An isolated, agrarian society until the mid-20th century, Nepal entered the modern era in 1951 without schools,

hospitals, roads, telecommunications, electric power, industry, or civil service. The country has, however, made progress toward sustainable economic growth since the 1950s and is committed to a program of economic liberalization. Nepal has used a series of five-year plans in an attempt to make progress in economic development. It completed its ninth economic development plan in 2002; its currency has been made convertible, and 17 state enterprises have been privatized. Foreign aid accounts for more than half of the development budget. Government priorities over the years have been the development of transportation and communication facilities, agriculture, and industry. Since 1975, improved government administration and rural development efforts have been emphasized. Agriculture remains Nepal's principal economic activity, employing 80% of the population and providing 37% of GDP. Only about 20% of the total area is cultivable; another 33% is forested; most of the rest is mountainous. Rice and wheat are the main food crops. The lowland Terai region produces an agricultural surplus, part of which supplies the fooddeficient hill areas. Economic development in social services and infrastructure has not made dramatic progress due to GDP dependency on India. A countrywide primary education system is under development, and Tribhuvan University has several campuses. Please see Education in Nepal for further details. Although eradication efforts continue, malaria had been controlled in the fertile but previously uninhabitable Terai region in the south. Kathmandu is linked to India and nearby hill regions by road and an expanding highway network. The capital was almost out of fuel and transport of supplies caused by a crippling general strike in southern Nepal on February 17, 2008. Major towns are connected to the capital by telephone and domestic air services. The exportoriented carpet and garment industries have grown rapidly in recent years and together now account for approximately 70% of merchandise exports. Nepal was ranked 54th worst of 81 ranked countries (those with GHI > 5.0) on the Global Hunger Index in 2011, between Cambodia and Togo. Nepal's current score of 19.9 is better than in 2010 (20.0) and much improved than its score of 27.5 in 1990 Relations between India and Nepal are close yet fraught with difficulties stemming from geographical location, economics, the problems inherent in big power-small power

relations, and common ethnic, linguistic and cultural identities that overlap the two countries' borders. New Delhi and Kathmandu initiated their intertwined relationship with the 1950 IndoNepal Treaty of Peace and Friendship and accompanying letters that defined security relations between the two countries, and an agreement governing both bilateral trade and trade transiting Indian soil. The 1950 treaty and letters stated that "neither government shall tolerate any threat to the security of the other by a foreign aggressor" and obligated both sides "to inform each other of any serious friction or misunderstanding with any neighboring state likely to cause any breach in the friendly relations subsisting between the two governments." These accords cemented a "special relationship" between India and Nepal that granted Nepal preferential economic treatment and provided Nepalese in India the same economic and educational opportunities as Indian citizens. Jayant Prasad is India's ambassador to Nepal. Nepal is developing county with an agricultural economy. In recent years, the country's efforts to expand into manufacturing industries and other technological sectors have achieved much progress. Farming is the main economic activity followed by manufacturing, trade and tourism. The chief sources of foreign currency earnings are merchandise export, services, tourism and Gurkha remittances. The annual Gross Domestic Product (GDP) is about US$ 4.3 Billion.

Agriculture : Eight out of 10 Nepalese are engaged in farming and it accounts for more than 40% of the GDP. Rolling fields and neat terraces can be seen all over the Terai flatlands and the hills of Nepal. Even in the highly urbanized Kathmandu Valley, large tracts of land outside the city areas are devoted to farming. Rice is the staple diet in Nepal and around three million tons are produced annually. Other major crops are maize, wheat, millet and barley. Besides food grains, Cash crops Like Sugarcane, oil seeds, tobacco, jute and tea are also cultivated in large quantities,

Manufacturing : Manufacturing is still at the developmental stage and it represents less than 10% of the GDP. Major industries are woolen carpets, garments, textiles, leather products, paper and cement. Other products made in Nepal are steel utensils, cigarettes, beverages and sugar. There are many modern large-scale factories but the majority are cottage or small scale operations. Most of Nepal's industries are based in the Kathmandu Valley and a string of Small towns in the southern Terai Plains.

Trade : Commerce has been a major occupation in Nepal since early times. Being situated at the crossroads of the ancient Trans-Himalayan trade route, trading is second nature to the Nepalese people. Foreign trade is characterized mainly by import of manufactured products and export of agricultural raw materials. Nepal imports manufactured goods and petroleum products worth about US$ 1 billion annually. The value of exports is about US$ 315 million. Woolen carpets are Nepal's largest export, earning the country over US$ 135 million per year. Garment exports account for more than US$ 74 million and handicraft goods bring in about US$ 1 million. Other important exports are pulses, hides and skins, jute and medicinal herbs.

Tourism : In 1998, a total of 463,684 tourists visited Nepal, making tourism one of the largest industries in the Kingdom. This sector has been expanding rapidly since its inception in the 1950. Thanks to Nepal's natural beauty, rich cultural heritage and the diversity of sightseeing and adventure opportunities available. At one time, tourism used to be the biggest foreign currency earner for the country. Nepal earned over US$ 152 million from tourism in 1998.

INDEPENDENT POLITICAL HISTORY 19501970 In the 1950s, Nepal welcomed close relations with India, but as the number of Nepalese living and working in India increased and the involvement of India in Nepal's economy deepened in the 1960s and after, so too did Nepalese discomfort with the special relationship. Tensions came to a head in the mid-1970s, when Nepal pressed for substantial amendments in its favor in the trade and transit treaty and openly criticized India's 1975 annexation of Sikkim which was considered as part of Greater Nepal. In 1975 King Birendra Bir Bikram Shah Dev proposed that Nepal be recognized internationally as a zone of peace; he received support from China and Pakistan. In New Delhi's view, if the king's proposal did not contradict the 1950 treaty an extension of nonalignment, it was unnecessary; if it was a repudiation of the special relationship, it represented a possible threat to India's security and could not be endorsed. In 1984 Nepal repeated the proposal, but there was no reaction from India. Nepal continually promoted the proposal in international forums and by 1990 it had won the support of 112 countries.

19701980 In 1978 India agreed to separate trade and transit treaties, satisfying a long-term Nepalese demand. In 1988, when the two treaties were up for renewal, Nepal's refusal to accommodate India's wishes on the transit treaty caused India to call for a single trade and transit treaty. Thereafter, Nepal took a hard-line position that led to a serious crisis in India Nepal relations. After two extensions, the two treaties expired on March 23, 1989, resulting in a virtual Indian economic blockade of Nepal that lasted until late April 1990. Although economic issues were a major factor in the two countries' confrontation, Indian dissatisfaction with Nepal's 1988 acquisition of Chinese weaponry played an important role. Treaties and letters exchanged in 1959 and 1965, which included Nepal in India's security zone and precluded arms purchases without India's approval. India linked security with economic relations and insisted on reviewing IndiaNepal relations as a whole. Nepal had to back down after worsening economic conditions led to a change in Nepal's political system, in which the king was forced to institute a parliamentary democracy. The new government sought quick restoration of amicable relations with India.

