Economics Notes Class 11 All in One

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Economics - XI 1

Basic concept of Economics Definition of Economics

Economics is a social science. It studies economic activities of man, living in an organized society. It is a dynamic science. Therefore, there is no universally acceptable definition of economics. Some modern ecomist have said that it is not easy to define economics definitely. According to Barbara Wotton : “Whenever Six economists are gathered there are seven opinions.” Similarly, according to Jacob Viner, “Economics is what economists do.” However, for systematic study of any science we need its definition. The definition of economics can be classified into three groups i.e. I. Wealth definition of economics (Classical) II. Welfare definition of economics (neo – classical) III. Scarcity definition of economics (Modern) Wealth definition of economics : This is the oldest definition of economics. This definition is related with classical school of economics. Adam Smith is regarded as a leader of classical economists. He is regarded as a leader of classical economists. He is well known as the father of economic science because he made economics as an independent science. In 1776 AD, Adam Smith wrote a famous book “Wealth of Nations”. In that book he defined economics as “ Economics is an enquiry into the nature and causes of wealth of Nations.” In other words, according to Adam Smith , economics is a science of wealth. Criticisms of wealth definition : The wealth definition of economics has been criticized on the following grounds:  Narrow definition : This definition has narrowed the scope of economics. According to this definition, economics studies only those human beings who are engaged in production and consumption of wealth. Those who are not engaged in such activities such as retired man cannot fall within the scope of economics. But it is quite wrong. 

Emphasis on wealth :

This definition has given more emphasis on wealth and it ignores the importance of man. But in reality wealth is only a means to satisfy human wants. Wealth is produced for man but not man for wealth. Therefore, man is a primary and wealth is only for secondary importance. 

Incomplete and inadequate :

This definition is incomplete and inadequate. It lacks analytical approach. It does not explain the nature of economic problems. According to Adam Smith the ultimate objective of man is to earn wealth. But according to critics, the ultimate objective of man is to get satisfaction rather than to earn wealth. Welfare definition of economics: This definition is related with neo-classical school of economics. Dr. Alfred Marshall is regarded as a leader of neo-classical economists. He was a professor of economics at Cambridge University. In 1890 AD, Marshall published a book “Principles of Economics”. In that book he defined economics as “Economics is a study of mankind in 


Downloaded from: www.bhawesh.com.np Economics - XI 2 ordinary business of life.” It enquires how a man earns income and how he uses it. Thus, it is the study of wealth in other hand and on the other hand, it is the study of mankind. Features of Welfare definition:   

Economics is the study of economic aspect of mankind. Economics studies economic welfare of mankind. It does not study the whole human welfare. Economics is a social science. It is concerned with the economic aspect of social life.

Criticisms of Welfare definition:

The welfare definition of economics has been criticized on several grounds. The main criticisms were made by Robbins. The criticisms are as follows:  Classificatory : The welfare definition is classificatory rather than analytical. It classifies economic phenomena into material and non – material. Similarly, human activities are divided into economic and non – economic activities. But according to Robbins, such type of classification is unscientific and illogical.  Narrow scope : This definition has narrowed the scope of economics because this definition includes only material things and excludes non – material things from the scope of economics. But it is difficult to separate material and non – material things.  Connection between economics and welfare : This definition has tried to establish connection between economics and welfare. But according to Robbins economics has nothing to do with welfare.  Pure social science : The welfare definition takes economics as purely a social science. It means that economics doesn’t study the man living outside society. But this is not true.  Measurement of Welfare : According to Marshall, welfare can be measured quantitatively. The measuring rod is money but according to critics, welfare cannot be measured quantitatively because it is a mental feeling. It varies from individual to individual. Scarcity definition of economics :

This definition is related with modern school of economics. Lionel Robbins is regarded as a leader of modern economists. In 1932 AD, he published a book, “The Nature and Significance of Economic Science.” In that book he has given a new definition of economics called Scarcity definition. According to Robbins, “Economics is the science which studies human behavior as a well as relationship between unlimited ends (wants) and scarce means which have alternative uses. Features of Scarcity definition :  Unlimited wants or ends :

According to Robbins, human wants are unlimited. If one want is satisfied another wants crop up. Therefore, it is difficult to satisfy all these wants at the same time.


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Scarce means or resources :

Means to satisfy human wants are limited and scarce. The economic problems arise due to the scarcity of resources. These resources are scarce in relation to their demands. 

Alternative uses :

The scarce means have alternative uses. For example : Money can be put to several uses ether for buying food, buying books or going to cinema, etc. 

Problem of choice :

Due to the scarce and alternative uses of means there arise the problems of choice. We have to choose between most urgent want to less urgent want. Criticisms of scarcity definition:

Though the scarcity definition of economics is regarded superior than other definitions but still this definition is not free from criticism. Therefore, this definition has been criticized on the following grounds: 

Inclusion of material welfare :

Robbins critcised the welfare definition given by Marshall but the material welfare enters in his definition through back door. 

Ignores present day problems :

According to critics, this definition is unable to address the hot issues of modern economy like unemployment, povertiy, economic growth, economic development, etc. 

Incomplete definition :

The critics objected that the Robbins definition of economics has given unnecessary emphasis to scarcity problem. But according to them economic problems arise not only from scarcity but it also may arise form abundance. For Eg : During depression of 1930s economic problems had arosed due to over production or abundance. 

It doesnot cover macro – economics :

The scarcity definition of economics does not cover macro – economics but macro – economics is an important parts of economics. 

Pure Science :

Robbins definition converse economics in a pure science. As a pure science, economics is concerned with the formulation of economic laws having nothing to do with practice. But it is quite wrong because economists are not only tool makers but also tool users. 

Social aspect :

Robbins definition of economics ignored the social aspect of human life. But economics is a social science. It is concerned with the study of economic activities of man living in a society. so ciety.


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Downloaded from: www.bhawesh.com.np Comparison of Robbins and Marshall’s definition : Marshall’s 1. Classificatory:

Robbins 1. Analytical:

Marshall’s definition of economics is classificatory because it classifies goods into material and non – material goods and includes only material goods in the scope of economics. 2. Social science: According to Marshall economics is a social science. It studies only those human beings who are living in an organized society. 3. Normative Science: Marshall’s definition is based on the concept of Normative economics. Normative science give value judgement. It shows rightness or wrongness of things. 4. Non – neutral: According to Marshall economics is non – neutral. It helps to solve practical problems. It is concerned for improving human life. 5. Narrow scope: Marshall’s definition of economics has narrowed the scope of economics.

Robbin’s definition of economics is analytical. It deals all types of goods and all kinds of human activities.

2. Human science:

According to Robbins economics is a human science. It studies all human beings whether they are in society or out of society. 3. Positive Science: Robbins definition is based on the concept of positive science. It explains facts as they are. It doesn’t give value judgement. 4. Neutral:

According to Robbins’ economis is neutral. It is neutral between wants and resource utilization. 

5. Broad Scope :

Robbins’ definition of economics has broaden the scope of economics.

Superiority of Robbins’ definition of economics:

Robbins’ definition of economis is regarded superior definition than others on the following grounds: 

Scientific definition:

Robbins’ definition of economics is regarded as more scientific and analytical. It is not classificatory. Marshall’s definition of economics is classificatory. Therefore, Robbins’ definition is regarded more scientific and satisfactory. 

Universal application:

Robbins’ definition of economics has universal application. It is applicable to both planned and unplanned economy. Similarly, it is applicable to all economic system i.e. capitalist, socialist and mixed economy. 

Positive Science:

Robbins’ regarded economics as a positive science whereas Marshall regarded economics as a normative science. Positive science describes the things as they are and does not say what is good and what is bad. On the other


Downloaded from: www.bhawesh.com.np Economics - XI 5 hand, normative science says what is good or what is bad. Robbins’ definition is regarded superior to Marshall’s definition on these grounds as well.  Science of choice: The best part of the Robbins’ definition is that it regards economics is a science of choice. Choice is necessary to solve economic problems. This is the realistic situation since means are always limited in relation to wants. An individual has to make choice to get maximum satisfaction from the limited means.  Wider scope: Robbins’ definition has widened the scope of economics because Robbins’ says that all types of human wants material and non – material come within the sphere of economics. Subject Matter of Economics: There are two approaches regarding the subject matter of economics i.e.  Traditional approach  Modern approach According to Traditional approach the subject matter of economics are – Consumption, production, exchange, distribution and public finance. 

Consumption:

Consumption is one of the important branches of economics. Consumption means to satisfy human wants through the use of goods and services. 

Production:

Production is defined as the creation of utility. The goods and services are produced form consumption. 

Exchange:

It studies how goods are exchanged between different parties. Here, we study the determination of price of goods and services under different markets. 

Distribution:

Here, we study the distribution of national product among the various factors of production i.e. land, labour, capital and organization. 

Public finance:

It studies income and expenditure aspect of the government. But according to modern approach the whole subject matter of economics is classified into two parts:  

Micro – economics: Macro – economics:

Micro – economics is the study of individual units whereas macro – economics is the study of economy as a whole. All traditional theories such as – consumption, production, exchange, distribution fall under micro – economics. In macro –


Downloaded from: www.bhawesh.com.np Economics - XI 6 economics we study the factors that determine a country’s national income, saving, investment, consumption, etc. Concept of Positive and normative economics: Positive economics:

Positive economics is an exploration of state of things as they are. It is concerned with the description of economic events. It tries to follow scientific principles to formulate theories. It doesn’t give value judgement. According to David Begg, “Positive economics deals with objective or scientific explanation of the working of the economy.” Therefore, positive economic deals how the economy actually behaves. The objective of positive economics is to explain how society makes decisions about consumption, production and exchange of goods and services. Normative economics:

Normative economics is an evaluation of state of things as they ought to be. It is based on subjective value judgement. Therefore, normative economics explain rightness or wrongness of things. According to David Begg, “Normative economics offers prescriptions or recommendations based on personal value judgement.” Neo – classical economists believe on normative economics. We can make distinction between positive and normative economics by a statement, “The poor are malnourished, and the government must provide food subsidy to the poor.” Here the first part of the statement “The poor are malnourished” is a positive economics and the second part of the statement “The government must provide food subsidy to the poor” is a statement of normative economics. Concept of micro – economics and macro – economics: Micro – economics:

The word ‘micro’ is derived from Greek word ‘mikros’ meaning small. Therefore, micro economics is the study of the behavior of individual units of an economy. For Eg : Individual consumer, individual producer, households, individual price, individual market, etc. According to Edwin Mansfied: “Micro – economics deals with the economic behavior of individual units such as: consumers, firms and resource owners.” According to K.E. Boulding: “Micro – economics is the study of particular firms, particular household wages, individual prices, incomes, individual industries, particular commodities.” Thus, micro – economics studies the small components of the national economy. But it doesn’t study economy as a whole. Micro – economics is also called price theory. Macro – economics:

The word ‘macro’ is derived from Greek word ‘makros’ meaning large. Therefore, macro – economics is concerned with the analysis of economy as a whole or its large aggregates such as national income, national product, total employment, total consumption, total investment, monetary policy, fiscal policy, general price level, etc. According to Edwin Mansfied: “Macro – economics deals with behavior of economic aggregates such as gross national product and level of employment.” According to K.E. Boulding: “Macro – economics is that part of economics which studies the overall averages and aggregates of the system.”



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Statistics Definition of Statistics:

The word ‘Statistics’ has been defined in two senses i.e. singular sense and plural sense. When the word statistics is used in singular sense, it means various methods and techniques adopted for the collection, presentation, analysis and interpretation of data. On the other hand, when the word statistics is used in plural sense, it refers to data themselves or numerical facts collected systematically. For eg: Statistics of total population, national income, export, import, etc. Definition of statistics in singular sense: According to Croxton & Cowden, “Statistics may be defined as the science of collection, presentation, analysis and interpretation of numerical data. ” This definition is simple and comprehensive. It clearly indicates the following four aspects of statistics: 

Connection of data:

This is the first steps of statistical enquiry. 

