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The agriculture sector, the backbone of the Nepali economy for eons, has been receiving less attention than it deserves. The industrial sector has not been flourishing, either. The private sector is mainly involved in risk-free and unproductive ventures such as real estate and auto business sectors whereas the public sector remains mired in corruption, bribery and smuggling scandals. 

Thanks to the lack of stability, the economy has not even taken off with potential economic sectors capable of boosting the economy unexploited. Reeling under unemployment, an increasing number of people have been leaving the country over the years.  

It can be surmised that a majority of the 0.75m people, who left the country in the fiscal 2022-23, did so in search of employment opportunities. Their destinations included countries in the Middle East such as Qatar, Saudi Arabia, the UAE and Israel, and Malaysia, Japan and South Korea in East Asia. 

According to estimates, about 50,000 Nepali people migrate to developed countries annually for permanent residence. In 2023, 1.6m people flew abroad for different purposes, including for permanent settlement in developed countries like the United States, Australia, the United Kingdom and Canada. In 2022, according to the Immigration Department, 71,000 people flew out of the country for permanent residence. 

The migration of Nepalis to the United States started in the 20th century. In the beginning, the outmigration was nominal. For the first time in  1974, Nepali living in the US were categorized under a separate ethnic group with the recognition of 56 people as Nepali Americans, a marked shift from the practice of putting Nepalis under the Other Asians category.

Despite a surge in the number of migrants, not even 100 Nepalis used to migrate to the global superpower and economic powerhouse annually until 1996, the year Diversified visa (DV) program was launched in Nepal. Since then, an increasing number of Nepali people have been migrating annually for permanent settlement in the US.

According to  the Pew Research Center, the population of Nepali Americans in 2019 was 198,000, which reached 206,000 in 2020, marking a 4 percent increase in the Nepali population in the US. 

Among them, 78,000 are living in different metropolitan cities of America. Dallas is home to 15,000 Nepali Americans, followed by New York (12,000), Washington (10,000), San Francisco (7,000), Baltimore (7,000), Boston (6,000), Atlanta (5,000), Pittsburgh (5,000), Acron (5,000) and Chicago (5,000).

Nepalis with modest means dream of leading prosperous lives in America. While some are indeed growing rich, a majority of Nepali Americans remain under deprivation. The annual median income (which divides the people in two equal parts on the basis of income distribution above and below median income) of Nepali Americans is  $55,000, far less than the annual median income of all Asian Americans ($85,800) and the median income of all Americans ($68,000). 

Seventeen percent of Nepali Americans are living under economic deprivation, holding low-paying jobs. The percentage of Nepali Americans living below the poverty line is more  than the percentage of Asian Americans (10 percent) and of all Americans (11 percent) below the line. What’s more, only 33 percent of Nepali Americans have their own occupancy, while others are living in rented accommodations. Only 22 percent of Nepali Americans are college graduates against 30 percent Asian Americans. A majority of Nepali Americans are living in relative poverty, near poverty and absolute poverty.

There was a time when agriculture was the booming sector on which the livelihood of rural people depended. Returns were promising and increasing back then. 

In recent years, however, returns from this sector have been diminishing alarmingly despite encroachment upon forests,  pastures and marginal parcels for cultivation. Unable to make a living by relying solely on the farms, rural people have begun looking for alternatives. 

With youths leaving the villages in droves for abroad, farmlands have fallen fallow, mainly in hilly areas. Instead of agriculture, remittance is fast becoming the source of  livelihood for rural people.

Food imports have gone up in recent years, thanks to an increase in uncultivated land and increased flow of remittance resulting from a growing exodus of village youths. 

This article seeks to examine the factors turning agriculture into an unattractive sector and triggering youth exodus, and prescribes ways to revive the sector. 

The farmer needs a number of things to maximize returns from agriculture in this day and age. A large parcel of land, access to bank credit, irrigation facilities, a reliable supply of fertilizers as well as electricity and an easy access to the market are some of the prerequisites. 

But these things are hard to get in our country. Farmlands are shrinking, thanks to ownership transfer from one heir to another. Even these parcels are located in remote parts where it is quite difficult to apply modern methods of cultivation for improving both production and productivity.

With the aim of helping small farmers improve farm production and productivity, the government as well as banks have launched various microfinance schemes/programs. 

But even this intervention has failed to make meaningful changes in the farmers’ lives. First and foremost, these programs/schemes have failed to bring back the farmer into farming. What’s more, most of the beneficiaries have not been able to pay interest, leave alone the principal. Contrary to Nepal’s experience, Bangladesh has been implementing a similar program/scheme with great success. 

The way out

The need of the hour is to turn farmlands lying fallow into cultivable land and make Nepal a food-sufficient country by thinking albeit differently. 