1990s The special security relationship between New Delhi and Kathmandu was reestablished during the June 1990 New Delhi meeting of Nepal's prime minister Krishna Prasad Bhattarai and Indian prime minister V.P. Singh. During the December 1991 visit to India by Nepalese prime minister Girija Prasad Koirala, the two countries signed new, separate trade and transit treaties and other economic agreements designed to accord Nepal additional economic benefits. Indian-Nepali relations appeared to be undergoing still more reassessment when Nepal's prime minister Man Mohan Adhikary visited New Delhi in April 1995 and insisted on a major review of the 1950 peace and friendship treaty. In the face of benign statements by his Indian hosts relating to the treaty, Adhikary sought greater economic independence for his landlocked nation while simultaneously striving to improve ties with China. India sponsored Nepal's admission to the U.N.O. in 1990.

21st century Nepal remains poor and deprived in 21st century while India has acquired a central place in the world with a very high development rate. In 2005, after King Gyanendra took over, Nepalese relations with India soured. However, after the restoration of democracy, in

2008, Prachanda, the Prime Minister of Nepal, visited India, in September 2008. He spoke about a new dawn, in the bilateral relations, between the two countries. He said, "I am going back to Nepal as a satisfied person. I will tell Nepali citizens back home that a new era has dawned. Time has come to effect a revolutionary change in bilateral relations. On behalf of the new government, I assure you that we are committed to make a fresh start." He met Indian Prime minister, Manmohan Singh, and Foreign Minister, Pranab Mukherjee. He asked India to help Nepal frame a new constitution, and to invest in Nepal's infrastructure, and its tourism industry.

In 2008, Indo-Nepali ties got a further boost with an agreement to resume water talks after a 4 year hiatus. The Nepalese Water Resources Secretary Shanker Prasad Koirala said the Nepal-India Joint Committee on Water Resources meet decided to start the reconstruction of breached Kosi embankment after the water level goes down. During the Nepal PM's visit to New Delhi in September the two Prime Ministers expressed satisfaction at the age-old close, cordial and extensive relationships between their states and expressed their support and cooperation to further consolidate the relationship. The two issued a 22-point statement highlighting the need to review, adjust and update the 1950 Treaty of Peace and Friendship, amongst other agreements. India would also provide a credit line of up to 150 crore rupees to Nepal to ensure uninterrupted supplies of petroleum products, as well as lift bans on the export of rice, wheat, maize, sugar and sucrose for quantities agreed to with Nepal. India would also provide 20 crore as immediate flood relief. In return, Nepal will take measures for the "promotion of investor friendly, enabling business environment to encourage Indian investments in Nepal." In 2010 India extended Line of credit worth $ 250 million & 80,000 tones of foodgrains.Furthermore, a three-tier mechanism at the level of ministerial, secretary and technical levels will be built to push forward discussions on the development of water resources between the two sides. Politically, India acknowledged a willingness to promote efforts towards peace in Nepal. Indian External affairs minister Pranab Mukherjee promised the Nepali Prime Minister Prachanda that he would "extend all possible help for peace and development."

In 2008, the Bollywood film Chandni Chowk to China was banned in Nepal, because of a scene suggesting the Gautama Buddha was born in India. Some protesters called for commercial boycott of all Indian films.

BORDER DISPUTES

So far as the Indo-Nepal border demarcation is concerned, Nepal-India Joint Technical Level Boundary Committee is working for the last 21 years (since 15 November 1981). But the boundary business is not yet completed. There may be so many reasons the boundary business not to be completed in due time, though it has the target to complete it by 2003. However, this type of target had been fixed many times in the past as in 1993, 1998 and 2001. But the target was not materialized. The main reasons and issues of the boundary business with India is the border encroachments, disputes on certain segments, divergence of opinion on basic materials such as maps and old documents for demarcation, slackness in joint survey field teams and so on and so forth. Nepal and India has two broad issues concerning border business: Border Demarcation Border Management

BORDER DEMARCATION The Treaty of Sugauli of 4 March 1816, Supplementary Treaty of 11 December 1816 and Boundary Treaty of 1 November 1860 delineate the boundary of Nepal with India. British East India Company made treaty of Sugauli on 2 December 1815 and it was provided to Nepal to make the counter signature by fifteen days. But Nepal did not make the signature in due time, because of unwillingness. It was finally ratified after 92 days under pressure and compulsion enforced by the British regime that they will invade Kathmandu, the capital city of Nepal. Eventually, it was not signed by the King or Prime Minister/Maharaja but by only the courtier Chandra Shekhar Upadhaya. So there were disputes and conflicts and controversy on the borderline even after the ratification of the Treaty. Historical Border Disputes : There were so many issues of disputes just after the Sugauli Treaty. Some of the disputed areas are cited as examples as follows: Disputes on Siwalik Range : whether the borderline runs from the crest (ridge) of the Siwalik Range or northern or southern foot-hill of the range!

Origin of the river Mechi : whether it is originated from north-east of Antoo Hill or from north-west! Dunduwa Range : India had claimed that the border line should be followed on the northern foot from Arrahnala to Talbagauda, whereas Nepal denied it. Dispute on ownership of the village and settlements of Ramnagar Zamindari area. Dispute on the lands adjoined with the districts of Tirahoot and Sarun. Land area of Sharada Barrage constructed by India on the river Mahakali. Disputes on the borderline of the river and rivulets, whether it has to be taken on the old course or the new channel. Disputes on the demarcation of borderlines in agricultural land, forest area and village areas, where there are not conspicuous features.

Some of the above mentioned disputes were settled with mutual discussions. For example, identification of the origin of the river Mechi was solved by Campbell, taken as the origination from north-east, though Captain Lloyd had judged in 1827 that the area falls under the jurisdiction of Sikkim. Similarly, the dispute of Dunduwa range was solved jointly by Lieutenant Col. Mac Andrew and Siddhiman Singh Rajbhandari on 7 January 1875 that the borderline shall be demarcated on the southern foot-hill of Dunduwa Range from where the plain area begins. Regarding the disputes of Ramnagar Zamindari area, it was settled on 2 January 1841 with an Ikararnama of 95 people of village-heads, gentlemen, Chautaria and Guru Gharana. As far as the matter of the exchange of lands of Sharada Barrage is concerned, Nepal has not yet received 36.67 Acre of land from India. These are some of the examples of the then border issues between Nepal and East India Company. The main problem lies that Nepals southern borderline on the Indo-Gangetic plain with India does not run from the prominent natural features such as mountain peaks, passes, crests etc.

NEPAL IS ONE OF THE POOREST COUNTRIES in the world and was listed as the eleventh poorest among 121 countries in 1989. Estimates of its per capita income for 1988 ranged from US$158 to US$180. Various factors contributed to the economic underdevelopment--including terrain, lack of resource endowment, landlocked position, lack of institutions for modernization, weak infrastructure, and a lack of policies conducive to development. Until 1951 Nepal had very little contact with countries other than India, Tibet, and Britain. Movement of goods or people from one part of the country to another usually required

passage through India, making Nepal dependent on trade with or via India. The mountains to the north and the lack of economic growth in Tibet (China's Xizang Autonomous Region after 1959) meant very little trade was possible with Nepal's northern neighbor. Prior to 1951, there were few all-weather roads, and the transportation of goods was difficult. Goods were able to reach Kathmandu by railroad, trucks, and ropeways, but for other parts of the country such facilities remained almost non-existent. This lack of infrastructure made it hard to expand markets and pursue economic growth. Since 1951 Nepal has tried to expand its contacts with other countries and to improve its infrastructure, although the lack of significant progress was still evident in the early 1990s. The effects of being landlocked and of having to transit goods through India continued to be reflected in the early 1990s. As a result of the lapse of the trade and transit treaties with India in March 1989, Nepal faced shortages of certain consumer goods, raw materials, and other industrial inputs, a situation that led to a decline in industrial production.