Representation of data:

After the data has been collected, they are presented in a systematic way. This is the second step for statistical investigation. 

Analysis of data:

After the data has been presented, the next step is to analyze them. 

Intrepretation of data:

The last step of statistical enquiry is the interpretation of data. In this step, the researcher has to draw the conclusion from the data which has been analyzed. Definition of Statistics in plural sense: According to A.L. Bowley, “Statistics are numerical statement of facts in any department of enquiry, placed in relation to each other. ”   

This definition point out the three aspects of statistics: Statistics are numerical statement of facts. Statistics are concerned with any enquiry. Statistics are placed in relation to each other for the purpose of comparison.

Functions of Statistics:

The major functions are as follows:  Statistics simplifies complexity: Statistics helps to simplify the raw and complex information by means of organization, presentation and analysis of data. Huge facts and figures are difficult to remember. The complex mass of figure can be made simple and understandable with the help of statistical methods. 

Statistics presents facts in definite d efinite form:

One of the important function of statistics is to is to present the general statements in a definite form. The conclusion stated numerically is definite and more conviencing than the conclusion sated qualitatively.





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Statistics facilitates comparison:

This is another function of statistics. Unless the figures are compared with other figures of the same kind, they are meaningless. Statistical techniques like classification, tabulation, average, ratio etc. can be used for comparison between two or more group of data. 

Statistics helps to formulate policies:

Statistical data and tools are necessary for formulating suitable policies. Government policies are formulated on the basis of available data of the country. 

Statistics helps in forecasting:

Various statistical tools and techniques are used to forecast for the future. For Eg: Regression analysis can be used in forecasting market demand. 

Statistics helps in formulating and testing hypothesis: h ypothesis:

Statistics is helpful in formulating and testing the hypothesis for the development of new theories. Importance of statistics:

In ancient time, the importance of statistics was limited. But now, its importance has been extended in multiple fields of human life. It is important in various sectors of the economy. The major importance of statistics are as follows: 

Importance of statistics to state:

Statistics is very important to the state. Now – a – days, a state collects statistical data to solve most of the problems. On the basis of such statistical the state makes appropriate plan for development. 

Importance of Statistics to planning:

In order to achieve the determined goals, planning is essential for the government of a country. But without proper statistics, we cannot make any planning. Thus, statistics plays an important role in planning. 

Importance of Statistics to economics:

Many economists have been using statistical tools and techniques to develop the area of economics. Therefore, statistics is very essential to develop & prove the principles & laws of economics. 

Importance of Statistics to industrialists and business:

Statistics is very important for industrialist & businessman. Nowadays, the business sectors are expanding and become very competitive. Therefore, if they do not take care of the things like demand, price and market of the commodity they cannot fully successful. 

Importance of Statistics to Mathematics:

Statistics is the branch of applied mathematics, which is related with data. Modern theories of statistics have their foundation on mathematical theories.


Downloaded from: www.bhawesh.com.np Economics - XI 9 Similarly, mathematics is also dependent on statistics regarding the formulation of various mathematical models. Therefore, statistics is important in mathematics as well. Limitations of Statistics:

There are some limitations of statistics which are as follows: 

Statistics doesn’t deal with an individual:

Statistics is always related with groups. It deals with aggregate of facts. Therefore, it doesn’t deal with an individual. 

Statistics doesn’t study qualitative phenomenon:

In statistics, we study the numerical statements or facts. But it doesnot study the qualitative characteristics like beauty, honesty, love, etc. 

Statistics laws are not exact:

100 % accuracy is rare in statistical work because statistical laws are true only on the average. 

Statistics is only a means:

Statistics acts as a facilitator subject to other disciplines. It helps to analyze data and draw conclusions from the findings. Therefore, it is only a means. 

Statistics is liable to be misuse:

The greatest limitation of statistics is that it must be used by experts only. If statistics are used by those persons who are not expert in this field, then the conclusion drawn may be wrong. 

Statistical data should be of similar nature:

To draw the correct conclusion the data should be similar in nature. If there are not of similar types and are of different natures collected by different techniques then the conclusion drawn from the data could be misleading.

Collection and organization of data: Types of data:  Primary data:

The data which is originally collected by an investigator or an agent for the first time for the purpose of statistical enquiry is called primary data. This data are original in character. This data are also called first hand data because such data used for the first time by the investigator. For Eg: If an investigator wants to study about the educational status of Dharan and if he or his agent collects the necessary information then, the data is primary. 

Secondary data:

The data which were already collected and used by someone else but are also useful for other investigators are called secondary data. This types of data are


Downloaded from: www.bhawesh.com.np Economics - XI 10 not original in character for the user. This data are also called second hand data. For Eg: If an investigator wants to investigate about the educational status of Dharan and if he uses necessary information from Dharan municipality record, it is secondary data for the investigator.

Methods of collecting Primary data:

There are various methods of collecting Primary data which are as follows: 

Direct personal interview:

In this method, the investigator collects the data personally from the source concerned. In other words, the investigator goes up to the respondents personally and asks the necessary questions and obtain the required information. 

Indirect oral interview:

In this method, the investigator obtains the necessary information by contacting the other persons who are familiar with the problem under study. Such person is called witness. This method is applied when the informants hesitate to give information directly. 

Information through correspondents:

In this method, the investigator appoints local agents in different parts of the field of enquiry. These agents collects the necessary information from their respective fields and send them to the central office. This method is widely used by newspapers, radio, TV, to obtain the information. 

Mailed

questionnaire

method:

In this method, first of all, questionnaires are send to individual respondents by post. The respondents are requested to answer all the questions and return the questionnaires by post within a certain period of time. 

Schedule sent through enumerators:

In this method, the questionnaire are sent through the enumerators. The enumerators go to the respondents personally and ask them the questions and obtain the necessary information. This method is appropriate if the field of enquiry is very large. Source of Secondary data:      

There are various sources of secondary data which are as follows: Governments official publication like plan documents, economic survey, budget speech, etc. Reports given by various committees and commissions appointed by the government. The publications of commercial and trade organization. Official publication of Nepal Rastra Bank. Official publications of International Agencies like World Bank, IMF, UN, UNDP, WHO, etc. Population census, Agriculture census, conducted by CBS (Central Bureau of Statistics).


Downloaded from: www.bhawesh.com.np  Publications of universities and research institution.  Publication of individual research workers.  Reports of private organizations.  Research works conducted by students.

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Reliability of Secondary data:

Before using the secondary data, we should check whether the data are reliable or not. While testing the reliability the following things should be taken into consideration. Who collected the data and what were the objectives of collecting data?  Was the investigator experience, honest, capable and unbiased or not?  Whether the appropriate techniques of collecting data were applied or not.  What degree of accuracy was maintained in the degree?  In which time period were the data collected? Precaution in the uses of secondary data: Secondary data are those which are collected by someone else and used by others. Therefore, while using secondary data the following precautions should be taken:  The data should be reliable.  The data should be suitable.  The data should be adequate. Techniques of data collection: There are two techniques of data collection. They are:  Census method:  Sample method: Census method: In this method, the informations is obtained from each and every units of population, under study. In other words, if the information is collected from the possible units in the universe it is called census method. The census method is also called complete enumeration method. In Nepal, population census is conducted by applying census in Nepal every 10 years. For example: If we want to study about the smoking habit of adults of a locality then, in census method, information are obtained from each and every adults of that locality. Merits of census method: The following are the merits of census method:  It gives complete information about the population.  It gives more accurate, reliable and representative results.  The data will be adequate because no item is left in this method.  If the study area is small then this method is very useful. 

Demerits of Census method: method:   

The following are the demerits of census method. This method is more expensive and time consuming. This method is not applicable if the population is infinite. This method is not suitable in some special conditions. For Eg: This method cannot be applied if the units under study get destroyed while testing.

Sample method:

In this method, the information is obtained only from a part of the population assuming that it is the population assuming that it is the representative of the whole.


Downloaded from: www.bhawesh.com.np Economics - XI 12 Thus, in this method, a part is studied and on that basis conclusion is drawn for the entire population. For Eg: If we want to study about the smoking habits of 5000 adults of a locality then we collect the information from only 500 adults of them and find out their smoking habit. On the basis of smoking habit of these 500 adults, we draw conclusion for the whole 5000 adults. Merits of Sample method:      

This method is less expensive. This method is less time consuming. The detail information can be obtained because only a part of the universe is studied. In case of infinite population this method is suitable. This is better method of investigation if the items are totally destroyed while testing. This method is used to check the result obtained from census method.

Demerits of Sample method:    

If the sample selected from the population is not representative one, it may give the wrong conclusion. This method should be handled only by experts. Otherwise, the result will be misleading. The result obtained from this method may not be reliable due to the possibility of personal biases in sampling. Selection of sample size is difficult task.

Methods of Sampling: 







There are various methods of Sampling which are as follows: Judgement or Deliberate Sampling: In this method, the choice of items in the sample depends upon the judgement of the investigator. For Eg: If there are 80 Students in a class and teacher has to select 20 Students for survey then the selection of 20 Students would depend upon the judgement of Investigator. Random Sampling: In this method, every unit of the universe has equal chance of being selected in the sample because the selection of any unit depends on chance. Lottery method can be used for random sampling. Stratified Random Sampling: In this method, the universe is divided into different groups or strata according to some characteristics. Then sample is selected at random from each group or strata. Systematic Sampling This method can be applied only if the complete list of items in the universe is available. In this method, first the units are arranged in some systematic order and then the sample unit is selected on the basis of sampling interval. The sampling interval is calculated as, K

=

N n Where, K = Sampling interval



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N = Total no. of items n = No. of sample items.

For example: If we have to select 8 persons out of 40, then K

= = =



N n 40 8 5 (Sampling interval)

Multi – Stage Sampling:

In this method, sampling is carried out in various stages. First of all, the population is divided into large sample units and a sample is taken at random. Again these are further divided into smaller units and a sample is taken at random. This process is repeated many times. Diagrammatic and Graphic Representation of data:

Diagrams and Graphs are nothing but the presentation of statistical data in the form of geometrical figure like points, lines, bars, rectangles, circles, etc. Rules of Constructing diagrams:      

There are certain rules for constructing diagrams which are as follows: Choice of diagram Selection of scale Proportion between width and height Neatness and cleanliness Title of the diagram (Heading) Index

Types of Diagrams:  Simple bar diagram:







A simple bar diagram is used to present one variable only. For Eg: Production, profit, sales, marks, etc. can be solved with the help of simple bar diagram. It consists of set of equi–distance rectangle of equal width. Sub – divided bar diagram: A sub – divided diagram is a diagram which is used to represent the various components of the total. Here we have to keep the index. Multiple bar diagram: It is used to present two or more sets related data. The different values of each set are presented by drawing a lot of physically joined rectangles. Here the different shades or colours are used to distinguish the bars of one type from the other. Pie – diagram: A pie – diagram is a diagram in the form of a circle whose area represents the total value. It is used to show the relation between the components with one another to the other.



