expansion,
and access to financing for farmers.
10. Digital Transformation and Fintech
Nepal is experiencing digital growth, with increasing use of e-commerce and mobile banking.
However, digital infrastructure still lags behind.
Recommendation: Expand internet access, promote fintech start-ups, and implement
supportive policies for digital payments and online businesses.
11. Foreign Direct Investment (FDI) and Business Environment
FDI inflows remain low due to bureaucratic hurdles, policy uncertainty, and inadequate
investor protections.
Recommendation: Simplify business registration, reduce bureaucratic red tape, and provide
investor-friendly policies to attract global capital.
12. Climate Change and Sustainability
Nepal is highly vulnerable to climate change, affecting agriculture, hydropower, and rural
livelihoods.
Recommendation: Implement green energy projects, promote sustainable farming, and
enhance disaster preparedness initiatives.

REFERENCES
https://www.macrotrends.net/global-metrics/countries/npl/nepal/economic-growth-rate