Nepal-India Joint Technical Level Boundary Committee : Nepal-India Joint Technical Level Boundary Committee is working for the last twenty-one years. It is going to relocate the missing pillars, reconstruction of the damaged and dilapidated pillars, clear ten-yard width no-mans land and preparation of strip-maps of both the sides of borderline. But it has not resolved the issues, such as KalapaniLimpiyadhura, identification of the source or river Kali, Susta dispute, Mechi controversy etc. These are the major issues and problems of demarcations of border between two nations, which should be settled in higher level (most probably in head of the government level) with diplomatic and political level talks. The issues climb slowly up to the ministerial level but it is instantly pushed back to the technical level, which has its limitations as the nature of the problem. In such a fashion, major issues have not yet given yield by the higher level decision making authorities.

BORDER MANAGEMENT There is an open border system between Nepal and India, whereas Nepal has its controlled border system with China. It needs passport and visa to go to China and recently Hong Kong, after China regained it from Britain. If we have a look back on the border management system between Nepal and India, anyone entering into Nepal particularly to the Kathmandu valley and towns of Tarai in general, had to get Rahadani or visa from the district administrations. It was prior to the restoration of Naya Muluk by Nepal in 1860, as the

controlled border system was prevalent during that period. Afterwards, it was started slowly to keep the border open for recruiting the Nepalese hill and sturdy boys in British Gurkha regiment. The second factor was to have easy and free access of British and Indian goods and material into Nepal and Tibet (via Nepal). Next was to secure raw materials from Nepal to India such as timber, forest products, herbs and medicinal plants, hides and skins etc.

Open Border System : Nepal-India Peace and Friendship Treaty of 31 July 1950 motivated for the openness of border between two countries. After the installation of democracy in Nepal in February 1951, it became major turning point in reinforcing the Nepal-India border open with the accelerated movement of Indian nationals into Nepal. Indians used to come to Kathmandu as politicians as advisors to the Nepalese ministers, overseers as technical experts, unemployed citizens as teachers, retailers as whole seller businessmen etc. Similarly, Nepalese were also free to go to Indian cities in search of jobs and works as guards, domestic workers and restaurant waiters. All these phenomena can be cited as Nepal India open border as it is unique in the world in the sense that people of both countries could cross the international borderline from any point / any time. Single citizen could cross the frontier of both the sides without any record running to and fro so many times a day.

Impact of Open Border System : Every object has its two aspects as every coin bears two faces. And every item has its negative and positive impacts. Similarly, Nepal-India open border system has its negative and positive impacts for both the nations. But Nepal has experienced a large percentage of negative impacts in many cases, as compared to India. If we make an inventory, negative impact outnumbers the positive one for Nepal. Followings are the impacts of open border system : Positive Impact: As we make a list of positive impacts, it may be the followings: Easy access: The most positive aspect of open border system is the easy movement of people of both the countries. Strengthens relationship: People to people relation on the frontiers of both sides has been maintained and strengthened due to free movement of people on either side of the border. Rescue operation: Prompt services have been offered and provided on either side during calamities and disasters.

Health service: When there is an epidemic, health services can be offered from both the sides. Instant supply of labour: When there is a shortage of local labour in one side it can be supplied instantly from other side. Competitive Market: There is always a competition between the businessmen of the crossfrontier towns to be benefited to the consumers.. Prompt Supply of food grains and daily stuff: Unrestricted border has made comfortable for the prompt supply of food grains and daily foodstuffs from either side of the territory, where there are shortages. Open border has economically benefited the inhabitants of both sides of the border from the sell and purchase of livestock products, vegetables and daily kitchen stuff in Hat Bazars (open-roof markets) taking place regularly in various days a week in different parts on either side. \\\\\\\\\\\\\\\\\\\\\ An Overview of Nepalese Economy There is nothing much to talk about when it comes to Nepalese economy. The data doesn't paint a rosy picture at all. In fact the picture looks grim. Nepal is among the poorest and least developed countries in the world. In fact Nepal doesn't stand anywhere to its otherwise developing neighbors such as India, Pakistan and Bangladesh. Thanks to the Sub-Sahara African countries, it is not considered the poorest economy now. Nevertheless, with almost 45% of its population living below the poverty line, Nepal has to do much catching before being termed a Developing Economy.

Agriculture is the mainstay of the economy, providing a livelihood for three-fourths of the population and accounting for 38% of GDP. Most of the agriculture activities take place in the Tarai region. The sub-standard equipments and pesticides along with the medieval mode of agriculture make it a tough affair. The industrial sector is in a dismal condition. Industrial activity mainly involves the processing of agricultural products including jute, sugarcane, tobacco, and grain. These things are hardly considered industrial activities by New-school economists.

Due to its long stint with monarchy and feudalism, Nepal has one of the most uneven distributions of resources and wealth in the Asia. This has led to the birth of counter initiative movements such as Maoism. Security concerns relating to the Maoist conflict and counter insurgency initiatives have led to a decrease in tourism, a key source of foreign exchange.

Nepal has considerable scope for exploiting its potential in hydropower and tourism. These are considered the up coming hot cakes in New-wave economy. Prospects for foreign trade or investment in other sectors will remain poor, however. There are lots of reasons for this such as the small size of the economy, technological backwardness, landlocked geographic location, civil strife and its susceptibility to natural disaster. Economy of Nepal GDP (PPP) GDP (OER) GDP (RGR) GDP Per capita (PPP) GDP (By sector) Unemployment rate Population below poverty line Inflation rate (consumer prices) Budget $39.14 billion $6.655 billion 2.7% $1,400 Agriculture38%, Industry21% and Services 41% 42% 45% 7.8% Revenues: $1.153 billion Expenditures: $1.789 billion

Development Issues in Nepal

Nepal is a small landlocked country about 500 miles long and 100 miles wide and it has population of around 23 million with the growth rate of 2.37 percent per annum. It is located in the Himalayan Mountains and bordered by China in the north and India in the south, east and west. With the per capita income of US$220, Nepal is one of the least developed nations in the world. Infant mortality rates are among the highest in the world and life expectancy at birth among the lowest. Half of the population lives below the absolute poverty line. Additionally, the countrys lack of infrastructure, such as transport and communication, has severely limited its economic opportunities. Historically Nepal has relied heavily on foreign aid for development. Finally,