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Basic Economic Issues: Scarcity, Choice, Allocation of resources, Production possibility Curve (PPC) Scarcity:

The scarcity of goods is the basic characteristics of economic world. This characteristic create economic problem. The economic goods and human resources are always scarce. Only the natural resources such as: air, water and sunlight are found in unlimited quantity. The economic goods should be distributed among the people due to scarcity. The word scarcity is used in relative sense. All the means are scarce in relation to human wants. There is scarcity of productive resources such as land, labour, raw materials, machinery, equipments, etc. in the world. Therefore, it is impossible to produce all goods and services to satisfy all wants of the people. Choice:

Resources have alternative uses. For Eg: A plot of land can be used either for producing paddy or wheat or vegetables or fruits, etc. So, choice is necessary due to scarcity of resources. All the resources are limited compare to demand. Therefore, the society must have to choose which commodity is to produce and which commodity is to sacrifice. Hence, the problem of choice arises. People have to make choice while spending their income. They have to think how much to spend and how much to save out of their income. Similarly, it is also necessary to decide how much to spend on food, how much on dress and how much recreation. In this way, choice is the basic economic problem. Allocation of resources:

Resources are scarce and have alternative uses. Therefore, allocation of resources is the central economic problem. Here, allocation of resources means distribution of resources in the economy. In a free market economy, the scarce economic resources are allocated in the following ways:  Determining what will be produced: The first resource allocation function is to decide what goods and services will be produced. It is because resources are scarce. 

Determining how it will be produced:

The second allocation function is to decide how goods and services will be produced. It is because there are different ways of producing a product.  Determining whom to produced: This third function is to decide who will get the goods and services which are produced. It is because economic resources are scarce. In a free market economy, allocation of resources is determined by price mechanism through demand and supply of resources. Production Possibility Curve(PPC): The production possibility curve is a tool used to explain the problem of scarcity and choice. A curve which shows the production possibilities that can be produced with given resources and technology is called production possibility curve. This curve is also called production fontire or production transformation curve. According to David Begg: “The production possibility curve shows maximum combination of output that the economy can produced using all available resources.”



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Assumptions:

The PPC curve is based on the following assumptions: I. Only two goods are produced in the economy that is x and y. II. There is full employment of resources. III. The supply of factors are fixed. IV. The time period is short. V. The production techniques is given and constant. The concept of production possibility curve is shown in the following table and diagram. Combinations Productions of x Production of y (Capital goods) (Consumer goods) A 0 15 B 1 14 C 2 12 D 3 9 E 4 5 F 5 0 This table shows the production possibilities of x and y goods that can be produced with given resources. If all available resources are used for the production of y goods, the economy can produce 15 units of y and 0 units of x. Similarly if all available resources are used in the production of x goods, the economy can produce 5 units of x and 0 units of y. These two are extreme points in between these there are various other possibilities. In this diagram, AF is the PPC curve. The economy can produced any combination lying on this curve i.e. A, B, C, D, E & F. The point H lying above the curve cannot be obtained because of scarcity of resources. Similarly, the point G inside the curve is inefficient because the resources are unutilized. The economic cannot produce either inside or outside the PPC curve. Therefore, it is called production possibility frontire. Shift in Production Possibility Curve: I. Upward shift in PPC: If there is increase in production capacity in the economy the PPC Curve shifts upward to the right. The increase in the size of working population, increase in the labour productivity and technology progress shift PPC Curve upward. This can be shown in the following diagram: In this diagram, AF is the initial PPC curve. Now, with the increase in labour force, labour production & introducation of new technology increases the productive capacity of the economy. As a result, PPC curve shift upward in the form of A1F1. II. Downward shift in PPC: If there is decrease in productive capacity in the economy the PPC curve shift downward to the left. The decrease in the size of working population decrease in labour productivity and depletion of natural resources shift PPC curve downward. This can be shown in the following diagram. In this diagram, AF is the original production possibility curve due to the decrease in productive capacity of economy because of decrease in labour force, decrease in labour productivity and depletion of natural resources causes these curve shift downward in the form of A1F1.



Economics - XI 16

Economic Development Meaning of Economic Development:

Economic development is a changing concept. Therefore, there is no accurate and universally acceptable definition of economic development. In past, the increase in gross national product (GNP) was regarded as the main indicator of economic development. But there is change in this view in recent years. According to Gunar Mydral: “Economic development means upward movement of the entire social system.” According to Arthur Lewis: “Economic development means the increase in per capita production.” According to World Bank: “Economic development is defined as a sustainable increase in living standard that encompasses material consumption, education, health and environmental protection.” Therefore, Economic development means not only increase in per capita income but it also means the alleviation of poverty, reduction in economic inequality and provision of social services like education, health and environmental protection. Indicators of Economic development:

There is difference of opinions among the economists regarding the indicators of economic development. Economic development is the result of long term changes. The commonly known indicators of economic development are as follows: I.

Increase in per capita income:

Per capita income is the first and most important indicator of economic development. Therefore, per capita income should be increased for the economic development of nation. II.

Increase in standard of living:

Another indicator of economic development is living standard of common people. Thus, standard of living of common people should increase for economic development because the main objective of economic development is to provide better life to people. III.

Physical Quality of Life Index(PQLI):

This is another indicator of economic development. The physical quality of life index (PQLI) is the composite of three indexes like life expectancy, literacy and infant mortality rate. The value of PQLI ranges from 1 to 100. If the value of PQLI is more than 50, the country is supposed to be developed and if the value is less than 50, the country is supposed to be developing. IV. Basic Needs Criterion: This criterion was developed by Word Bank. According to this criterion the economic development is evaluated on the basis of the fulfillment of basic needs of population. Here, the basic needs of people are education, health care facility, sanitation, drinking water, nutrition, housing and other related infrastructures. V. Human Development Index(HDI): This is the most recent indicator of economic development. This indicator was introduced by UNDP. It measures the development in terms of people’s income level, health, education, environment and gender issues. It is a composite


Downloaded from: www.bhawesh.com.np Economics - XI 17 index ranges 0 to 1. If the value HDI is less than 0.5, it indicates low human development and if it is more than 0.5, it indicates high human development. Characteristics of Developing Countries: Those countries where the process of economic development has started but not completed are called developing or underdeveloped countries. In such countries there is low rate of economic growth and high rate of population growth. Similarly, there is no proper use of natural resources and human resources in these countries. The major characteristics of developing countries are as follows: 1. General Poverty: Developing countries are poor. There is mass poverty in these countries. The per capita income is very low in these countries. The majority of people live below poverty line. The disease and hunger can be found wide spread in this countries. Therefore, a majority of people in developing countries are born in poverty and die in poverty. 2. High Dependence in Agriculture:

Agriculture is the main occupation in developing countries. Majority of people depends directly or indirectly on agriculture. Majority of people live in rural areas in these countries. 3. High Population growth rate:

There is serious population problem in developing countries. The growth rate of population is very high in these countries. The ratio of dependent population is high. There is high density of population. The pressure of population on land is very high. The birth rate and death rate are both high and life expectancy is very low in these countries. 4. Under utilized natural resources:

Most of the developing countries are rich in natural resources. But these resources have not been properly exploited due to the lack of capital, technology and infrastructure. 5. Low level of productivity:

Most of the developing countries are technologically backward. Therefore, there is low productivity in these countries. cou ntries. 6. Low level of Investment:

There is shortage of capital in developing countries. The available stock of capital is less than the need of economic development. The capital formation is very low due to low level of saving and investment. 7. Lack of basic infrastructures:

There is lack of basic infrastructures in developing countries like transport, communication, electricity, canals, banks, financial institution, etc. No nation can develop without these facilities. 8. Dualistic economy:

Most of the developing countries have dualistic economy. There is market economy in urban areas and subsistence economy in rural areas.



Economics - XI 18

Natural resources of Nepal Natural resources of Nepal

The natural resource plays an important role in economic development of a country. The prosperity in natural resources and their proper utilization makes a country rich. Nepal is rich in terms of natural resources. The major natural resources of Nepal are: water resources, forest resource, mineral resources, soil, etc. These resources are important for the development of agriculture, industry and trade. But these resources have not been properly utilized in Nepal. Major Natural resources resources of Nepal I.

Water resources:

Nepal is one of the richest country in water resources in the world. It stands in the second position after Brazil in water resources. But economic development of Nepal largely depends on the development of water resources. There are more than 6000 rivers in Nepal. The water resources can be utilized in the development of agriculture, industry and trade. Importance of water resource in economic development: Water resource is very important in the overall development of Nepal. Water resource can be used for electricity generation, irrigation purposes and drinking purposes as well. It is regarded as the basic source of energy. The importance of water resources are as follows: I. Development of Agriculture: Nepal is an agricultural country. Agriculture is the backbone of Nepalese economy. The agriculture sector can be developed only with the adequate provision of irrigation. Irrigation helps in crop diversification, increase in production and modernize agriculture. II.

Development of transport and communication:

The development of transport and communication are pre-requisites of economic development. The means of transport like ropeway, cable car, railway, trolley bus can be developed only with the aid of electricity. It also helps to develop means of communication like radio, television, computer, fax, e-mail, internet, etc. These means of communication can be develop with help of hydroelectricity. III.

Development of Industries:

The development of hydroelectricity is the basis of industrialization. One of the obstacles of industrialization in Nepal is inadequacy of electricity. The medium and large scale industries need heavy machinery, which cannot be operated without electricity. Therefore, water resource helps to accelerate the pace of industrialization in the country. IV.

Development of Tourism Industry:

Tourism is major sources of foreign currency of Nepal. The water resource helps in development of tourism industry through the provision of hydroelectricity. Similarly, rivers, waterfall, natural spring, lakes, etc. add the natural beauty of the country. It would help to promote tourism industry by providing the facility of rafting, boating, swimming, fishing, etc.



V.

Economics - XI 19

Preservation of forest resource:

At present, Nepal is facing the problem of deforestation. The development of hydroelectricity substitutes the use of firewood. Therefore, the development of electricity helps to preserve forest resource. VI.

Generation of employment opportunities:

Nepal is facing the problem of unemployment and underemployment. The development of water resources may create direct and indirect employment opportunities. It is because hydroelectricity has to develop agriculture industry, trade, tourism, etc. The economic activities increases in the country. VII.

Use of modern amenities:

The development of hydroelectricity facilitates the use of modern amenities like heater, fan, TV, washing machine, computer, radio and so on. VIII. Source of foreign currency earning:

There is greater prospect in the generation of hydroelectricity in Nepal. If we could generate electricity, it would be highly beneficial because we will be able to earn large amount of foreign currency through its export to neighbouring countries. Therefore, water resource is supposed to be white gold of Nepalese economy. Potential of Hydroelectricity in Nepal:

Hydroelectricity is the main source of energy in Nepal. Nepal is a mountainous country. Most of the rivers of Nepal flow from high hills and mountains with great speed. There are more than 6000 rivers in Nepal. Therefore, the hydroelectricity power potential of the country is great. The theoretical hydro power potential of the country is 83000 MW out of which 42000 MW is economically feasible. The hydroelectricity potential of the country has been shown in the following table: River System Hydroelectricity Potential 1. Gandaki 21000 MW 2. Koshi 22000 MW 3. Karnali 32000 MW 4. Others 8000 MW Total 83000 MW Current uses of Water Resources:

Water resources available in Nepal can be used for generating hydroelectricity, providing irrigation facility and supplying sufficient drinking water to its people. The present situation and utilization of water resources in Nepal has been presented below: a) Hydroelectricity: The main use of water resource in Nepal is hydroelectricity generation. There is greater potential to generate hydro-electricity in Nepal but by the end of 10th plan the total installed capacity of hydro-electricity reached about 600 MW which is only 0.6% of the total potential. The hydro-electricity has supplied only


Downloaded from: www.bhawesh.com.np Economics - XI 20 1% of the total energy consumption of the country. About 40% of the total population has access to electricity facility in Nepal. b) Irrigation facilities: Irrigation is the second important sector where water resources can be used for the development of agriculture sector. Various efforts have been made for the development of irrigation since the 1st plan in the country. But about 45% of the total arable land has got irrigation facility in Nepal.

c) Drinking Water:

The pure drinking water is the basic need of the people. Nepal is rich in water resources but the majority of people do not get pure drinking water. By the end of 10th plan about 75% of the population has got drinking water facility in Nepal. Problems of Water Resource development in Nepal:

There are various problems for the development of water resource in Nepal which are as follows: a. Lack of capital: The development of water resources requires large amount of capital for constructing hydro-electricity projects, irrigation projects and drinking water projects but Nepal is a poor country. Majority of Nepalese people are poor they have no capacity to save and invest. Thus, there is lack of capital for the development of water resource in Nepal. b. Lack of technical manpower:

The development of water resource needs high level technology and technical manpower but there is lack of such high level technology and technicians in Nepal. Therefore, Nepal is compelled to import expensive technicians from abroad to operate the projects of hydroelectricity and irrigation. c. Lack of Modern Equipments:

The development of water resource needs modern machines tools and equipments. But there is lack of such equipments in Nepal. We have to import these equipments from foreign countries but there is lack of capital for this purpose. d. Lack of transport facility:

Most of the hydroelectricity projects lie in the hilly region without transport facilities. The transport facilities will have to be developed before launching the projects. This increases the project cost significantly. e. Lack of market:

The domestic market of the country is very limited. The purchasing power of the people is very low. The only exportable market is India. But the Indian attitude is not favourable. Thus, lack of market is another problem for the development of hydroelectricity in Nepal. f.