The government in particular needs to take a number of steps, to begin with. 

First of all, it needs to go for community farming. 

How to bring parcels of land lying fallow under community farming? What should be the basis for cost and benefit sharing? 

Leasing could be one of the options. A group of persons, including entrepreneurs, can lease parcels belonging to a large number of land-holders by paying them a certain amount annually. Such groups can maximize both production and productivity in those swathes by employing modern methods of farming. This will enable food-insecure communities living close by to buy locally-grown foodstuffs at reasonable rates apart from giving sustainable agricultural practices a great boost. Large farms also mean jobs for members of local communities. All in all, such farms can bring great dividends to rural Nepal. 

However, the government has to have political will to opt for community farming. First and foremost, it needs a huge budget to lease parcels of land before leasing it out to large-scale growers. Also, the government needs to invest in the development of necessary infrastructure and provide legal, technical and financial support to the growers. 

At a time when farmlands are shrinking, the government needs to move ahead with a sense of urgency if it is serious about averting a grave food crisis. 

Nepal, predominantly characterized by its hilly terrain, with hills covering 80.7 percent of the land, boasts numerous valleys and lakes, resembling natural view towers.

During my recent visit to Los Angeles, situated at the foothills of California, specifically Norwalk and Riverside, I marveled at the landscapes. Riverside, nestled at the base of hills, offers well-constructed trails that allow people to ascend and enjoy panoramic views of various cities. From atop one of these hills, I beheld the picturesque landscapes of Riverside, Moreno Valley, San Diego, Ontario, Los Angeles, and beyond. These cities, surrounded by hills on one side and the Pacific Ocean on the other, create a captivating spectacle.

Similarly, in Nepal, regions such as Kathmandu Valley, Pokhara, Surkhet, and Dang are embraced by hills, presenting a tremendous opportunity for the tourism industry. Nepal has the potential to develop trails providing access to these hills. By investing in road construction and cable cars, millions of visitors could be enticed to explore these elevated terrains. The breathtaking views of cities and the Himalayas from these natural view towers can be a significant attraction, much like the view towers of southern California. Constructing hiking trails on these hills can be achieved at a minimal cost, exemplified by the natural view towers in Pokhara, offering stunning vistas of the lake city.

However, the challenge lies in the lack of awareness and vision among Nepali rulers and decision-makers regarding how and where to allocate scarce resources. Random decision-making appears to be the norm, with little role for expert input. Political leaders often operate with self-interest, leading to decisions that benefit a select few. The absence of a coherent national agenda for development is evident, and questioning the actions of political parties seems futile.

Nepal can draw inspiration from iconic landmarks like the Hollywood Gate, which serves as a view tower for Los Angeles. Similarly, a hill in San Diego, housing an army camp, functions as a view tower offering stunning perspectives of the city and the Pacific Ocean.

Nepal is in a learning phase, acknowledging imperfections and seeking improvement. While mistakes are inevitable, the ability to learn from them is paramount. The prevailing egoism among rulers takes precedence over self-sacrifice, a fundamental quality for fostering a healthy and prosperous economy. Unfortunately, self-interest permeates Nepalese society, giving rise to nepotism, favoritism, and corruption. Policy decisions often legitimize these practices, hindering positive progress.

In contrast to constructing view towers, Nepal could invest in an eight-foot-wide road along the hills, facilitating trekking to hilltops. Redirecting resources from constructing towers to building footpaths around the hills of Kathmandu Valley could create a network of accessible viewpoints. Numerous spots could serve as small view towers, allowing people to appreciate the scenic beauty of the Kathmandu Valley hills. This strategic approach could offer a more sustainable and immersive experience for both locals and tourists.

After the restoration of multiparty democracy in 1990, Nepal has been taking steps toward hydropower generation. The 1990s saw efforts aimed at developing the Arun III hydropower project for domestic consumption with the World Bank pledging a loan for the same.

However, certain quarters, in favor of developing small hydropower projects over ‘big ones’, stood in opposition, in a pointer that the environment was not conducive for the same. Eventually, the World Bank withdrew its financing program for the project. 

Fast forward 2023. Per reports, India is on the verge of completing the export-oriented Arun III project. Most of the green energy generated from this project will be transmitted to India while Nepal will get a tiny fraction.  

China has also shown interest in hydropower generation in Nepal, but not with much success. 

In the 2010s, construction of the Upper Trishuli hydropower project was set to begin with investment from China’s Exim Bank and in cooperation with Nepal Electricity Authority. The Chinese company, which had completed one-fourth of the project works, abandoned this project altogether after facing obstructions in the name of capacity expansion. The capital invested in developing project components has gone waste. Currently, South Korea is showing interest in developing the project under the build, own, operate and transfer (BOOT) model. If geopolitical interests do not prevail, this project can still materialize. 