as Nepal is a landlocked nation with a small domestic market, and limited natural resources, it must have been relied on its neighbor, India, for any international market opportunities. Despite the planned development efforts during last four and half decades, Nepal has not been able to improve economic condition as shown by its macroeconomic indicators. Looking at the macroeconomic issues, the government must consider strategies for reducing poverty and raising living standard. In addition to the equity considerations, the barriers faced by women and the poor limit their ability to provide the basic needs of their families. For this the government must try to utilize its own resources, human as well as natural, in order to raise the standard of living of the Nepalese people. There are various sectors, in which the government must draw its intention in order to bring the economy to the path of development. Agriculture is the backbone of the Nepalese economy, means of livelihood for majority of the population and the main source of gross domestic production, income and employment generation. It, therefore, rightly deserves the top most priority because the economy is still caught up in the initial stage of its development where the income generated through industrial sector as well as internal market expansion from non-agriculture sector depends upon the development of agriculture sector. The agriculture sector in Nepal contributes 41 percent of the GDP and employs an estimated 81.2 percent of labor. As the majority of the population depends totally on agriculture, it is the key to the economic development of Nepal. In order to achieve the goals of improving the lives of the people in Nepal, significant investment in irrigation, fertilizers, diversifying crops, forest management, and expanding rural infrastructure are needed. Nepal has over 6,000 rivers and streams and tributaries. Based on annual run-off of rivers the theoretical potential hydropower of Nepal is estimated to be about 83,000MW, which is one of the largest potential in the world. Sites, which are technically feasible for development, could yield an estimated 44,000MW of installed capacity and about 95% of this could, based on the experience of the past evaluations, be expected to be economically viable. However, Nepal has so far been able to utilize only a small fraction of this potential resource. Till now only 261.918 MW (0.3% of the total potential) have been installed. At present electric power supply is available to only 15 percent of the population. A large amount of power produced in Nepal can be easily exported to neighboring countries. In addition to power generation, some of the identified projects can bring enormous benefits in terms of irrigation, flood control and inland navigation, beyond the Nepalese territory Nepal has been a tourists paradise for many years. As a country of amazing attractions, both natural and man-made, it offers a memorable experience for every visitor. Nepal is the home to the world's highest mountains, including

Mt. Everest (8848m). Enchantment is everywhere, be it on the shoulders of high snow-fed mountains, or terraced farmlands scrupulously carved like stairways on the hillsides, or cascading mountain rivulets and rushing rivers, or in forests full of wildlife, flowers and bird song. The total foreign exchange earnings from this sector in the fiscal year 1998/99 was equivalent to Rs. 12,167.8million, which was 15.9 percent of the total foreign exchange earnings. Nepal, a beautiful Himalayan kingdom, can create tourist magnetic atmosphere if the government as well as private sector take initiative in constructing more tourism infrastructure development. In addition to the Water Resources, Nepal has a huge potential of Human Resources, which, if utilized effectively, can be the major factor for the development of Nepal. The national human development index (HDI) for Nepal, computed as an un-weighted average of values achieved in level of living, knowledge and health, is 0.378. The absolute value of Nepals HDI is only 45 percent of the global HDI. Within the South Asian region, all countries, with the exception of Bhutan and Bangladesh, enjoy a higher HDI than Nepal. Average life expectancy, within the last two decades, has increased by 13.5 years. However, average life expectancy is only 55 years (1994 figure). Infant mortality, while decreasing by approximately eight percent annually within the last two decades, nonetheless, claims one out of every 10 births. Infants in the rural areas are exposed to 1.6 times the risk of death compared to those in the urban areas. Incidence of maternal mortality is one of the highest in the world. Literacy rate has been increasing very slowly in Nepal. The current national literacy ratio is 40 percent. Only about 72 percent of the 2.7 million 6-10-year-old children are enrolled in school (1995 figure). Gross enrollment in primary schools, however, nearly doubled from 1.75 million in 1884 to 3.26 million in 1995. The number of primary school teachers nearly doubled between 1984 and 1995.Rates of repetition and dropout are very high even at the primary level. Only 10 percent of all the children enrolled in grade one complete primary school (i.e., grade five) without repeating any grade. The economy is overwhelmingly rural and agriculture-based The rate of growth of the working-age population is high at 3 percent/year. Work participation starts at an early age. More than four-fifths of the workers/laborers are engaged in the low productivity agricultural sector. The service sector accounts for one-sixth of the work force. Only a small proportion of the workers are engaged in industry, of which two-thirds are in manufacturing. Unemployment rate is high at 14 percent (1997 figure). The scale of underemployment is higher still: approximately one-half of the total labor force works for less than 40 hours a week. Seasonal and long-term movement of labor is large in scale and has grown further

within the last decade. While the landless, the highly indebted and members of the "low-caste groups" appear to migrate in larger proportions, even the relatively well-off individuals and households join the ranks of the labor migrants. The scale of international (principally IndiaNepal) labor movement also appears to have increased within the last decade. The inflow of laborers from India, who are engaged in various sectors, e.g., agriculture, industry, construction and informal sector trades, is also adversely and significantly affecting the employment opportunity of Nepalese laborers. The regime of child labor is relatively large in scale, despite a significant drop during 1981-1991. (Human Development Report, 1998) During the Rana period before 1950, Nepal was not interested in foreign aid, as it was viewed as an intrusion. However, since the 1950s, Nepal has opened up to foreigners and recognized the possible benefits of modern technology. The government began to accept foreign aid, and since then Nepal has continued to become increasingly more and more dependent on it. Foreign aid inflow into the country has steadily increased and aid in the form of loans is much larger than grants. In the fiscal year 1998/99, 73.2% of the total aid was in the form of loans. Foreign debt is rapidly accumulating and in the fiscal year 1998/99, Nepals outstanding external debt reached 49.4% of the GDP. It has been argued by many economists that while Nepal has been receiving foreign aid for more than 40 years, they have not succeeded in alleviating poverty as is indicated by their economic indicators. Indeed, the central constraint on Nepals development over the last few decades has not been the scarcity of financial resources, but the lack of effective governance and well functioning institutions, which can adequately perform the vital state functions that are essential for a sound economic and social development process. There are many manifestations of the governance problem in Nepal, including weak institutions and procedures, lack of ownership of development projects and programs, lack of accountability and mismanagement of resources, failure to provide effective delivery of public services, including law and order, and the absence of a well-functioning judicial system, all of which are reflected in increased corruption. Nepals social, financial, and political conditions prevent it from improving its macroeconomic condition, yet it is apparent that something must be done to take the economy to the path of development. If policies were implemented to restrict immediate focus on water resources and human resources development together with good governance, Nepal would benefit by improving its economic and social conditions. Such focus would give time for its newly democratic government to stabilize, to work on improving relations with India, and to begin to rely less on foreign aid. Hence, for the development of Nepal, the

policy of the government of Nepal should be towards improving the agriculture and power generation sector as well as basic infrastructure including transport and communication. The government should make policy for the control of growing corruption. The government policy should be directed towards improving the capability of human resources. The policy should be made to attract foreign direct investment for the utilization of available huge amount of water resources, which have impact on different sectors (agriculture, power generation, etc.,). For this, the attraction should be towards small dam projects, the cost of which is relatively less than that of large dam projects. Efforts should be made to improve the basic infrastructures that help the tourism sector, which is the major sector for the foreign exchange earnings of the country. Thus, with the help of good governance, if the foreign assistance can be utilized effectively in these three sectors (Human Resources, Water Resources, and Tourism), there is a possibility to bring the Nepalese economy to the path of development. \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\

Foreign Trade of Nepal

Country 1998 2002 2003 2004 2005 2006 2007 2008 2009 2011 Nepal 0.49 0.76 0.72 0.57 0.57 0.82 0.82 0.91 0.85 0.9

Definition of Exports: This entry provides the total US dollar amount of merchandise exports on an f.o.b. (free on board) basis. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.