Defective government policy:


Downloaded from: www.bhawesh.com.np Economics - XI 21 The government policy is defective for the development of water resource because of political instability. There is defect in formulation and desire of water resource projects. There is lack of adequate statistical data. Forest Resource: Importance of forest resource: Forest is another important natural resource of Nepal. This resource has an important contribution in the economic and social development. Forest resource is the renewable natural resource. Therefore, appropriate scientific management and utilization of this resource can accelerate the pace of economic development of the country. The importance of forest resource in economic development are as follows:

1. Source of energy:

Forest is the main source of energy in Nepal. It provides fuel, wood to meet the daily necessity of people. About 86% of the total energy consumption is supplied by the forest resource. 2. Source of raw materials:

It provides raw materials for forest based industries like paper, medicines, plastics, matches, furniture, etc. Therefore, forest resource is the source of raw materials required for various industries in Nepal. Similarly, there are about 700 species of medicinal herbs in the forest of Nepal. 3. Source of fodder and animal habitat:

Forest supplies fodder grasses to the cattle. It also provides grazing ground to the cattle. Thus, it helps in livestock development. Similarly, it is the habitat of wild animals live tiger, lion, bear, elephant, rhinoceros, rare birds and insects. 4. Control of soil erosion and landslide:

Forest helps to control flood, landslide and soil erosion. The fertility of land declines in the absence of the control of soil erosion. Therefore, forest is regarded as the natural insurance against flood, landslide and soil erosion. 5. Source of water:

Forest helps to maintain constant flow of water in rivers, canals and taps. Forest is the main source of drinking water. Larger the forest area larger is the rainfall. 6. Tourism development:

Forest enhances the natural beauty. The rare wild animals and birds get shelter in the forest. It also provide hunting spot. Therefore, forest helps to develop tourism sector. 7. Source of public revenue:

It is the main source of public revenue in Nepal. The government exports various herbs and timber to foreign countries to earn foreign currency. 8. Ecological balance:


Downloaded from: www.bhawesh.com.np Economics - XI 22 Forest resource helps in environment protection and ecological balance. The environmental degradation has serious effects on human beings, animals and birds, agriculture and industries. According to forest sector expert at least 43% of the total area should be forest area for ecological balance. Causes of Deforestation:

At present Nepal is facing the problem of deforestation. There are various causes of deforestation which are as follows: I. Source of energy: The alternative source of energy hasn’t been developed in Nepal. Fuel wood is the main source of energy in rural Nepal. About 75% of the energy consumption is supplied by wood and fuel wood in Nepal. Due to this reason deforestation is increasing in Nepal.

II.

Supply of construction materials:

The wood and timber is essential for the construction of house, bridge, industries and furniture industry. In rural areas, forest area are destroyed to meet the need of agricultural tools and use as a fodder for cattle this has increase deforestation. III.

Lack of employment opportunities:

The problem of unemployment and underemployment can be found in rural areas. Generally, the farmers are unemployed during the winter season. There are no alternative employment opportunities outside agriculture. Therefore, rural people illegally sale wood and fuelwood for extra income. This has also increased deforestation. IV.

Migration:

Deforestation is also caused by internal and international migration. Migration from hills to Terai and from India is also responsible for deforestation because they use forest land for settlement and construction of houses. This also has increase deforestation. V.

Demand for raw materials:

The forest-based industries are increasing in Nepal. Thus, there is increase in demand for raw-materials for forest based industries like matches, paper, furniture, etc. As a result deforestation is increas ing in Nepal. VI.

High population growth rate:

The population growth rate is high in the country. There is high pressure of population on agriculture. There is little development of non-agricultural sector. Therefore, people are compelled to cultivate even in forest land. It also has increase deforestation. VII.

Uneducated people:


Downloaded from: www.bhawesh.com.np Economics - XI 23 The rural people are mostly uneducated. They are not aware of the future problem of deforestation like landslide, soil erosion, lack of rainfall, etc. They are only worried about the present need. So, they carelessly cut the trees. As a result, deforestation is increase in Nepal. VIII. Defective government policy:

The government policy regarding preservation and development of forest is defective because it changes frequently and it is less effective in nature. There is lack of people’s participation in afforestation and preservation of forest resource. Consequences of deforestation:

Among various natural resources forest is the main natural resource. But at present, Nepal is facing the problem of deforestation. Deforestation influences people directly or indirectly. It has serious consequences on economic and ecological condition of the country. The major consequences of deforestation are as follows: i.

Environmental deterioration:

Deforestation brings environmental degradation which has serious effects on plants and all living beings. It brings ecological imbalance, soil erosion, flood, drought and landslide. It created desertification in the country. ii.

Shortage of forest-based products:

Deforestation brings the shortage of supply of raw materials for forestbased industries. As a result, various forest based industries will be close down. Deforestation directly affects herbal industry, paper industry, furniture industry, etc. Therefore, deforestation results in the shortage of forest-based products. iii.

Decrease in livestock rearing:

Livestock is also based on forest resource. Deforestation directly effects the livestock rearing because there will be lack of food required for livestock due to deforestation. As a result, there will be decrease in livestock rearing. iv.

Effects on Agriculture:

The deforestation causes soil erosion and soil erosion adversely effects on agricultural productivity. Due to soil erosion the agriculture manure become deficient. As a result, the agricultural ag ricultural productivity and production decline. v.

Effects on tourism:

Deforestation destroys the natural beauty and climate of the country. Similarly, it destroys rare wild animals and birds. As a result, the tourism industry will be adversely affected. vi.

Brings natural disaster:

The flood, landslide, soil erosion, deficiency of rainfall frequently occur due to deforestation. This effects the wealth and life of people. vii.

Shortage of construction materials:


Downloaded from: www.bhawesh.com.np Economics - XI 24 Various construction materials in Nepal are based on the timber obtained from the forest. Due to deforestation people are facing the problem of construction houses, bridges, factories, etc. Therefore, deforestation results in the shortage of construction materials. Mineral resources: Importance of mineral resources in economic development:

The mineral resource plays an important role in the economic development of a country. The mineral resource helps in the development of agriculture, industry and trade. In the absence of mineral resource the country will have to depend on import. The Arab countries are economically strong due to large quantity of oil reserve. The importance of mineral resource in economic development are as follows: a. Development of industries:

Mineral resources have important role in the development of industries in the country. The heavy machinery and equipments needed for industries are made from mineral resource. Similarly, energy needed for industries are supplied by mineral resource such as petrol, diesel, coal, etc. Therefore, mineral resource is important for industrial development. b. Source of employment:

At present, Nepal is facing the problem of unemployment due to high population growth. The existence of mineral resources and their proper utilization provides employment opportunities to the people. The mineral resource provides direct as well as indirect employment opportunities. c. Source of energy:

The mineral resource is the major source of energy. It provides energy like coal, petrol, diesel, etc. which are essential for industrial development. The existence of this energy in the country saves foreign currency. d. Source of government revenue:

The mineral resource and mineral based industries are the important source of government revenue. The government can receive royalty from mineral. Similarly, the government can earn foreign currency from the export of mineral products. e. Development of transport sector:

The energy is an important input in the development of transport sector. The different means of transport like bus, truck, train, aeroplane, etc. need energy to run. f.

Supply of construction materials:

The construction materials can be supplied cheaply and adequately if there are mineral resources in the country. This accelerates the pace of economic development in the country. g. Increase in national income:


Downloaded from: www.bhawesh.com.np Economics - XI 25 The optimum utilization of available mineral resources within the country would generate more employment opportunities in all sectors of the economy. It helps to increase the amount national income of the country. Current Situation of Mineral Resources in Nepal:

Nepal is a mountainous country. So, there is a greater prospect of developing mineral resources. The main mineral resources identified in Nepal are as follows: a. Iron: Iron is an important mineral resource. Nepal has great prospect of iron mines. The mine phul choki is regarded as the biggest iron mine of Nepal. The other mines are Labdi khola, kulakhani, pharping, Godabari, bhaise, etc. b. Copper:

Nepal has great prospect of copper mines as well. The large cooper mine has been identified in Bhutkhola. The other copper mines identified are Gyaji, Baglung, Barabise, Kulekhani, etc. c. Mica:

The mica is used in electrical works. It is estimated that mica is also found in large quantity in Nepal. The mica mines have been identified in Bhojpur, Chainpur, Sundarijal, etc. d. Limestone:

Limestone is essential for cement products. The high grade limestone has been found in Godawari, Markhu, Chovar, Bhaise, etc. e. Slatestone:

Slate mines have been identified in Bandipur, Trisuli, Dolakha, etc.

f.

Coal:

It is estimated that coal mines can be found in the areas such as Sibaling of Dang, Kathmandu Valley, Kagbeni and Thimika village of Mustang district. g. Lead and Zinc:

The lead and zinc mines have been identified in Arkhaule, Gallkot, Ganesh Himal of Rasuwa district, etc. Problems of Mineral Resource Development:

There are various problems for the development of mineral resources in Nepal which are as follows: a. Lack of capital:

The exploration and exploitation of mineral resources need large amount of capital. But Nepal is a poor country. Therefore, there is lack of capital for the development of mineral resources. Similarly, Nepal has not been able to receive foreign assistance for mineral exploration and exploitation.



Economics - XI 26

b. Lack of modern machinery and equipments:

The mineral resource exploration needs expensive machinery and equipments. These machinery and equipments will have to be imported from foreign countries. But there is lack of capital for these purposes. c. Insufficient infrastructures:

The mineral resources of Nepal are largely located in remote hilly areas. These areas do not have access to transport, communication and electricity facilities. This is also one of the obstacles for mineral resource development. d. Lack of technical manpower:

The mineral resource exploration and utilization needs specialized technical manpower. But there is lack of such manpower in Nepal. e. Lack of appropriate government policy:

There is lack of appropriate government policy for the development of mineral resources. The government of Nepal has not been able to adopt appropriate mineral policy. Similarly, the mineral acts are either vague or inadequate. f.

