Manufacturing and Tourism Industries in Nepal
An **industry** is a group of manufacturers that produce a particular good or service. In Nepal, industries are classified by fixed assets (micro, cottage, small, medium, large) and by nature of goods (agro-based, mineral, tourism, ICT). Modern industry began with the **Biratnagar Jute Mill (1936)** set up by Juddha Shamsher Rana — known as the "father of industry in Nepal". After 1990's liberalisation, the sector grew but still faces problems of power shortage, raw material imports, labour issues, and political instability. **Tourism** is another major industry — Nepal welcomed ~1.2 million tourists in 2023, supporting hotels, trekking, and pilgrimage; but the COVID-19 crash of 2020-21 (only ~150k tourists) showed how fragile the sector is.
In this chapter
Meaning and Types of Industry
- By fixed assets — micro-enterprise, cottage, small-scale, medium-scale, large-scale (per Nepal's Industrial Enterprise Act, 2076)
- By nature of goods — energy-based, agro/forestry-based, mineral-based, production-oriented, infrastructure, tourism, ICT, service-oriented. The Industrial Enterprise Act, 2076 defines the asset cut-offs shown in the table below
Types of Industry in Nepal (Industrial Enterprise Act, 2076)
| Type (प्रकार) | Fixed Assets (NPR) | Examples |
|---|---|---|
| Micro-enterprise | Up to 2 million | Tailor shop, small tea-shop |
| Cottage industry | Up to 10 million (traditional skills) | Handicraft, dhaka weaving, pottery |
| Small-scale | 10–50 million | Small bakery, local furniture, garment workshops |
| Medium-scale | 50–250 million | Bottling plant, medium soap factory |
| Large-scale | Above 250 million | Cement factory (Huaxin), steel rolling mill |
| Energy-based (by nature) | Hydropower, solar, biogas | Upper Tamakoshi (456 MW) |
| Agro/forestry-based | Food processing, paper, herb | Dabur Nepal, Unnanda Sai paper (Bhaktapur) |
| Mineral-based | Cement, marble, iron | Udaipur Cement, Godavari Marble |
| Tourism | Hotel, trekking, rafting | Hotel Yak & Yeti, Everest Base Camp trek |
| ICT/Service | IT, banking, telecom | F1Soft, NTC, Ncell |
Brief History of Industry in Nepal
Industrial History of Nepal — Timeline
| Year / Period | Event | Significance |
|---|---|---|
| Pre-1930s | Traditional cottage industries only (handloom, pottery, metal-craft) | Local needs met by family-based crafts |
| 1936 (1993 BS) | Biratnagar Jute Mill established by Juddha Shamsher Rana | First modern industry; Rana = "father of industry in Nepal" |
| 1936–1950 | Biratnagar Jute, Morang Sugar, Judhha Match Factory, Raghupati Jute | Rana-era industries concentrated in Biratnagar/Morang |
| 1956 | First Five-Year Development Plan begins | State-led planned industrialisation |
| 1965 | Industrial Districts Act → Balaju, Patan, Hetauda ID established | Industrial estates with infrastructure |
| 1980s | Privatisation & liberalisation begins (slow) | State-owned enterprises privatised |
| 1990 onwards | Economic liberalisation after democracy | Open licensing, FDI allowed, private sector growth |
| 1992 | Industrial Enterprise Act — one-door policy, tax incentives | Modern industrial policy framework |
| 2000s | Garment & carpet export boom then decline | Readymade garment export to USA peaked then crashed |
| 2015 onwards | Constitution of Nepal 2015, federal states | Industrial policy decentralised to provinces |
| 2020-21 | COVID-19 → most industries shut | Output fell sharply; recovery 2022 onwards |
Importance of Industrial Sector
- Employment generation — industries create jobs for skilled & unskilled workers (e.g. garment factories in Kathmandu employ thousands).
- Value addition — convert raw materials into higher-value products (sugarcane → sugar; milk → cheese).
- Economic diversification — reduces over-dependence on agriculture (currently 24.1% of GDP).
- Import substitution — produce at home what would otherwise be imported (cement, soap, biscuits).
- Export promotion — earn foreign exchange (carpet to Germany, pashmina to USA, tea to Japan).
- Infrastructure development — industries bring roads, electricity, telecom to rural areas.