Country 1998 2002 2003 2004 2005 2006 2007 2008 2009 2011 Nepal 1.2 1.6 1.6 1.42 1.42 2 2 3.23 5.26 5.4

Definition of Imports: This entry provides the total US dollar amount of merchandise imports on a c.i.f. (cost, insurance, and freight) or f.o.b. (free on board) basis. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms

Traditionally, Nepal's foreign trade was limited toTibet and India. After 1956, Nepalese trading agencies in Tibet were confined to Xigaze, Gyirong, and Nyalam, with Lhasa, Xigaze, Gyangze, and Yadong specified as markets for trade. In 1980, however, Nepal and China agreed to open 21 new trade routes across the Tibetan frontier. Treaty arrangements with China strictly regulate the passage of both traders and pilgrimsin either direction across the border. Up until 1989, treaty agreements between India and Nepal allowed for unrestricted commerce across 21 customs posts along the border, and duty-free transit of Nepalese goods intended for third-party countries through India. In 1989, a breakdown in the treaty renewal negotiations resulted in retaliatory actions on both sides. India's share of Nepali exports plummeted from 38% in 1986/87 to 9% in 1989/90. India's share of the country's imports declined by about 25% to 50%. Despite the severe shock sustained by the Nepali economy, the signing of a new interim agreement in 1990 prevented a prolonged crisis, helping to fuel a robust recovery in export growth as exports increased by 28% in 1990/91 over 1989/90, and again by 35% in 1991/92. Under the renewal of the bilateral trade treaty with India in 1997, Nepali goods entered India essentially duty free and quota free. As a result, exports to India grew for four years, from 1997 to 2001, at an average rate of 42% a year. The most recent India-Nepal Treaty of Trade, signed in March 2002, continues to allow Nepali manufactures to enter the Indian market on a nonreciprocal, preferential, or duty-free basis, with rules of origin less restrictive than the international norm (Nepal's manufactures can have up to 70% foreign content instead of the international norm of less than 50%). However, it places quotas on four sensitive imports: vegetable fats, acrylic yarn, copper products, and ferro oxide, all at volumes lower than recent Nepali exports to India. The imposition of some non-tariff barriers (NTBs) by India is just one factor in the estimated recent decline in the growth rate of Nepal's exports. Other factors are the damage to production caused by the intensification of the country's Maoist insurgency in 2001, the global economic slowdown, and a rapid decline in demand from Nepal's main third-country destinations, the United States and Germany, in the post-9/11 atmosphere. The end of the 1990s saw robust growth in Nepal's exports, which increased nearly 12% in 1997/98, nearly 18% in 1998/99 and 37.4% in 1999/2000. The export growth rate fell, however, to 4.6% in 2000/01, according to the IMF. In 2001/02, exports are estimated to have actually declined by 15%. The CIA reports that for 2000/01, recorded exports from Nepal were an estimated $757 million (f.o.b.) and that imports for this period were $1,600 million, indicating an apparently

unsustainable merchandise trade deficit of $843 million, or 111.5% of exports. However, the figure for exports does not include unrecorded border trade with India, including substantial gold smuggling. The major export destinations in 2000/01 were India (48%), the United States (26%), and Germany (11%). Over the past decade, exports to India, while continuing to account for about half of Nepal's exports, have soared in value and become increasingly diversified as Nepal's manufactures have carved out niches in the Indian market. Exports to the United States consist mainly of apparel, including pashmina (the Indian name for cashmere) products, whereas exports to Germany are dominated by woolen carpets. In the wake of 9/11, exports to the United States declined 15% in 2001, after an increase if 30% in 2000. For 2001/02, the IMF estimates that exports to countries other than India declined more than 40% due to the combination of external slowdown and internal supply disruptions. The major import sources in 2000/01 were India (39%), Singapore (10%), and China/Hong Kong (9%). Leading imports were gold, machinery and equipment, petroleum products, and fertilizer. After increasing about 23% between 1998/99 and 1999/2000, the import growth rate slowed to 3.6% in 2000/01. The IMF estimates that imports declined 9% in 2001/01. Nepal is a landlocked nation, surrounded by India on 3 sides and by Tibet (now a province of China) in the north. Historically, international trade before the 1950s was with these countries. Exports have consisted of primary agricultural produce, while everything not produced locally has been imported. Throughout the years of development, these imports have included industrial inputs, fertilizers, and petroleum. Since the 1970s, the balance of trade has been increasingly negative. During the same period, however, exports of garments and carpets have grown, reaching sales close to US$300 million, and trade with other countries has increased to the detriment of the trade with India. Until the 1950s, 90 percent of Nepal's trade was with its giant neighbor, India. The essentially open border facilitates trade, but also makes unquantifiable smuggling hard to control. Exports to India are generally supplied by agricultural surplus from the fertile Tarai region mostly rice, but also tobacco, jute, and vegetable oils. Raw materials such as hides, skins, herbs, textile fibers, metal ores, and some manufactured goods, such as bamboo products, wooden furniture, and textiles, are also exported. Imports consist of daily necessities such as salt, sugar, tea, medicines, petroleum products, and items such as chemicals, machines, cement, coal, and spare parts that are needed for development work. The trading relationship with India was first codified in 1950 with the Treaty of Trade and Transit, which lowered

tariffs and taxduties on goods passing between Nepal and India. In successive modifications and renewals of the treaty (notably in 1960), transit facilities for trade between Nepal and other countries were established in India at the port of Calcutta. The decline in India's percentage of trade with Nepal to just above 30 percent in 1998 demonstrates the success of these arrangements. In March 1989, delayed negotiations led to the expiration of the treaty, and all but 2 trading points were closed for a year. This crippled the Nepalese economy, as internal trade (much of which had to pass through Indian territory) and external trade with India was subjected to virtual closure. Shortages of basic goods such as salt and petroleum caused considerable strife, leading to both anti-India and anti-government demonstrations in Nepal, and were partly responsible for the downfall of the Panchayat system. An interim government successfully reinstated the treaty in June 1990. Trade with Tibet, mostly the bartering of agricultural produce, went into decline at the turn of the 20th century when the British in India opened alternative routes. The limited Tibetan market and its inaccessibility further hindered the development of this barter trade. Negotiations on maritime access via Bangladesh, traversing 26 kilometers (16 miles) of Indian territory, have been difficult. Nepal has been more successful in expanding its exports with countries such as the United States, Britain, Germany, and Japan, the value of which rose from 14.4 million rupees in 1965 to over 16 billion rupees in 1996. Nepal's trade balance is skewed towards imports, partly because the demand for industrial inputs and consumer goodshas grown while local production has not. In 1998, Nepal imported US$1.2 billion in goods while exporting just US$474 million. India, Hong Kong, and Singapore are the country's major import partners. Governments have attempted to increase export earnings by diversifying products, and also to reduce import costs by substituting imports with local production. Policies such as the Exporter's Exchange Entitlement Scheme and both a Dual Exchange Rate and a Single Exchange Rate were formulated to facilitate these objectives. To its credit, Nepal has obtained favorable agreements with its trade partners to offset its landlocked status. But the treaty crisis with India and the failure to agree on Bangladeshi access highlight the country's limited bargaining power. Still very much a developing nation, Nepal is unable to influence the global market to which it exports primary goods at prices that are generally both low and unpredictable; the geographical diversification of its trade needs to include a shift towards a wider array of manufactured products. \\\\\\\\\\\\\\\\\\\\\\