Inadequate research:

There is inadequate research in the field of mineral resource in Nepal because there is lack of experienced human resource modern technology and equipments. g. Lack of courageous entrepreneurs:

The development of mineral resources requires lots of industries of various scales. Establishment of these industries need large amount of capital investment and courageous entrepreneurs. But there is lack of such entrepreneurs in Nepal. Environment and Natural Resource Management:

The combination of various natural elements found in the earth surface is called environment. In other words, environment is the sum of total of the natural resources. In economics various factors like soil, air, water, plants, minerals, living things, geographical structure, etc. come under environment. However, this environment has been damaged by the activities of man. The wide spread environmental degradation has created many problems like air pollution, water pollution, soil pollution, deforestation, loss of biodiversity, etc. This shows the need of natural resource management because natural resource plays an important role for sustainable development. Causes of environmental pollution: Environmental pollution is growing in both developed and developing countries. But it has become more, serious in developing countries like Nepal due to the following reasons: a. High population growth rate: The high population growth rate is one of the major problems of natural resource management. High population growth directly contributes to environmental


Downloaded from: www.bhawesh.com.np Economics - XI 27 degradation because in order to fulfill the needs of growing population natural resources are to be utilized. b. Wide-spread poverty:

The wide-spread poverty leads to the overuse of natural resources because the poor people use natural resources to fulfill their basic needs. c. Inadequate public awareness:

Most of the people of Nepal of rural areas are still uneducated. They are ignorant about the scientific use of available resources. Therefore, they use resources available to them in their own way which may cause environmental pollution. d. Use of unnecessary chemicals:

Use of unnecessary chemicals in agriculture is another reason for environmental pollution. Nepalese farmers don’t have adequate knowledge about the scientific use of harmful chemicals in their farm. e. Use of traditional skills and technology:

The traditional skill and technology leads to excessive use of natural resources. Therefore, traditional skills, knowledge and technology should be modified. f.

Lack of natural resource management:

There is lack of natural resource management practice in Nepal. Most of the people are not aware of the benefits of natural resource management. Consequences of environmental pollution:

At present, Nepal is facing the problem of environmental pollution. The growing environmental pollution cause many adverse effects in our environment. The major consequences of environmental pollution are as follows: a. Air pollution:

Air pollution is mostly urban areas of Nepal. Air pollution from Vehicles and industries have resulted air-borne diseases. It adversely affects the working capacity of people and reduces the average life expectancy as well. b. Soil pollution:

Soil pollution has been growing rapidly in Nepal due to the unscientific use of chemical fertilizers in agriculture. It has increased acidity in soil, reduce fertility of soil and accelerate the process of desertification in the country. c. Water pollution:

Water resources are being polluted due to the mix up of industrial wastes and drainage with drinking water pipes which is responsible for many water-borne diseases. d. Noise pollution:

Growing noise pollution from the means of transport in urban areas is one of the major problems of Nepal. Particularly, noise pollution has adversely affected the lives of the people of Kathmandu, Pokhara, Birgung and Biratnagar.



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e. Atmospheric change:

The unscientific use of natural resources like water, forest and mineral has resulted many problems in the earth surface. The atmosphere is being polluted due to the global warming, green house effect, increase in the quantity of carbon monoxide and decrease of ozone layer in the atmosphere. f. Natural calamities: The rapid deforestation has resulted uneven, unnatural irregular and scarcity of rainfall. As a result, floods, landslides and storms have become very common in the country like Nepal. g. Labour Productivity:

Growing environmental pollution directly affect the life of human beings. Weak and unhealthy human resource cannot produce more goods and services as a result there will be low production and productivity.



Economics - XI 29

Human Resource Human Resource

In ordinary sense, human resource means simply the population of a country. But in the literature of economics, human resource means the population aged 15-65 years having high level of education, skill and knowledge. Human resource has an important role to play in economic development. Here, population is not enough for development. The population should be skilled, educated and healthy. The availability of skilled manpower increases the productivity of the country. Importance of human resource in economic development:

Human resource is an important factor of economic development. Many countries have been able to develop themselves due to the skill, educated and healthy human resource. The role of human resource in economic development are as follows: a. Utilization of natural resources:

For the maximum utilization of natural resources we need human resources for eg: human resource uses water resources to generate electricity, to irrigate farms and to supply drinking water to the society. Similarly, they make rational use of forest and mineral resource. The utilization of these resources increase the national income of the country. b. Compensate the deficiency of natural resources:

The utilization of human resources compensate the deficiency of natural resources. Many countries poor in natural resources have been able to achieve high economic development on the basis of human resources. For Eg: Japan, Germany, Singapore, etc. These countries have been able to achieve high economic growth rate by the proper utilization of human resource. c. Utilization of physical capital:

In order to utilize the physical capital of the country we need human resource. Human resource is essential to operate machinery equipments to run the industries. d. Increase production:

Human resource is one of the active factors of Production. It is the only factor that can capitalize land capital and organization for the production of economic goods & services. Therefore, human resource helps to increase production. e. Reform in traditional culture and attitude:

The traditional culture, values and attitude are obstacle for economic development of developing countries. The educated human resource reforms the traditional, culture and attitude. f.

Development of Industries:


Downloaded from: www.bhawesh.com.np Economics - XI 30 Industrial development is necessary for overall development of the country. Development of industries requires modern technology, high productive machinery, sustainable supply of raw materials and energy. Thus, development of industries depends on the involvement of adequate human resource. Population Situation of Nepal: a. Size of population:

The size of population of Nepal according to population census 2001 is 2,31,51,423 out of which the no. of male population is 1,15,62,921 and female population is 1,15,87,502. Similarly, according to this census the annual growth rate of population of 2.24%. b. Distribution of population:

Geographically, Nepal is divided into three ecological regions i.e. Mountain, Hill and Terai. According to population census 2001, the distribution of population by geographical reasons is as follows: Region

Population %

Area %

Mountain Hill Terai

7.29 44.28 48.43

15 68 17

c. Size and growth rate population of Nepal: Census year

Population

Growth Rate

1961 1971 1981 1991 2001

94,12,986 1,15,55,983 1,50,22,839 1,84,91,097 2,31,51,423

1.65 2.07 2.66 2.10 2.24

Causes of high population in Nepal:

There is high population growth in Nepal. At present, Nepal is facing the problem of population explosion. The causes of high population growth in Nepal are as follows: a. High birth rate:

Due to early marriage and long fertility period of women in Nepal, the population growth rate of Nepal is found to be high. At present, the total fertility rate is 4.1 for women. Thus, high fertility rate is one of the causes of high population growth. b. Falling death rate:

The death rate is declining in Nepal due to expansion of health care facilities. The crude death rate is 9.3 per thousand population and crude birth rate is 32.5 per thousand population. The average life expectancy has increase to about 60 years. This has caused high population growth in Nepal.



Economics - XI 31

c. Religious and social belief:

The Nepalese people are religious in nature. They believe in God and in their fate as well. The birth of son is considered essential to perform death rituals, to continue the generation and for support in old age. Due to this region population growth rate is high in Nepal. d. Lack of education:

Majority of people of Nepal are uneducated. Due to illiteracy people are not aware of the evil consequences of high population. e. Early marriage:

Due to religious and social customs, early marriage is still prevalent in rural areas of Nepal. This practice is also responsible for high population growth in Nepal. f.

Growing international Migration:

The growing internal migration is also another cause of high population growth in Nepal. The size of population of Nepal has been growing due to open international migration particularly from India, Bhutan and Tibet. g. Lack of family planning service:

There is lack of adequate family planning services in rural and remote areas of Nepal. These services are basically concentrated in urban areas. Consequences of high population growth rate:

The high population growth is a serious obstacle in economic development of a country. It is rightly said that population growth is a development problem of developing countries. The evil consequences of high population growth are as follows: 1) Slows development: The rapid population growth slows the pace of economic development because it reduces investment and creates imbalance between natural resources and population. 2) Increase in unemployment:

If economic development cannot be accelerated along with the population growth the unemployment and underemployment increases. The unemployment creates social instability in the country. 3) Environmental degradation:

The high population growth creates environmental degradation. At present, Nepal is facing the problem of deforestation due to high population growth. The deforestation causes natural disaster like soil erosion, landslide, flood, drought, etc. 4) Food shortage:

The high population growth causes flood shortage. Due to food shortage people suffer form malnutrition. People don’ get enough food to maintain good


Downloaded from: www.bhawesh.com.np Economics - XI 32 health. Therefore, large number of villagers have been suffering from food shortage every year due to high population growth in Nepal. 5) Poverty:

The poverty of Nepal is not declining due to high population growth. About 30% of the population live below poverty line in Nepal. Majority of poor people live in rural areas. 6) Low per capita income:

There is low per capita income in Nepal due to high population growth rate. At present, the per capita income of Nepalese people is only about 450$. Remedial Measures of high population growth:

Rapid population growth is the major problem of economic development of a developing country like Nepal. The population growth in the country is not only a national problem but also a family and individual problem. It has evil consequences such as food scarcity, unemployment, environmental degradation, etc. Therefore, it is necessary to control the growth of population. The following remedial measures can be taken to control the growth of population. a. Spread of education: The population growth rate can be checked by the spread of education. The people become aware of the evil effects of large number of children. Similarly, female education helps to reduce fertility rate. b. Increase in health care facilities:

The increase in health care facilities reduces the infant and maternal mortality rate. This encourages people to have less children. c. Expansion of family planning services:

The family planning services should be made available in rural areas. The people accepting family planning should be given economic incentives. Different types of family planning devices should be made easily available to all married couples in all parts of the country. d. Publicity:

The government should educate the people regarding the benefit of small family, increase in age at marriage and birth spacing through publicity. e. Raise the social and economic status of women:

Efforts should be made to raise the social and economic status of women. Provision should be made for women education and employment outside home. f.

Control of International migration:

The illegal and uncontrolled foreign migration should be checked. The open border with India should be checked. g. Economic development:

Economic development itself can control the population growth. This is the evidence from the experience of developed countries.



Economics - XI 33

Indicators of Human Development (HDI)

Human Development is a process of making people’s living standard better. It’s basic objective is to make each and every individual physically healthy, mentally alert, economically sound and socially civilized. Some of the major indicators of human development are as follows: a. Economic indicators:

The most important indicator of human development is per capita income of the people living in a country. It also includes employment opportunity, dependency ratio, purchasing power, saving investment ratio, etc. b. Educational indicators:

The educational indicator includes total literacy rate, male – female literacy rate, adult literacy rate, no. of schools, colleges and universities established by the government and private sectors. c. Demographic indicators:

Some demographic indicators are also used while measuring human development. It includes population growth rate, total fertility rate, crude death rate, crude birth rate, infant mortality rate, etc. d. Health indicators:

Health indicators of human life are life expectancy at birth, population with excess to safe drinking water, no. of hospitals, no. of doctors, no. of nurses, etc. available in the country.



Economics - XI 34

Agriculture Characteristics of Nepalese Agriculture:

Nepal is an agricultural country. Nepalese agriculture has its own characteristics which are as follows: a. Subsistence farming: One of the major characteristics of Nepalese agriculture is its subsistence farming. Majority of Nepalese people follow agricultural occupation. But there production is just enough for their own consumption. Commercial farming system is very limited in Nepal. b. Monsoon based agriculture: Nepal is rich in water resources but agriculture sector has to depend on monsoon rainfall. About 40% of the total cultivated land has irrigation facility and the rest of the land has to depend on monsoon rainfall. c. Small size of land holding:

The land holding size is very small in Nepal and it is declining over the years due to high population growth. About 75% of the land holding is below 1 hector and 8% of the land holding is above 3 hector. This small size of land holding is economically not suitable s uitable for commercial farming. d. Primitive(Traditional) farming practice:

Nepalese farming practices are still primitive as compare to similar other countries. They still use same tools and methods used by their forefathers. Modern tools, improved seeds, fertilizers, etc. are not commonly used by the majority of farmers in the country. e. Low productivity:

Nepalese agriculture is characterized by low production and productivity in terms of output of per hector. Agriculture productivity in Nepal is very low as compare to developed countries. This is due to the use of inferior seeds, traditional methods of farming, lack of irrigation facilities, uneducated farmers, etc. f.

