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.