Foreign relations of Nepal

The Federal Democratic Republic of Nepal has traditionally maintained a non-aligned policy and enjoys friendly relations with neighboring countries. As a small, landlocked country wedged between two larger and far stronger powers, Nepal maintains good relations with both the People's Republic of China and India. Constitutionally, foreign policy is to be guided by the principles of the United Nations Charter, nonalignment, Panchsheel [five principles of peaceful coexistence], international law and the value of world peace. In practice, foreign policy has not been directed toward projecting influence internationally but toward preserving autonomy and addressing domestic economic and security issues. Nepals most substantive international relations are perhaps with international economic institutions, such as the Asian Development Bank, the International Monetary Fund, the World Bank, and the South Asian Association for Regional Cooperation, a multilateral economic development association. Nepal also has strong bilateral relations with major providers of economic and military aid, such as France, Germany, Japan, Switzerland, the United States, and particularly the United Kingdom, with whom military ties date to the nineteenth century. The country's external relations are primarily managed by its Ministry. Multilateral relations of Nepal Nepal has played an active role in the formation of the economic development-oriented South Asian Association for Regional Cooperation (SAARC) and is the site of its secretariat. On international issues, Nepal follows a nonaligned policy and often votes with the Non-Aligned Movement in the United Nations. Nepal participates in a number of UN specialized agencies and is a member of theWorld Bank, International Monetary Fund, Colombo Plan, and the Asian Development Bank. Human rights issues Police forces sometimes use excessive force in quelling violent demonstrations, or demonstrations that may upset 'friendly countries'. In addition, there have been reports of torture under detention and widespread reports of custodial abuse. In 2000, the government established the Human Rights Commission, a government-appointed commission with a mandate to investigate human rights violations. To date, the Commission has investigated 51 complaints. Some restrictions continue on freedom of expression. Trafficking in women and child labor remain serious problems. Discrimination against women and lower castes is prevalent.

International disputes A joint border commission continues to work on small disputed sections of the border with India; India has instituted a stricter border regime to restrict transit of Maoist insurgents. Illicit drugs Illicit production of cannabis for domestic and international drug markets continues to ask as an international problem, as do rumors that the country operates as a transit point for opiates from Southeast Asia to the West Bilateral Relations Argentina Nepal and Argentina established diplomatic relations on January 1, 1962. The relations between Nepal and Argentina are based on goodwill, friendship and mutual understanding. The Argentinean Government has shown interest to extend technical cooperation on leather processing industries in Nepal under the South-South Cooperation. However, the Argentinean proposal has not been materialized yet. Nepal's trade balance with Argentina is in favour of Argentina. There is no significant figure of export from Nepal. Major commodities imported by Nepal from Argentina are Crude soybean oil, soybean oil, vegetable waxes, sun flower oil and maize. Bhutan Relations with Bhutan have been strained since 1992 over the nationality and possible repatriation of refugees from Bhutan. Denmark European Union The role of the European Union is to present, explain and implement EU policies, analyze and report on the political, social, and economic situation in Nepal, and to conducts negotiations in accordance with a given mandate. Germany Nepal-Germany Relations Political Relations Diplomatic relations between Federal Democratic Republic of Nepal and the Federal Republic of Germany were established on 4 April 1958. Since then relations between the two countries have been growing on the basis of friendship and mutual cooperation. The German Government has positively supported the ongoing peace process of Nepal including the formation of government following the historic elections of the Constituent Assembly in April 2008. Both countries celebrated the 50th anniversary of the establishment of formal

diplomatic relations with various programmes in 2008. The Government of Nepal has appointed Honorary Consuls General in Munich and Stuttgart cities and Honorary Consuls in Frankfurt am Main, Cologne and Hamburg cities. Exchange of visits between two countries has taken place at different levels including highest levels. The visits have contributed to further strengthening close and cordial bilateral relations. Visits from the Nepalese side The most recent one is the visit of the then Prime Minister Honble Mr. Pushpa Kamal Dahal Prachanda and the then Minister for Foreign Affairs Honble Mr. Upendra Yadav. The Prime Minister made a stopover in Frankfurt on 21 and 22 September 2008 on his way to attend the United Nations General Assembly in New York. During his sojourn, he addressed a conference of the Nepali Ambassadors and Head of Missions based in Europe and gave pertinent directives to them to promote an economic diplomacy through utilization of external private investments in Nepals mega projects, infrastructure schemes and hydro-electric project, and familiarize the host governments with the Governments objective of taking the peace process to its logical conclusion through institutionalization of Federal Democratic Republic and drafting of a new Constitution. The Prime Minister also visited the Karl Max Museum in Trier on 21 September 2008. Likewise, the then Minister for Foreign Affairs Honble Mr. Upendra Yadav visited Germany from March 9 to 13, 2009 leading a delegation. During his visit, he made an inaugural address of the Nepal Presentation programme amid the gathering of German and Nepalese businessmen and industrialists on March 10, 2009, which was organised as a part of celebrations to mark the Golden Jubilee of the establishment of formal diplomatic relations between Nepal and Germany. The Foreign Minister also held bilateral meeting with German Acting Federal Foreign Minister, H. E. Mr. Guenter Gloser on March 11, 2009. During the bilateral meeting entire gamut of bilateral relations including regional and international issues were discussed. Foreign Minister Yadav also had a meeting with Vice-President of the German Lower House of Parliament (Bundestag) Dr. Wolfgang Thierse on March 13, 2009. During the stay in Berlin, he also visited the Konrad Adenauer Foundation and Friedrich Ebert Foundation and met their Chairman Prof. Dr. Bernhard Vogel, and Chairwoman Dr. Anke Fuchs respectively. Visits from the German Side - President Heinrich Luebke paid an official visit to Nepal in July 1967. - Chancellor Helmut Kohl paid an official visit to Nepal in 1987 - President Prof. Dr. Roman Herzog paid a state visit to Nepal from 25 to 30 November 1996. Besides these, there have been frequent visits of parliamentary delegations of the German Bundestag in the recent years. German policy towards Nepal