Dual ownership of land:

There is dual ownership system of land practice in Nepal. Dual ownership means two parties have been right over same land. The two parties are land owner and tenant. This creates problem in the development of agriculture. Importance of Agriculture:

Nepal is an agricultural country. About 76% of the total population are engaged in agricultural occupation. Thus, agriculture is the backbone of Nepalese economy. The importance of agriculture in economic development are as follows: a. Source of livelihood:

Agriculture is the main source of livelihood of Nepalese people. About 76% of the population is depended on agriculture. It has provided employment to more than 65% of the labour force.



Economics - XI 35

b. Source of food grains:

The agriculture sector provides the basic food requirements of the growing population. It provides various kinds of food crops, cash crops, fruits, vegetables, etc. which are essential consumption of human life. c. Source of industrial raw materials:

Agriculture is the source of raw materials for agro-based industries in Nepal. It provides raw materials like sugarcane, tobacco, jute, tea, food grains, milk, skin, etc. d. Source of national income:

Agriculture is the main source of national income. It contributes about 40% of the GDP of the country. e. Source of public revenue:

Agriculture sector is regarded as one of the major source of public revenue. The government generates its revenue through land tax, registration fees, export duty, etc. f.

Maintains environmental balance:

Agriculture promotes healthy environment by providing greenery and forestry in the country. It helps to preserve bio-diversity and controls soil erosion. g. Supports development:

Agriculture development stimulates and supports the development of other sectors. The growth of agriculture increases capital formation. The increased saving and investment can be invested in health, education, public welfare, etc. This helps to develop the non-agricultural sector. Problems of Nepalese Agriculture: Agriculture is the backbone of Nepalese economy. Therefore, this sector has given topmost priority in all economic plans of Nepal. But the development of these sectors is not satisfactory. There are various problems in agricultural sector which are as follows: a. High pressure of population on land:

There is high pressure of population on land. Majority of farmers have less than one hector of land. Since, non – agricultural sector hasn’t still developed, agriculture is the main source of employment to Nepalese people. b. Use of traditional technology:

Majority of Nepalese farmers are uneducated. So, they use traditional technology in agriculture. They are unknown about new techniques of production, improved seeds, fertilizers, scientific equipments, etc. c. Lack of irrigation facilities:

Irrigation is the life blood of agriculture. But the irrigation facilities are inadequate in Nepal. Nepal’s agriculture is still largely depended in monsoon. But monsoon in uncertain.



Economics - XI 36

d. Lack of agricultural credit facility:

There is lack of adequate agricultural credit facility in Nepal. Majority of Nepalese farmers are poor. They need credit to make investment in agriculture. e. Lack of marketing facilities:

There is lack of marketing facilities in rural Nepal. The agricultural marketing system in Nepal is unorganized. The farmers are compelled to sell their products to local shopkeepers at low prices. So, they are discouraged to produce more. f.

Lack of storage facility:

There is lack of storage facilities in rural areas of Nepal. Farmers are compelled to sell their products at low prices during harvesting season. g. Lack of agricultural research:

There is lack of agricultural research related to cropping productivity, suitability of crops, technology, etc. Similarly, the agricultural techniques are concentrated in urban areas. h. Lack of physical infrastructures:

Development of agriculture depends on the availability of physical infrastructures for modernization and commercialization of agricultural sector. Road, irrigation facilities, storage facility, market centres for the exchange of agricultural products. But there is lack of such facilities in Nepal for the development of agriculture. Sources of Agricultural Finance (Sources of agricultural credit): Nepal is an agricultural country. About 76% of the population are engaged in agriculture occupation. Majority of Nepalese farmers are poor. Their income is insufficient even to meet their subsistence need. Therefore, they need credit (loan) to make investment in agriculture. There are two major sources of agriculture credit. a. Traditional/Informal sources:

From ancient times, Nepalese farmers are dependent on traditional sources of finance. Due to non-availability of other sources they have to bear high rate of interest on this source. This source includes the following sources. a. Friends and Relatives: Farmers also take loan from their friends and relatives. Generally, they get such loans with or without interest. b. Village money lenders and landlords:

From the very beginning the village money lenders and landlords are the main source of credit to the farmers but they charge high interest on loan. c. Merchants and traders:

The farmers may receive credit form merchants and traders. They provide credit during the pre-harvesting season. They also charge high rate of interest.



Economics - XI 37

b. Institutional/Formal sources:

Institutional sources are legally established for the development of agricultural sector under the policy of the government. This source includes the following sources: a. Agriculture Development Bank(ADB): It is regarded as the most important institution for agricultural credit. It provides short-term, medium-term and long-term credit to farmers. It provides about 80% of the total agriculture credit. It charges low rate of interest. b. Commercial Banks:

It is another source of institutional agriculture credit. This banks provide loan to agricultural sector under the “priority sector credit” programmed. This banks also charges low rate of interest on loans. c. Co-operative society:

Co-operatives are also providing loan to the farmers at low rate of interest. Its main objective is to make available cheap credit and agricultural inputs to farmers. d. Rural Development Bank:

This bank provides loan to the farmers for agriculture and cottage industries. It also charges low rate of interest on loan. Agriculture Marketing in Nepal:

The market where agriculture products are purchased and sold is called agriculture marketing. There is no organized agriculture marketing system in Nepal. Agriculture market in Nepal is segmented and small due to lack of adequate transport and communication facilities. The farmers producing different products sell to the local shopkeeper at low prices. They also sell their products in local market called “Hat Bazar” organized in weekly or monthly basis. Problems of Agriculture marketing in Nepal: There are various problems of agriculture marketing in rural areas of Nepal which are as follows: a. Lack of transport and communication facilities: There is lack of adequate transport and communication facilities in rural Nepal. The cost of agriculture products and agriculture inputs increases due to high transport cost. Thus, Nepalese farmers are not getting sufficient benefit from agriculture sector. b. Lack of storage facilities: There is lack of storage facility in rural area of Nepal. The farmers have to sell their products immediately after harvest but the prices of agriculture products fall during harvesting season. c. Lack of adequate institutional credit facility:

Most of the Nepalese farmers are poor so they need credit to operate agriculture. But there is lack of adequate adequ ate institutional credit facility in Nepal.



Economics - XI 38

d. Non-uniformity of weights and measure:

The system of measurement varies from place to place in rural areas. The merchants do not use proper weight and measure while purchasing agriculture goods from farmers. e. Lack of grading and standardization: The grading and standardization of agriculture products is almost Nil in rural areas. The better quality products high prices. But Nepalese farmers are unknown about this. f. Existence of middlemen: Most of the farmers sell their products in local market to middlemen. The commodities are passed through the middlemen to ultimate consumers. This aids the cost of commodity. Due to this the consumers have to pay high prices and farmers are not getting sufficient benefits.



Economics - XI 39

Poverty Meaning:

Poverty is one of the problems of economic development. The main objective of economic development is poverty alleviation. Poverty is a situation where people are deprived of basic needs, basic rights and basic opportunities for their livelihood. In other words, poverty is the condition of having insufficient income to meet basic needs such as fooding, clothing, housing, clean drinking water and health services. According to World Bank, “Poverty is the inability to attain minimal standard of living. ” Types of Poverty:

Poverty can be classified into two groups: a. Absolute Poverty: The situation in which individuals are unable to attain the basic needs of life such as food, cloth, shelter, safe drinking water, health facilities, primary education, etc. is called absolute poverty. In other words, absolute poverty means inadequate income to sustain life. b. Relative Poverty:

The situation in which a person has enough income to sustain life but which is lower compared to rest of the community is called relative poverty. In other words, relative poverty is the condition of having less income that others within a society or a country. Characteristics of Poor: Rural and urban The characteristics of poor are as follows:  Low level of income:

Low level of income is the main features of rural as well as urban poor. Due to low level of income poor people are illiterate, malnourished and unhealthy. 

Occupation:

The rural poor are engaged in agriculture occupation and urban poor are engaged in different activities as a labour. 

Lack of assets:

There is lack of assets with poor both in rural as well as urban. In rural areas, they have small size of unproductive land without irrigation facilities. Due to this, they have low level of income. 

Education:

Majority of poor both in rural and urban areas are illiterate. More than 70% of the total poor population popu lation are illiterate. 

Housing condition:

The housing condition of majority of Nepalese poor is very bad. Due to large family size there is always overcrowding in household. All family members have to live in a small and hut with limited space and without electricity and other facilities.


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Economics - XI 40

Status of poor in society:

There is low status of poor in a society. They have less access to publicly provided goods and services. They have no role in politics. Causes of poverty in Nepal:

The problem of poverty has been serious in Nepal. The inability to check high population growth rate and lack of sustainable economic development are the twin major causes of poverty in Nepal. Besides there are many other causes responsible for mass poverty in Nepal which are as follows: I. High population growth rate:

There is high population growth rate (2.24%) in Nepal as compared to economic growth rate (3.3%). As a result, poverty is increasing in Nepal. II. Inequality:

The unequal distribution of income and wealth is another cause of poverty in Nepal. The gap between rich and poor is very high. The distribution of national income isn’t in favour of poor people. As a result, poverty is increasing in Nepal. III. Low industrial development:

IV.

V.

VI.

VII.

The pace of industrial development is very slow in Nepal due to lack of capital, infrastructure, technology, appropriate industrial policy. Thus, there is lack of additional employment opportunities in non-agricultural sector. Majority of the people have to remain unemployed and underemployment. Low rural development: Nepal is rural based economy but there is less development of rural infrastructures like transport, communication, electricity, irrigation, etc. Therefore, there is low rural development in Nepal. It is also one of the causes of poverty in Nepal. Under utilization of local resources: Nepal is rich in natural resources but there is under utilization of local resources in rural areas of Nepal due to lack of capital, skills and technology. Thus, there is poverty in rural areas of Nepal. Unemployment: There is lack of employment opportunities except agriculture. Agriculture provides only seasonal employments. There is wide-spread problem of disguised unemployment. As a result, poverty is increasing in Nepal. Subsistence Agriculture: Nepal is an agricultural country. About 76% of the population are engaged in agriculture as occupation. But due to lack of irrigation facilities and methods of traditional farming, the production and productivity of agriculture is very low. Thus, Nepalese agriculture is subsistence in nature. As a result, poverty is increasing in Nepal.

Remedial measures of poverty reduction in Nepal:

The main objective of economic development is poverty elevation. The single most objective of 10th plan of Nepal was also poverty alleviation. The following remedial measures can be taken to reduce poverty in Nepal.


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Economics - XI 41

Increase in employment opportunities:

The best remedial measure for the reduction of poverty is to increase employment opportunities because more the increase in employment opportunities more will be the reduction of poverty. Therefore, more industries will be established for providing more employment opportunities. •

Increase in economic development:

Due to slow economic development poverty is increasing in Nepal. Therefore, for reduction of poverty in a country, high economic growth rate should be maintained. In order to maintain high economic growth rate, the government should develop various sectors of economy. •

Development of human capital:

Adequate investment in human capital also plays a key role in log term poverty reduction. Therefore, investment should be made in different social services like education, health, sanitation, nutrition and so on. Investment in human capital increases productivity and income of the people and that will make them able to utilize new opportunities. •

Development of rural infrastructures:

The development of rural infrastructures increases the productivity of the rural people. Therefore, adequate transport, communication, electricity, etc. should be developed in rural areas. It also helps to reduce poverty in the long run. •

Optimum(maximum) utilization of Natural resources:

The utilization of natural resources is also a main measure to reduce poverty. Nepal is rich in natural resources. Therefore, the existing poverty can be reduced through the optimum utilization of the natural resources available in the country. •

•

•

Women empowerment:

Women empowerment is necessary for poverty reduction in Nepal. Therefore, special emphasis should be given for women education, health and employment. Economic and social transformation will be possible through women empowerment. Modernization in agriculture: Nepal is an agricultural country. About 76% of population are engaged in agriculture occupation. Thus, modernization in agriculture is required for the reduction of poverty in Nepal. Modernization in agriculture will increase productivity. Targeted programs: Different targeted programs should be implemented for the marginalized classes of people which have not been able to enter into the main stream of development. This also helps to reduce poverty.