In cooperation with the Asian Development Bank, Snowy Mountain Engineering Corporation was to develop a 750-MW West Seti hydropower project. As the project remained stuck for long, the government canceled the license awarded to SMEC and picked China Three Gorges Corporation for project development, but to no avail. Now, an Indian developer has bagged this project without bidding. 

In 2017, the then government granted the China Gejuwa Group Corporation the license for developing the Budhigandaki hydropower project without opting for competitive bidding. But the new government that came to power the same year canceled the license. Now, the Pushpa Kamal Dahal-led government is trying to develop this 1200-MW project by mobilizing internal and external technical and financial resources. 

Despite its failure to bag big hydropower projects, China has two hydropower projects with a combined capacity of 75 MW—Modi and Upper Marsyangdi—in its hands. The BOOT-modeled 50-MW Upper Marsyangdi has materialized, whereas the 25-MW Modi hydel is under construction. A Chinese company has already developed the 456-MW Upper Tamakoshi hydel, while India is developing the 900-MW Arun III hydel.

Recently, India has expressed its ‘commitment’ to importing 10000 MW from Nepal in a period of 10 years while making it clear that it will not import electricity from projects developed with Chinese involvement.

It should be noted that India bagged the lucrative West Seti project after China opted out. West Seti is not an isolated case. The southern neighbor has gotten hold of a number of other attractive hydropower projects like SR-6, Arun IV and Lower Arun. It seems India wants to bag all lucrative hydropower projects by imposing direct or indirect restrictions on Chinese involvement in hydropower generation in Nepal. In this context, it may be worthwhile to recall Chinese ambassador Chen Song’s observations about trade imbalance between Nepal and India.  

Chen,  while commenting on a working paper presented at a program in Kathmandu last month, had noted that Nepal had exported electricity worth Rs 10bn to India in the last fiscal, while importing electricity worth Rs 19bn from India during the same period.

Three decades have passed since the signing of the Mahakali Treaty along with a plan for the development of the Pancheshwar project, with precious little done on the ground. 

This pretty much sums up the status of hydropower development in the country.

The recent economic meltdown in Nepal began after the outbreak of Covid-19. The Russia-Ukraine war has made it worse. Amid questionable claims about the economic recovery, the government has not been doing much to address this crisis even as both imports and exports decline, taking a toll on revenue collection. 

In the name of doing something, the government is taking huge loans to cover up the expenses, causing a surge in debt from both internal and external sources. 

Worryingly, most of this debt services the unproductive sector while the masses remain deprived of daily necessities as if rampant corruption at every level of polity were not enough. 

Due to declining demands, industrial production has suffered as overall negative growth of the business and industries sector shows. While some of the businesses and industries have been operating at a loss, most of them have shut down. The meltdown in the productive sector, which employs a large number of people, means a steep rise in unemployment. 

Loss of jobs reduces people’s incomes and purchasing power goes down with it. Consumers do not even have money to buy the daily necessities, which means a decline in the demand for consumer goods. 

Banks, grappling with a liquidity crisis, are unable to provide loans to business, manufacturing, real estate and auto sectors. Construction works are getting delayed. Government revenue collection is declining and not enough even to meet the regular expenditure.

Meanwhile, the cost of manufacturing goods is going up, possibly due to a rise in the cost of labor and raw materials. When the price of a commodity increases, its demand falls. At the time of falling demands, businesses and industries cannot sell their products by lowering their prices. If they do so, they have to bear huge losses. In a similar manner, a shortage of goods in the market can push their prices up. 

When consumers cut expenses, the revenue of business and manufacturing establishments dips, negatively affecting production and productivity. Such a scenario can cause inflation, which Nepal is facing already. While banks are raising interest rates, business establishments are not taking loans. This means that recession has set in.

The consumer price index (CPI) is rising with prices hitting a new high as latest data from the Nepal Rastra Bank (NRB) show. In the fiscal year 2021/22, , CPI stood at 6.32 percent, while it climbed to 7.74 percent in FY 2022/23. 

Data from the central bank suggest that both export and import have been declining over the years. The imports stood at Rs 19bn and Rs 16bn in FY 2021/22 and 2022/23 respectively, while the export figures in both the fiscals were almost the same. These declining figures also mean that the trade deficit has gone down. In the FY 2021/22, trade deficit was Rs 17bn it came down to Rs 14bn in FY 2022/23, narrowed down by Rs 3bn. 

A deficit balance of payment in FY 2021/22 by Rs 3bn has been turned into surplus by the same amount in FY 2022/23. Evidently, the foreign exchange reserve has increased from Rs 12bn in 2021/22 to Rs 15bn in 2022/23. Export and import are the major sources of government revenues. Plummeting government revenues can affect the government’s capacity to spend, taking a toll on development activities. This means a government has to take loans even to cover daily or monthly expenses.

