Q. What do you mean by Economic Growth and Economic Development? What are the main challenges of economic development of Nepal? Give your answer with suitable example.
answer:
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy over a certain period of time.
Economic development is the process of creating wealth that benefits the community as a whole. This is more than a jobs program, it's an investment that increases the prosperity and quality of life for all residents of your community. It is all about fostering and maintaining a healthy economy that can be considered economic development.
Challenges of Economic Development in Nepal
The economy of Nepal is still underdeveloped with low growth and a low per capita income of only $1034 per year. A rapid economic development of the country faces mounting challenges despite progress made in poverty reduction and socioeconomic transformation during the past two decades. The major challenges for the economic development of the country can be listed as below:
1. Poverty and Inequality
In Nepal, 18.6 percent of the people are still living in extreme poverty. In rural and urban areas as well as among different castes and ecological zones, poverty is highly disparate. One third of the population remains poor when we consider health, education, and other aspects of poverty. Furthermore, the income distribution has not significantly improved. Income inequality in Nepal is still high based on the Gini coefficient. Rapid economic growth and equitable income distribution are therefore required to break the vicious cycle of poverty and underdevelopment.
2. Unemployment
Approximately 5 lakh Nepalese youth join the labor market each year, but less than 10% find employment. Those who are not employed in the country go abroad to seek employment. The agriculture sector of the country is plagued by disguised unemployment. Therefore, creating job opportunities in both the public and private sectors is a challenge in addressing unemployment.
3. Practices of subsistence farming
Around two-thirds of the nation's workforce is employed in the agriculture sector, which contributes about one third of the nation's output. As a result of lack of modernization and commercialization of the agricultural sector, agricultural productivity is low, and we have to import food grains and vegetables from India in large quantities. The main problems are an inadequate irrigation system, traditional farming practices, and a lack of seeds and fertilizers. It is thus a great challenge to transform the agriculture sector through commercialization, expansion of irrigation facilities, road networks, storage, fertilizers and inputs, among others.
4. Geographical Difficulties
The topography of Nepal is challenging. Approximately 50 percent of the country is covered with hills and mountains. As a result, physical infrastructure development in all parts of the country has been very difficult. Therefore, connecting and mainstreaming all parts of the country to development is a great challenge.
5. Lack of Capital and Technology
The domestic saving ratio of the country has been low in recent years (around 10 percent). As a result, the resources needed for capital formation are insufficient. A lack of foreign investment in the country has been caused by political instability. As a result, utilizing the country's resources and developing new techniques have been a challenge, and adopting foreign technology to increase productivity has been challenging.
6. Timely Construction of Earthquake Damaged Buildings
Despite three years after the 2015 earthquake, only about half of the 5,00,000 houses damaged by the earthquake have been rebuilt. Reconstruction of government buildings, public schools, hospitals, old palaces, temples, and other historical monuments has not progressed as anticipated. In the present day, it is challenging to manage the resources necessary to construct them on time.
7. Meeting the Resources for the newly formed Federal Nepal
As the 753 local bodies and seven provinces formed governments, the need for resources has increased rapidly. In order to address rising aspirations of the public, the central government has also needed more resources. In spite of this, tax revenue and other forms of revenue are not sufficient to cover such resource needs. In order to maintain a federal structure, it is challenging to manage the necessary resources.
8. Expanding the Financial Access
In spite of the growing number of financial institutions, access to financial services remains unsatisfactory. Bank branches and activities have been concentrated only in Kathmandu valley and some major Terai cities. There is still no commercial bank branch in any of the local level bodies. UNCDF survey results from 2014 show that only 40 percent of Nepalese have access to banks. As per a study done by the Nepal Rastra Bank in 2019, about 61 percent of Nepalese have access to a bank account. Consequently, it is difficult to increase financial literacy and expand financial access in order to benefit equally from this sector.
9. Meeting the Sustainable Development Goals by 2030
In order to achieve the sustainable development goals, Nepal has committed itself to make significant improvements to health and education facilities as well as rapid income growth by 2030. Achieving such goals requires a lot of resources and commitment. It is a great challenge, given the present state of resource mobilization, to manage resources to meet the objectives of the country.
10. Revitalizing the industrial sector
Over the years, industrial output has lost share of gross value added. Its contribution to GDP in 2001 was around 9 percent, but it declined gradually over time, reaching 5.6 percent in 2019. Increasing our product's competitive capacity is challenging for reviving the industrial sector.
11. Expansion on trade deficit
A rapid increase in imports has led to an alarming expansion of the trade deficit in recent years. Currently, it is about Rs. 13.2 billion per year. Trade deficit GDP ratio exceeded 38 percent. It is challenging to reduce such a deficit by promoting our exports and substituting imports.
These are the some of the notable challenges in context of Nepal. There are other many challenges which you can describe on your own.