Economics - XI 42

Industry Industry: Cottage and small scale industry:

Those industries which are labour intensive and related to country’s tradition, art and culture are called cottage industries. These industries mobilize local raw materials and skills. Likewise, the industries having fixed investment up to 10 million except cottage industries are called small scale industries. Importance of Cottage and Small scale industries: The cottage and small scale industries plays an important role in the process of economic development of developing countries like Nepal. The importance of cottage and small scale industries are as follows: •

Easy to establish:

Cottage and small-scale industries are easy to establish. In the sense that these industries don’t require more capital and technical knowledge. Such industries can be established and run by a single households by utilizing their own capital, raw materials and skills. •

Increase to employment opportunities:

The development of cottage and small scale industries create employment opportunities. It helps to reduce the pressure of population on agriculture. It becomes a supplementary resource of income to the farmers. •

Basis of the development of large industries:

Cottage and small scale industries are the foundation of large scale industries. People learn management techniques and skills from small industries. The development of these industries increases the income and purchasing power of people. This helps to develop large scale industries. Use of local resources: Inorder to use the local resources we have to develop cottage and small industries. It can help in the maximum utilization of local resources. Preservation of art and culture: The cottage and small scale industries play an important role in preserving traditional art culture and skills. It has helped to introduce Nepalese art and its tradition and culture in different countries of the w orld. Source of foreign exchange: It is the major source of foreign exchange. The cottage and small industries products such as ready made garments, handicrafts, woolen carpets, etc. are Nepal’s major items of exports to third countries. Source of National income: Cottage and small industries play an important role in increasing national income. This industries provide more employment opportunities which leads to increase per capital income of the people. Problems of cottage and small-scale industries in Nepal: There are various problems of cottage and small-scale industries which are as follows: •

•

•

•


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Economics - XI 43

Lack of capital:

Majority of Nepalese people are poor. They have low capacity to save and invest. Thus, there is lack of capital for the development of cottage and small-scale industries in Nepal. II.

Lack of raw materials:

The raw materials needed for cottage and small-scale industries aren’t timely and adequately available. The available raw materials are inferior in quality. Thus, these industries are running below their capacity and producing low quality products. III. Problem of transportation: The transport facilities which are essential for the development of cottage and small-scale industries. But, there is lack of transport and communication facilities in hilly areas of Nepal. IV. Limited market: The size of National market is small. The purchasing power of people is low. Thus, the market for industrial product is limited. V. Primitive technology: The production techniques of cottage and small scale industries are very primitive. The entrepreneurs of these industries are uneducated, unskilled and untrained. Thus, due to this, the goods produced from these industries are of inferior quality. VI.

Lack of protection policy:

Every country has to adopt a protection policy for the development of cottage and small scale industries. But there is lack of protection policy in Nepal. Therefore, these industries have to compete with large scale industries. Medium and large-scale industries:

Those industries which need more capital, labour, machinery, equipments and high technology are called medium and large-scale industries. According to industrial policy 1992, the industries having fixed investment of 10 million to 50 million are called medium industries. Similarly, the industries having fixed investment above 50 million are called large scale industries. Importance of Medium and large scale industries:

The medium and large-scale industries can play an important role in the process of economic development. The importance of medium and large-scale industries are as follows: I.

Increase in employment opportunities:

The development of medium and large-scale industries helps to generate employment opportunities. Thus, it helps to reduce the problem of unemployment and disguised (unseen) unemployment in the country. II.

Modernization of agriculture sector:

We need modern tools, fertilizers, technology, etc. to modernize agriculture sector. Thus, the establishment of agro-based medium and large-scale industries


Downloaded from: www.bhawesh.com.np Economics - XI 44 helps in the production of these things within the country which helps to develop agriculture sector. III.

Utilization of Natural resources:

Medium and large-scale industries are necessary for the scientific utilization of available natural resources. For Eg: Forest resource, water resource, mineral resource and human resource. This will help to increase Gross Domestic Product.

IV.

Source of government revenue:

The government can receive revenue in the form of sales tx, exercise duty, export duty, income tax, VAT, etc. with the establishment and development of medium and large-scale industries. Thus, government revenue increases with the growth of these industries. V.

Development of basic infrastructures:

Basic infrastructures like transport, communication, electricity, etc. are the prerequisites for the development of large scale industries. The investment in these basic infrastructures increases the development of industries. VI.

Capital formation:

Medium and large scale industries help to accelerate the process of capital formation within the country. Establishment of these industries expand capital market by providing investment opportunities to the people which is the basis of economic development. VII.

National Independence and security:

Development of medium and large scale industries means large scale production of consumer goods and capital goods. It makes people self-dependent. Further more, development of these industries help national security by providing different materials and weapons necessary for the countries security. Problems of Medium and large-scale industries in Nepal:

There are various problems for the development of Medium and large-scale industries which are as follows: I.

Lack of Capital:

Development of medium and large-scale industry needs large amount of capital investment. But there is lack of capital in Nepal because Nepal is a poor country. The per capita income of Nepalese people is very low. II. Lack of infrastructures: Infrastructures like transport, communication and electricity are the most important factor of the development of large scale industries but there is lack of such infrastructures in Nepal. III. Scarcity of raw materials: Nepal has to depend on foreign capital, imported raw materials, chemicals and intermediate products for most of the industries. Thus, there is shortage of raw materials for the development of large-scale industries. IV. Limited Market:


Downloaded from: www.bhawesh.com.np Economics - XI 45 The domestic market for Nepalese industrial product is limited due to low purchasing power of people. The nearest potential market for Nepalese product is India but Indian attitude towards is not favorable. V. Land-locked position: Nepal is a land-locked country. The land-locked position of the country is also hindering industrial development. Nepal has to cross 2000 KM Indian land to get entry into International market. VI. Defective government policy: A sound government policy is pre-condition for creating sound industrial environment but the government policy of Nepal is neither sound nor consistent. There are repeated changes and revision in Industrial policies in Nepal. VII. Lack of entrepreneurship and managerial skills: There is lack of entrepreneurship and managerial skills for the development of medium and large-scale industries in Nepal. Tourism Industry: The business which provides different kinds of facilities to the tourists is called tourism industry. Tourism industry includes those business activities which provide facilities to the tourist such as hotel, lodge, travel agency, trekking agencies, etc. The tourism industry is established to provide various services to the tourist so it is classified as service industry. Importance of tourism industry: Nepal is a tourism centre due to its natural beauty, unique culture and cultural heritage. Thus, tourism industry occupies central position in Nepalese economy. This industry helps to earn foreign currency and also provides employment opportunities. The importance of tourism industry in economic development are as follows: I. Source of foreign exchange earning: Tourism industry is regarded as one of the major source of foreign exchange earning. This sector contributes about 10% of total foreign currency earning. II. Employment generation: Tourism helps to create employment opportunities. It provides direct as well as indirect employment opportunities to Nepalese people. III. Development of handicraft industries: The development of tourism industry helps to develop handicraft industries in the country because the tourist like to buy the handicrafts goods like idol, Nepali cap, woolen carpet, ornaments, etc. IV. Publicity of nation: Tourism helps to publicize the country in different parts of the world. It helps to publicize Nepalese art, skills, culture, tradition, etc. to the world. V.

Source of government revenue:

Tourism is also a source of government revenue. The government earns revenue in the form of taxes, visa fee, airport tax, royalty, etc. from tourism industry. indu stry. VI.

Cultural exchange:

Tourism industry facilitates cultural exchange. People get opportunity to learn each others art, culture, custom and language. This cultural exchange helps to change the lifestyle of the people. VII.

Development of human resource:


Downloaded from: www.bhawesh.com.np Economics - XI 46 Tourism industry requires more trained and skilled manpower. As tourism industry expands, there is need to produce a large number of trained and skilled manpower. Therefore, the development of tourism industry helps to develop human resource. Prospects of tourism industry:

Nepal is called tourist’s paradise. It is a country of live culture, snow-capped mountains, unique beauty of nature and hospitable people. Nepal is compared with Switzerland of Europe and Kashmir of Asia in terms of natural beauty. Therefore, the prospects of tourism industry are immense in Nepal which are as follows: I.

Natural beauty:

Nepal is a beautiful country. It has inherent features like geographical diversity, unique nature of beauty, etc. It has pleasant rivers, water falls and lakes. It has a rare wild animals and birds. It has variety of flora and fauna. Therefore, Nepal is a beautiful country. II.

Temples and unique arts:

Nepal is a country of temples. The important temples like Pashupatinath, Muktinath, Swayambhu, Krishna Mandir, Ram Janaki Mandir, etc. are famous in Nepal. These temples are attractive to the tourist interest in history and culture. III.

Birth place of brave persons:

Nepal is a birth place of Gautam Buddha, the light of Asia. Nepal is known as the birth place of brave Gorkhalis. IV.

Rich culture:

Nepal has special cultural heritage. There is live and diverse culture in Nepal. So, the tourist interested in culture can enjoy in Nepal. V. Suitable climate: The climate of Nepal is suitable for different types of tourists. The climate here is neither too hot nor too cold. Nepal has different climate in different parts of the country due to difference in altitude. VI. Rare wild animals and birds: Nepal is rich in biodiversity. The tourist can observe rare wild animals and birds in Nepal. These things also provide attraction to the tourist to visit Nepal. VII. Hospitable people: Nepalese people are very simple and hospitable. People take tourist as guests and the guests are regarded as the god in Nepalese culture. Problems of tourism development in Nepal: There are various problems of tourism development in Nepal which are as follows: I. Lack of transportation and communication facilities: There is lack of transportation and communication facilities in most of the potential tourist destination. Thus, tourism is limited to few tourist destinations like Kathmandu, Pokhara, Chitwan and Lumbini where there is easy access to transportation and communication. II. Lack of trained tourism manpower:


Downloaded from: www.bhawesh.com.np Economics - XI 47 The trained manpower of different levels are essential to provide quality services to tourists. But such manpower are a re extremely limited in Nepal. III. Inadequate publicity: Nepal as an attractive tourist destination has not been well publicized in foreign countries. Due to this, tourism hasn’t been properly developed in Nepal. IV. Lack of recreational facilities: 50% of the tourist who visit Nepal come for pleasure motives. But recreational arrangements for such tourist are very inadequate. The recreational means like rafing, boating, flying, cable car, etc. are very limited in Nepal. Similarly, the night clubs and health clubs are also limited. V. Problem of pollution: The problem of pollution is increasing in Nepal due to deforestation, unscientific urbanization and industrialization. The health conscious tourist don’t like to visit Nepal due to this problem. VI. Deterioration of art and culture: Nepal is rich in art and culture but there is gradual degradation in Nepalese art and culture. The festivals are disappearing. The idols of gods and goddesses are also disappearing. Public enterprises: enterprises: Those enterprises which are earned by the government are called public enterprises. These enterprises have autonomy in management and legally independent entity. These enterprises are directed and controlled by the government. Public enterprises are also called social industries or government enterprises. In Nepal, these enterprises are called “Government Owned Enterprises.” According to A.H. Henson, “a Public enterprise means state ownership and operations of industrial, agricultural and commercial undertakings (enterprises).” Therefore, the enterprises owned, managed and operated by the government with definite objectives are called public enterprises. Features of Public Enterprises: I. It should have government ownership. II. It has autonomy in management. III. It has legally independent entity. IV. It is directed and controlled by the government. V. It is accountable to the people. VI. It has features of commercial enterprise. Current status of public enterprises in Nepal: Nepal is a developing country. It has been adopting mixed economy having coexistence of public and private sectors. Thus, there are some public enterprises established in Nepal. Public enterprises in Nepal are operating under six broad sectors i.e. industrial sectors, commercial sectors, social sector, service sector, public utility sector and financial sector. At present, there are 37 public enterprises in Nepal. Nature of Public Enterprise Numbers 1. Industrial sector 11 2. Trading sector 6 3. Service sector 6 4. Social sector 5 5. Public utility sector 3 6. Financial sector 6 Total 37