- Government revenue — taxes, customs duties, VAT from industries fund public services.
- Technology transfer — FDI brings modern technology and management practices.
Problems of Industrial Sector in Nepal
- Power shortage — unreliable electricity supply (improving but still cuts in some areas).
- Raw material imports — most raw materials imported from India → costlier, supply risks.
- Small domestic market — only ~30 million population with low purchasing power.
- Capital shortage & high interest — loans at 12-15% interest make industry uncompetitive.
- Labour problems — strikes (bandh), political unions, low productivity.
- Political instability — frequent government changes → policy uncertainty.
- Landlocked geography — transit through India raises transport cost.
- Lack of skilled labour — technical education is still developing.
- Smuggling & illegal imports — under-invoicing from India hurts domestic industry.
- Weak infrastructure — poor roads, limited rail, no sea port.
Tourism Industry in Nepal
- Adventure tourism — Everest trekking, Annapurna circuit, white-water rafting on Bhote Koshi
- Cultural tourism — Kathmandu Valley's seven UNESCO World Heritage sites, Pashupatinath, Boudhanath
- Pilgrimage tourism — Lumbini (birthplace of Buddha), Muktinath, Janaki Temple
- Wildlife tourism — Chitwan and Bardia national parks (rhino, tiger, elephant safari). Tourism is vital because it earns foreign exchange, creates jobs (about 1 million direct + indirect), and promotes Nepal globally. The government has set "Visit Nepal 2025" campaign targets after COVID disruption
Nepal Tourism Statistics — Recent Years
| Year | Tourist Arrivals | Tourism Revenue (USD) | Remarks |
|---|---|---|---|
| 2018 | ~1.17 million | ~$700 million | Pre-COVID peak |
| 2019 | ~1.20 million | ~$730 million | "Visit Nepal 2020" planned |
| 2020 | ~230,000 | ~$230 million | COVID-19 crash (Mar 2020 lockdown) |
| 2021 | ~150,000 | ~$160 million | Second wave, lowest year |
| 2022 | ~614,000 | ~$430 million | Recovery begins |
| 2023 | ~1.01 million | ~$700 million | Near full recovery |
| 2024 | ~1.15 million | ~$800 million (est.) | Visit Nepal 2025 build-up |
Tourism revenue contribution to GDP (Rt = tourism revenue in NPR; Nt = number of tourists)
COVID-19 Tourism Crash
In 2019, Nepal welcomed about 1.20 million tourists and earned ~$730 million. In 2020, when COVID-19 hit, arrivals dropped to ~230,000 and in 2021 to only ~150,000 — an 87% drop from 2019. Thousands of trekking guides, porters, hotel workers, and restaurant staff lost their jobs. Many hotels in Thamel closed permanently. The crash showed that over-dependence on tourism is risky — Nepal needs to diversify its economy and build domestic tourism. The 2023 recovery (~1.01 million arrivals) is encouraging but still below 2019 peak.
Practice Problem
In 2019, Nepal's tourism revenue was about $730 million and GDP was about $34 billion. In 2021 (COVID year), tourism revenue fell to $160 million while GDP was about $36 billion. (a) Calculate tourism revenue contribution (TRC) to GDP in 2019 and 2021. (b) Calculate the tourism receipt per tourist in 2019 (~1.20 million tourists) and 2021 (~150,000 tourists). (c) Comment on what the figures tell us.
Quick Revision
- Industry = group of producers making similar goods/services.
- Types by assets: micro (≤Rs 2M), cottage (≤Rs 10M), small (10-50M), medium (50-250M), large (>250M).
- Biratnagar Jute Mill (1936, Juddha Shamsher Rana) = first modern industry; Rana = "father of industry".
- First Development Plan began in 1956; liberalisation after 1990 boosted private sector.
- Importance: employment, value addition, diversification, import substitution, export, revenue.
- Tourism pillars: adventure (Everest), cultural (Kathmandu), pilgrimage (Lumbini, Muktinath), wildlife (Chitwan).
- COVID-19 crash: 1.20 million (2019) → 150,000 (2021), 87% drop; recovery 1.01 million in 2023.
- Tourism Revenue Contribution TRC = (Rt / GDP) × 100%; Receipt per tourist = Rt / Nt.
- Industry problems: power, raw materials, capital, labour, politics, landlocked; tourism: seasonality, fragility.