Nepal is not self-reliant even in food production. It has to import on a large scale to feed its citizens. India has banned the export of paddy in recent days. The government is in a rush to request India to supply rice to Nepal even as millions of hectares of farmlands remain barren both in the hills and the Tarai Madhes, mainly due to the absence of irrigation facilities and a shortfall of human resources, among other factors. With farmlands lying fallow, the share of the farm sector to GDP has been declining over the years. Improvement in the agri sector is a must also for sustainable development.

Industrial activities are melting down. Agriculture activities are also on a downward trend and so are business activities. Clearly, the Nepali economy is unwell. 

 Which sector has been playing an active role even in this grim scenario to keep the economy afloat? 

There is only one sector, which has stood as a source of livelihoods for the Nepali people and that is the foreign employment sector. A large number of Nepali youths are migrating in search of livelihood of late. They are sending increasing amounts of money to their families living in Nepal. In FY 2021/22, Nepal received Rs 10.7bn in remittances, while in the FY 2022/23, it received a whopping Rs 12.2bn, an increase of 21.2 percent. This proves that remittance is a major source of foreign exchange and livelihood for the Nepali people.

The government is supposed to create jobs for its citizens. To do so, our own government in Nepal has to specialize in the sectors with high export potential. For instance, it has the potential to export purified drinking water to the Middle East, hydropower to India and Bangladesh, and Himalayan herbs throughout the world.

But no government, either on the left or the right, has had a genuine agenda with which to make Nepal prosperous. Each government has rather made the country more and more dependent on export of human resources, emptying rural homes. The majority of these migrants are semi-skilled and unskilled and they have been migrating in great numbers to the Middle East and East Asian countries, while the relatively more skilled, educated, and talented ones are going to Australia, Europe, America, and Canada.

According to the World Bank, Nepal is getting an average yearly remittance of $1.7 billion, from $0 in 1976 to a maximum of $7.9 billion in 2018. In other words, we are a remittance dependent country.

Remittance helps sustain the Nepali economy in times of conflict and political chaos. Banks get liquidity. Government revenues increase and in turn, remittance helps to pull the economy out of debt trap (a situation of spending more than earning). In a state of conflict and political instability that has prevailed in the country since 1990, remittances are the source of economic lifeline for the poor, helping lift millions of them out of poverty. To an extent, it facilitates poor children in going to school, resulting in significant increase in child enrolment both in public and private schools. Nepal is also facing a large gap in international payments, which makes the balance of payments unfavorable. Remittance can correct this unfavorable situation.

There are dark aspects to remittance as well. First, the economy could face a real exchange rate depreciation, which of course will make the economy less competitive internationally. Second, it may undermine the incentive to work and can slow economic growth. Third, it increases household expenditure on consumer goods as consumption increases with an increase with remittance inflow.

Also read: Nepal as a bridge between India and China

The greater part of the remittance coming into Nepal has been spent on consumption. The rest is being invested in the city-centric real estate and ornaments, making the urban real estate more expensive. In comparison, there is little investment in human resource development and other productive sectors.

This tendency increases the import of consumer goods. This trend, if continued, may make the economy over-dependent on remittance.

Fourth, migrants are seeing their families break apart, and divorces are increasing with increasing physical distance between husbands and wives. This is putting a severe strain on social harmony. 

Fifth, migrants incur great risks in working abroad and they have to toil to save enough to pay back their loans, while also helping maintain the livelihood of their families.

Sixth, the departure of both skilled and unskilled human resources creates labor shortages in Nepal. Finally, the deaths of Nepali migrant workers in foreign lands is becoming a growing problem: three to four dead bodies of migrant workers arrive in mortuary boxes at Kathmandu airport every day.

The dark side of the remittance economy of Nepal thus outweighs the bright side. The country is importing more and more. Exports are nominal in the context of imports. In 2020, exports and imports as a percent of GDP were 6.8 and 33.9 respectively, showing that imports are six times exports. Thus, in this context, remittance becoming the heart of the Nepali economy—which was 1.5 percent of GDP in the 1990s to 24.4 percent of the GDP in the 2010s, an increase of 16 times over the period in consideration—is fraught with risk.

As the unproductive sector absorbs the major chunk of remittance, continuation of this trend can push the Nepali economy towards a crisis. There is also a risk of discontinuity of remittance as it depends on labor demand in the global market.

Any fall in labor demand in the global markets would not only make the economy less sustainable but also increase the risk of an economic failure. In order to save the economy from these grave consequences, the government should design plans, programs, and policies to mobilize remittance in productive sectors. Let us use this money to create jobs on our own soil. 

The author is a professor of economics at Tribhuvan University