Economics - XI 48


Foreign Trade Meaning:

The transaction of goods and services between the people of different countries is called foreign trade. It is also called international trade. According to G.L. Luckeet, “The purchase of goods and services by the citizens of one country from the citizens of another country is called international trade.” Importance of foreign trade: Foreign trade plays an important role in economic development of a country because all countries cannot produce all goods efficiently. The role of foreign trade in economic development are as follows: a. Benefit of technological progress: There should be foreign trade in order to take the benefit of specialization. The specialization depends on availability of raw materials, geographical situation and availability of factors of production. The specialization leads to large scale production. b. Availability of raw materials: All countries don’t have all kinds of raw materials. The raw materials can be imported from other countries through foreign trade. c. Expansion of market: The foreign trade integrates a country with other countries. Therefore, it widens the market for goods which is produced in a country. d. Increase in employment opportunities: The development of foreign trade leads to the development of export oriented industries in the country. This increases employment opportunities. e. Increase in fair competition: The foreign trade destroys monopoly and it increases competition. The competition reduces the cost of production and increases the quality of the products. Thus, the people can get high quality goods at lower prices. Growth and trends of foreign trade of Nepal: Exports and Imports are the two components of foreign trade. The difference between the value of export and value of import is called trade balance. The foreign trade of Nepal is increasing over the years. The trend shows that there is increasing in the value of exports, imports as well as total volume of trade. The following table shows the growth and trends of foreign trade of Nepal. N epal. Year

Export

Import

Trade Balance (Rs. In million)

2004 2005 2006

53910.7 58705.7 60234.1

136277.1 149473.6 173780.3

-82366.4 -90767.9 -113546.2

This table shows that the total export and import is increasing over the years but it also shows that there is continuously large amount of trade deficit in Nepalese foreign trade. Composition of foreign trade of Nepal: The composition of foreign trade means the items of export and import between countries. Nepal’s major import items are finished goods, machinery, equipments, chemicals, mineral fuels, crude materials, drugs, etc. Similarly, Nepal’s major export


Downloaded from: www.bhawesh.com.np Economics - XI 49 items are woolen carpet, ready made garments, handicrafts, gold and silver goods, paper products, jute products, etc.

Direction of foreign trade of Nepal:

Nepal is a landlocked and least developed country. In the past, Nepal’s foreign trade was directed toward India. At that time, about 95% of the total trade was with India and a small percentage of trade was with Tibet. The trade with overseas countries was almost nill. But at present Nepal’s foreign trade is directed towards a wide range of countries. But India is still a major trading partner of Nepal. The following table shows the direction of foreign trade of Nepal: Direction

Export (2061/062)

Import (2061/062)

India Rest of the world

67.4 % 32.6 %

63.6 % 36.4 %

Problems of foreign trade of Nepal:

There are various problems of foreign trade of Nepal which are as follows: a. Land-locked position:

b.

c.

d.

e.

f.

g.

Nepal is a land-locked country. It is surrounded by India from 3 sides and by China from 1 side. The nearest point to reach sea from Nepal 2900 Km. It is the major obstacle to take independent trade policy. Thus, it is difficult to freely trade with overseas countries. Concentrated on limited goods and countries: Nepal’s foreign trade is concentrated on few goods and few countries. Nepal’s major export items are woolen carpet and ready made garments. They together contribute more than 80 % of Nepal’s Nep al’s export. Low production: Due to slow development of industries, production level is very low in Nepal. Similarly, the agricultural production is also declining due to traditional method of farming. Thus, the export of Nepal is declining and import is increasing. As a result, Nepal is facing the problem of trade deficit. Lack of Capital: Sufficient capital investment is essential to develop foreign trade of the country. Well developed capital market is necessary to provide sufficient amount of credit for the export oriented industries but the capital market of Nepal is still unable to supply sufficient amount of credit. Defective Government Policy: The Government Policy regarding foreign trade is defective. The Government hasn’t been able to provide adequate export incentives. Low quality goods: The goods produced in Nepal are of inferior quality. Therefore, these goods cannot complete in international market. Lack of studies and research: There is lack of studies and research regarding foreign trade of Nepal. But research is necessary for the exploration and expansion of market in foreign countries.



Economics - XI 50

Government Finance (Public Finance) Meaning:

Government finance is a branch of economics. In government finance, we study the financial aspect of government. Thus, government finance is the study of income and expenditure aspect of the government. Government finance is also called public finance. According to Dalton, “ Government finance is a science concerned with income and expenditure of the public authority.” Government Revenue (Income): Meaning: Government revenue is an important part of public finance. Government Revenue refers to the income of a government from various sources. In the past the function of state was limited. At that time the government revenue had not given more importance. But at present, the government has to play an important role in providing social services and economic services to the people. Therefore, Government revenue is very important in present days. Sources of Government Revenue:

There are two measure sources of government revenue i.e. Tax revenue and Non. Tax revenue. a. Tax revenue:

Tax is a measure source of government revenue of Nepal. Taxes are compulsory payment to the government without the expectation of direct benefit to the tax payer. It contributes about 80 % of the total revenue collected in Nepal. The tax revenue inputs the following sources: a. Custom:

It is collected at custom point located at the border of the nation. It includes export tax & import tax. It contributes about 35 % of the total tax revenue of Nepal. b. Tax on consumption and production of goods & services:

It includes exercise duty, sales tax, VAT, contract tax, road tax, air flight tax, etc. c. Tax on property, profit and income:

This source includes income tax, vehicle tax and tax on interest. d. Land revenue and registration:

It includes land tax and land and house registration charges.

b. Non-tax revenue:

The Non-tax revenue contributes about 20 % of the total revenue of Nepal. The non – tax revenue includes the following sources: a. Charges, fees and fines:


Downloaded from: www.bhawesh.com.np Economics - XI 51 This source includes firm and arms registration, vehicle license, judiciary, administrative penalty, etc. These source contributes about 4 % of non – tax revenue. b. Receipts from the sale of commodities & services:

This source includes income from drinking water, irrigation, electricity, postal service, education, transport and agriculture. c. Royalty and sale of fixed assets:

This source mountaineering, etc.

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royalty

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d. Principle and interest payment:

This source consists of the loan repayment made and interest paid by the companies and corporations. e. Gifts and grants:

Individuals and governments of various countries give gifts and grants to the government of Nepal. This is also an important source of non-tax revenue of Nepal. Government expenditure:

The expenditure made by the government for the welfare of the people is called government expenditure. In other words, government expenditure of public authorities i.e. central, state and local government. These expenditures are made to protect the citizen and to promote economic development. Classification of Government expenditure:



The government expenditure of Nepal can be classified into two measure heading: Regular expenditure Development expenditure



Regular expenditure:



The expenditure made on general government services is called regular expenditure. These expenditures are also called administrative expenditures. These expenditures are recurring in nature. These expenditures include the following heading: o

Constitutional organs:

It includes expenditure made on Supreme Court, election commission, public service commission, etc. o

General administration:

It includes expenditure made on council of ministries, various ministries, various departments, police, jail, etc. o

Revenue administration:

It includes expenditure made on the collection of land revenue, custom office, excise department office, VAT department, etc.


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Economics - XI 52

Economic administration:

It includes expenditure made on planning commission, department of statistics, etc. o

Judicial administraton:

It includes expenditure made on courts. o

Defence:

It includes expenditure made on defence i.e. army. o

Social service:

It includes expenditure made on education, health, drinking water, etc. o

Economic services:

It includes expenditure made on agriculture, irrigation, transport, communication, electricity, etc. 

Development expenditure:

The expenditure which promote economic development is called development expenditure. This expenditure is also called capital expenditure. This expenditure is productive in nature. It includes the following headings: o

Constitutional organs:

It includes expenditure made on infrastructure development of Supreme court. o

General administration:

It includes the expenditure made on administrative reform of the government organization. o

Economic administration and planning:

It includes expenditure made on planning and statistics of the country. o

Social service:

It includes expenditure made on infrastructure development of education, health, drinking water, etc. o

Economic services:

It includes expenditure made on infrastructure development of agriculture, industry, transport, communication, electricity, etc.



Economics - XI 53

Development Planning Meaning of economic planning:

Planning is a target to accomplish anywhere in definite period of time. Some specific objectives are included in the planning. Therefore, economic planning implies deliberate control and direction of economy by a central authority for the purpose of achieving definite targets and objectives within a specified period of time. Current Eleventh plan (2065 – 2068) The current economic plan of Nepal is eleventh plan. The main objective of this plan is to realize the change in the life of the people by reducing poverty and existing unemployment and establishing sustainable peace. Strategies of Eleventh Plan: The 11th plan has set the following strategies:  To give special emphasis, to relief reconstruction and re-integration.  Creation and expansion of employment opportunities.  To increase broad – based economic growth.  Promotion of Good – Governance and effective service delivery.  Give emphasis to social development.  Increase investment in physical infrastructure.  Adopt an inclusive development process.  To carry out targeted programmers’. th

Priorities of 11 plan

The following will be the priorities are of 11 th plan: I. Physical infrastructure will be reconstructed, re-habilitated and people affected by conflict will be provided relief, rehabilitation and social reintegration. II. Investment will be increased to support development through inclusion of communities, regions and gender excluded form all structures, sectors and process of development. III. In order to develop national economy, investment will be increased in physical infrastructures supporting agriculture, industry and tourism. IV. Priority will be given electricity development. V. Priority will be given to infrastructure development like road, irrigation and communication. VI. Investment will be increase in the sectors of education, health, drinking water and sanitation for human resource development. th Targets of 11 Plan: The 11th Plan has set the following targets : I. The annual economic growth rate is projected to be 5.5 %. II. To reduce people below poverty line from 31 % to 24 %. III. To reduce infant mortality rate to 30 %. IV. Reduction in total fertility rate to 3 per woman by the end of the plan. V. Reduction in maternal mortality rate to 250 by b y the end of the plan. VI. Access of drinking water to 85 % of the total population. VII. The growth rate of agriculture sector is estimated to be 3.6 % per year and non – agriculture 6.5 % non – agriculture sector per year.



Economics - XI 54

Process of plan formulation:

In Nepal, National planning commission (NPC) is a highest body for plan formulation & execution. The process of plan formulation in Nepal has following steps: 

Setting objectives:

The first step of plan formulation is setting the objectives for the plan. First, the objectives for overall economy are and then the objectives for different sectors are saved. 

Setting targets:

This is the second step of plan formulation. The targets means the targets stated in quantity. While fixing targets, the appropriate policy should be adopted. The target expresses the determination to reach the destination. 

Determination of growth rate:

This is the third step of plan formulation. First the growth rate of the economy as a whole is determined and then the growth rate of agriculture and non – agriculture is also determined. The growth rate is determined on the basis of available resources and the need of the economy. 

Macro-economic projections:

This is the fourth step of plan formulation. The macro-economic projections of national income, investment and employment are made on the basis of available data. 

Statement of policies:

In general, the different sector policies are stated in the plan. The policies work as the guideline in preparing programmes for different sectors. 

Sectoral planning:

The detailed programmes of different sectors are also stated in the plan. Similarly, the sectoral allocation of resources is also made in the plan. 

Priorities in the planning:

The priorities as to the achievement of objectives and targets are fixed in the plan. The need of the economy is unlimited but the resources are limited. Therefore, the priorities should be taken into account the existing financial and physical resources.


Economics Notes Class 11 All in One

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