Establishment of peace and stability, multi-party democracy, promotion of human rights, alleviation of poverty, and consolidation of good governance, and sound socio-economic structures are some of the major thrust areas of German policy towards Nepal. Economic Cooperation With the start of bilateral cooperation in 1961 in the form of technical assistance for the establishment of the Technical Training Institute at Thapathali, the present level of bilateral cooperation covers the core sectors of socio-economic development of Nepal with the volume of bilateral aid committed by Germany to Nepal totalling approximately Euro 800 million. There is a bilateral consultation mechanism between the Finance Ministry of Nepal and the Federal Ministry of Development Cooperation (BMZ) of Germany which is held normally every two years at the secretary level. The bilateral consultation meeting decides the areas of cooperation of the German Government to Nepal, which were held in Kathmandu in 2004, 2006 and on December 1516, 2008. Germany is one of the major donors for Nepal's development efforts. Germany is also a member of Nepal Development Forum. The German Development Bank (KfW) has taken a keen interest in Nepals development. Besides, a number of German non-governmental organisations as well as institutions like German Technical Services (GTZ), German Academic Exchange Programme (DAAD) and German Volunteers Service (DED) are very active in promoting our socio-economic development. The German Governments present priority areas of development cooperation to Nepal as agreed between the two Governments are - renewable energy and energy efficiency, health and family planning, and promotion of local self-governance and civil society. Besides, ongoing peace process is another area of German assistance to Nepal. Among the projects under the German cooperation, the Middle-Marsyangdi Hydro Electric Project is a major one. The project was funded by German Development Bank (KfW), Government of Nepal and Nepal Electricity Authority and has the installed capacity of 70 MW. The project has already been inaugurated by Rt. Honble Prime Minister Pushpa Kamal Dahal Prachanda on 14 December 2008. A high-level German delegation from the Federal Ministry of Development Cooperation (BMZ) was in Nepal to take part in the inauguration programme. Bilateral Trade Although Germany maintains the biggest export market for Nepali products, export of Nepalese products to Germany has been declining since 1999. Lately, the decline in the export of woollen carpets has been the main reason for decrease in overall export to Germany. Besides carpet, exports to Germany from Nepal include handicraft, silver jewellery, woollen and pashmina goods, Nepalese paper and paper products, tea, medicinal

herbs and essential oils, readymade garments, spices, honey etc. Some joint venture companies have started export of micro- transformers and high-value garments and knitwear to the German market. Nepal imports mainly industrial raw materials, chemicals, machinery equipment and parts, electric and electronic goods, vehicles etc. from Germany. Following table shows the balance of trade situation of Nepal with Germany in recent years. Tourist Arrival from Germany Apart from trade, Germany is also important for the promotion of Nepal's tourism industry. The tourist inflow in Nepal by air from Germany in the years 2006, 2007 and 2008 were 12,098, 16,920 and 16,228 respectively. But in recent months, the German tourists visiting Nepal is increasing. Joint Venture from Germany German investments in Nepal are basically focused in the areas of hotel service, Ayurvedic and herbal medicines, solar energy, computer software development, tea farming and processing, and hydropower generation. As of mid April 2006, 19 joint ventures are operating, 2 joint ventures are under construction, 2 joint ventures are licensed, and 20 joint ventures are approved under the German investment in Nepal. Nepalese Nationals in Germany The official figure of the German Government shows that there are 2,552 Nepalese in Germany until December 2008. Among them, 1596 are males and 956 females. Besides, number of Nepali students coming to Germany is increasing in the recent years. Miscellaneous A cultural agreement was signed between Nepal and Germany in 1992 as a framework for implementing numerous projects largely aimed at preserving the cultural heritage of Nepal. A cooperation agreement between Deutsche Welle and Radio Nepal has been in effect since 1975. Nepal is also a priority country of the German Research Foundation (DFG). The German Academic Exchange Service (DAAD) grants regular scholarships to Nepal. As of December 2009. Both countries established diplomatic relations in 1985. The Holy See has a enunciator in the country. Nepal Embassy, Berlin is accredited as non-residential embassy for Holy Nepal: Pope leads world shock India Because of strong cultural, religious, linguistic, and economic ties, Nepal's association with India traditionally has been close. India and Nepal restored trade relations in 1990, after a break caused by India's security concerns over Nepal's relations with the PRC. A bilateral trade treaty was signed in 1996. Citizens of the two countries can travel to the other without visa requirements. Nepalese citizens are permitted to stay and work in India freely. Nepal's economy has also been enormously benefited from the surge in India's economy. Israel Israel-Nepal relations are based on mutual security concerns.

Bishweshwar Prasad Koirala, Prime Minister of Nepal from 1959 to 1960, had a strongly proIsrael foreign policy. King Mahendra visited Israel in 1963 and maintained Koirala's special relationship. Japan Diplomatic relations were established in September 1956. Japan has an embassy in Kathmandu. Nepal has an embassy in Tokyo. The cultural ties between Nepal and Japan date back to much earlier days before direct people to people contact started in 1899. Japan is one of the largest aid donors to Nepal. Norway Diplomatic relations were established on 26 January 1973. Norway established an embassy in Kathmandu in 2000. Norway's aid to Nepal was around 2 million NOK in 2008. Norwegian aid prioritizes education, good governance and energy In 2008, Norwegian Prime Minister Jens Stoltenberg and Minister of the Environment and International Development Erik Solheim visited Nepal In 2009, Prime Minister Prachanda visited Norway. In May 2008, a small bomb exploded outside the Norwegian embassy in Kathmandu. No one was injured. Pakistan The bilateral relations between the Federal Democratic Republic of Nepal and the Islamic Republic of Pakistan were fully established between 1962 and 1963.[16] Both nations have since sought to expand trade, strategic and military cooperation. People's Republic of China Nepal formally established relations with the PRC in 1955, and since then their bilateral relations have generally been very good. As much as 20 thousand Tibetan refugees live in Nepal and this has been a major issue of concern between China and Nepal. Kathmandu has in several instances been brutally cracking down on the activities of the Tibetans receiving international condemnation. In 2005, Nepalese Foreign Minister Ramesh Nath Pandey called China "an all weather friend" and King Gyanendra's regime was also instrumental in inducting China into the SAARC. Russia Nepal and the Soviet Union had established diplomatic relations in 1956. After the collapse of the Soviet Union, Nepal had exteneded full diplomatic recognition to the Russian Federation as its legal successor. Since then numerous bilateral meetings have taken place between both sides. Since 1992 numerous Nepalese students have gone to Russia for higher studies on a financial basis. In October 2005 the Foreign ministers of both countries met to

discuss cooperation on a variety of issues including political, economic, military, educational, and cultural. Both countries maintain embassies in each other's capitals. Russia has an embassy in Katmandu while Nepal has an embassy in Moscow. United Kingdom Relations between the UK and Nepal have historically been friendly and there have been close links between the Royal Families, although relations deteriorated when the King took power in 2005. A treaty of friendship was signed in 1923. The UK is highly regarded in Nepal. This is through historical ties, development assistance and long term support in the struggle for democratic peace in Nepal. Also of note is that through the recruitment of Gurkha soldiers by the British Army since the 19th century, Nepal has had links with the United Kingdom. United States The United States opened its Kathmandu Embassy in 1959. Relations between the two countries have always been strong. U.S. policy objectives toward Nepal center on helping Nepal build a peaceful, prosperous, and democratic society.

\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ Nepal Stock Exchange Securities are the powerful components of raising funds to meet the financial requirement of the company. Most of the companies need huge amount of money to meet their financial requirement. Therefore, securities like equity shares, preference shares, and debentures are crucial for meeting the companys monetary requirements. In Nepal the history of security markets started by issuing the shares to the public in the year 1937 by two companies Biratnagar Jute Mills and Nepal Bank Limited. These two companies were considered as the pioneer of issuing the security to the public. Since then almost for four decades, there were no formal institutions that came into existence to look after the security issues. Later in the year 1993 Security Board of Nepal (SEBON) was established as an apex institution of regulating securities and to promote the market and protect the rights of the investors. One of the important security market indicators of measuring the performance is market capitalization. However, market capitalization ratio for Nepal is very low as compared with other countries. Looking at the performance of stock market, Nepalese stock Market is still in infancy and could not play a significant role in terms of putting impact on the economic activities in the country. In many developed countries most of the investors relay upon the collective investment schemes for investing their saving in secondary market.

There are two mutual funds operating in Nepal. Both of them came with the objective of collecting the capital from the small and the medium savers. The tenth plan came with the objectives of expanding security market as an important source of long term funds for the operation and development of companies had completed its period without bringing enough institutional investors into the markets. The plan failed to encourage the individuals investors to invest their small savings in corporate debt and equity. The Nepalese security market is small but growing. During the last 13 years of its operation, the securities market has observed many ups and downs. The market capitalization of the listed stocks climbed from NRs. 13,872.00 million, to NRs. 96813.74 millions during the study period. In spite of expansion in size, the securities market is yet to create quality transformation gaining depth and maturity. The market lacks sectoral diversification, access to secondary trading services is limited, transparency and efficiency of the issuer and market is not sufficient, while the capacity of the regulator, exchangers and the players is limited. The market is dominated by active individual investors whereas the institutional investors are virtually absent. The market infrastructure supporting the trading, clearing and settlement are not adequate. Thus the effort to build a dynamic market is an ardent task requiring a lot of commitments and efforts of the government, the regulator, market- players, and the investors. The Nepalese capital market is focusing on reforming the laws, regulations and policies, building institutional capacity, above all visualizing a dynamic capital market in order to tap the inherent potential and managing the cross border issue and trading of securities. The government is responsible to frame securities laws and also has its role in formulating capital market development plan and addressing economic, fiscal and public borrowing policies bearing close linkages to the capital market growth. The banking regulation is closely linked to the capital market regulation. The Nepal Rastra Bank (NRB), the banking regulator, can played pivotal role in promoting the growth of capital market, at least, for early stage of market development. The stock exchange is a place for providing efficient trading platform for the listed companies through its members. The present legal framework has defined the responsibility of the exchange in admitting securities for trading, providing membership to the brokers and the dealers and providing trading, clearing and settlement of securities. In order to enhance the supply of securities, a new securities registration system are indeed essential. Such a regulation sets the disclosure standards for going public through Initial Public Offerings (IPO) or secondary offerings through the stock exchange which encourages closely held companies to come to the capital market. Nevertheless, the market is inward looking as it is not sensitive to international market behavior, such as the curent housing

market crisis in the U.S. \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ CENTRAL BANKING Introduction The central bank, the Nepal Rastra Bank (NRB), has been in operation since the early 1956 (established on 26th April 1956). It manages the money supply and the monetary policy of Nepal, subject to the financing requirements of the government, and is responsible to maintain price stability, and to promote sustainable economic growth. It is also entrusted with the responsibility of managing the foreign exchanges. However, it has a fixed exchange rate system with India rupee, which is aligned with the US$ but operates with the market mechanism for other currencies. It pursues banking policies and regulates credit creation through the conventional monetary instruments-the reserve ratio, benchmark interest rate, and open market operations through sells or purchases of securities, i.e. government bills and bonds. In addition, the NRB provides banking services to the government and commercial banks (inclusive of interbank transactions), undertakes supervision of the financial system, and renders, last but not least, advisory services to the government on monetary and financial policies. Monetary Policy The fundamental tenets of the NRB are to maintain price stability, and promote sustainable external and financial systems, and thereby to create enabling environment for high and sustainable economic growth. It has been pursuing its policies on these tenets through the adoption of monetary policy instruments, such as the cash reserve ratio (CRR), the refinance rates, and open-market operations for governments bonds treasury bills, development bonds and national savings certificates. Also, it supervises, regulates and monitors all the financial institutions plus recognized /licensed NGOs and financial cooperatives. Thus, the NRB provides norms for capital adequacy, liquidity, loan classification and provision, and reporting as well as auditing requirements under its supervisory and regulatory functions. Cash Reserve Ratio (CRR) The cash reserve ratio (CRR) is an instrument of the NRB to control money supply. Cash reserves are held as required with the NRB and on a commercial bank's vault, and earn no interest. The cash reserve with the NRB is an interest-free loan from a bank to the NRB. Open Market Operations The NRB utilizes this tool for short-term liquidity management as it is a flexible short-term monetary instrument. The auctioning of Treasury bills (T-bills) was first introduced in 1988.

The auctioning of T-bills, and a fixed price offer of development bonds and national savings certificates were initiated since September 1989. The available information of recent two years indicates a sizable net liquidity absorption by the NRB as commercial banks are flooded with excess liquidity because of limited financing opportunities.
Country Nepal 2007 2008 2009 2010

58,000,000 241,000,000 537,000,000 -437,800,000

Definition of Current Account Balance: This entry records a country's net trade in goods and services, plus net earnings from rents, interest, profits, and dividends, and net transfer payments (such as pension funds and worker remittances) to and from the rest of the world during the period specified. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms

NONBANK FINANCIAL INSTITUTIONS IN NEPAL Introduction Financial development contributes to the economic development of the country. It also plays a fundamental role in promoting industrialization by mobilizing finances of severs. Financial development is also contributes to reducing poverty, by access to finances so that the poorer segment of the society will also benefit. The development of the formal financial institutions with a good system not only benefits the rich but also the poor. Besides, a sound public finance system, a stabilized currency is the means to the development of the private financial institutions within the country. In Nepal, the financial sector represents both banking sector and nonbanking sector. The banking sector consists of the Nepal Rastra Bank (NRB) the Central Bank, and all the commercial banks operating within the country and is classified under A category of financial institutions. The nonbanking sector consists of development banks, finance companies, micro-credit development banks, saving and credit cooperatives; and nongovernmental organizations (NGOs) performing limited banking activities. Besides, other financial institutions such as insurance companies, employees provident fund, citizen investment trust, and other financial institutions not licensed by the NRB such as postal savings bank, microfinance institutions, cooperative societies, community based organizations (CBOs) and the Nepal Stock Exchange are also included under the category of the nonbank financial institutions in Nepal. This chapter deals with the Nonbanking Financial Institutions (NBFIs). The NBFIs are an important subsector for the efficient functioning of

the economy. They broaden the spectrum of risks to investors, encourage investment and saving. The NBFIs efficiently complement banks by providing services that are not provided by the former banking sector. They provide competition for banks in the provision of financial services. Highly developed and properly managed NBFIs can provide a basis for financing needed for the economic growth and prosperity. The World Bank has classified the nonbank financial institutions as Investment Institutions, Merchant Banks, Contractual Savings Institutions (life insurance companies, mutual funds and pension funds), Securities Market, Specialized Financial Institutions (Leasing Financiers and Real Estate Financiers) and Financial Cooperatives. However, the Nepal Rastra Bank (NRB) has classified it as Development Banks, Financial Companies, Microfinance Institutions, NRB licensed cooperatives and the NGOs. The cooperatives are undertaking banking transactions as well, whereas the NGOs are undertaking microfinance activities only. Similarly, the Economic Survey published by the Ministry of Finance of the Government of Nepal also classified the nonbank financial institutions as the Employees Provident Fund, the Citizens Investment Trust, insurance Companies and security markets. \\\\\\\\\\\\\\\\

Country 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Nepal 3.4 3.7 2.6 -0.6 3 3 2.7 1.9 3.2 4.7 4.7 4.6 3.5

Definition of GDP - real growth rate: This entry gives GDP growth on an annual basis adjusted for inflation and expressed as a percent.

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