Manufacturing Industries in Nepal

Concept of Manufacturing Industry: 

The manufacturing industry refers to an industrial production process through which raw materials are transforming into finished products to be sold in the market. It includes all intermediate processes required for production. The industrial sector is regarded as a secondary sector concerned with producing goods with the help of available factors of production, natural resources and raw materials. Industrialization offers prospects for the expansion of output, income and employment.

Generally, the industry is a group of manufacturers that produce a particular kind of goods or services through the use of factors of production. Similar groups of business form an industry.

History of Industrial development in Nepal:

Many traditional, cottage and small scale industries related to crafts, woods, and metals were established from the very beginning of civilization in Nepal. Many of these are still in existence. But the history of organized industrial development in Nepal is not so very old. The history of organized industrial development in Nepal dates back to 1936 AD during the reign of Rana Prime Minister Juddha Shamsher Rana.

He is known as the father of industry in the industrial history of Nepal. In 1936 AD, with the joint venture of Indian and Nepali entrepreneurs, a jute mill was established in Biratnagar. It was named Biratnagar Jute Mill. Other fourteen new joint-stock companies were established during his regime. They were established to cover the shortage of manufactured consumer goods caused by the Second World War (1939-1945). This played a huge role in the establishment of domestic industries in Nepal.

The most important industrial activities were rice milling, oil extraction, manufacturing of matches, paper, soap, furniture, cotton and wood textiles, jute, glass, and ceramics. When the Second World War was over, these industries incurred heavy losses and most of them shut down.

After the end of the Rana regime in 1951 AD, the then Government of Nepal took an initiation for the development of the industrial sector formulating various plans and policies. The First Development Plan (1956-61) implemented from 1956 A.D. (2013 B.S.) set a milestone in the process of industrialization in Nepal.

To encourage and assist the development of private industry, favourable policies and acts were passed. Many industries were established under the financial and technical assistance of China and Russia (the then USSR) in the form of public enterprises. Seventy-five public enterprises were established until the Seventh Five Year Plan (1985-1990).

The government prioritized and took initiatives to establish paper, cement, textile, fertilizer, lumber, plywood, bricks, and tiles industries. Some of these industries were Himal Cement Industry, Hetauda Cement Industry, Bhrikuti Paper Factory, Balaju Textile Industry, Agriculture Tools Factory, etc. Ten industrial estates in Balaju, Bhaktapur, Patan, Birendranagar, Butwal, Dharan, Hetauda, Nepalgunj, Pokhara, and Rajbiraj (Gajendranarayan Singh Industrial Estate) were established.

However, after the establishment of democracy in 1990 AD, the Government of Nepal enacted Economic Liberalization Policy and Act and then started the privatization of public enterprises. Till now, 30 public enterprises have been privatized; 37 enterprises are running and other remaining have been liquidated.

So far, fiftteen development plans have been formulated and implemented in Nepal. The current plan is the sixteenth plan and it is being implemented. Every development plan in Nepal has given place to industrial development. Recently, the Government of Nepal has enacted the Industrial Enterprise Act, 2020 to encourage, regulate and protect the industries and to increase the contribution of the industrial sector in the national economy of Nepal.

Classification/ Types of Industries in Nepal:

1. Micro Enterprises: The industries that use fixed capital up to Rs. 20 lakhs, engine power capacity used less than 20 kilowatts and there are up to 9 workers including the entrepreneur are called Micro enterprises. A microenterprise in Nepal must meet the following requirements:

a. The industry that has maximum capital assets up to 20 lakhs, except its land and building.
b. The entrepreneur should be oneself involved in the operating and management of the industry.
c. There must be a maximum of 9 workers working in the industry including the entrepreneur.
d. The annual transaction amount must not exceed 1 crore (10 million).
e. The capacity consumption of electrical energy should be less than or equal to 20 kilowatts.

2. Traditional and Cottage Industries: The industries that use traditional skills and techniques, the instruments based on local raw materials and associated with art and culture of the country and uses electric power up to 50 kilowatts are called traditional and cottage industries. A cottage industry in Nepal should have the following features:

a. Production must be based on traditional skills and techniques.
b. It should be a Labour-intensive industry based on a specific skill or local raw materials, local technology, art and culture.
c. The capacity consumption of electrical energy must be less than 50 kilowatts.

3. Small Scale Industries: The industries that have fixed capital up to Rs. 15 crores except for micro-enterprises, traditional and cottage industries are called small industries.

4. Medium Scale Industries: The industries having fixed capital more than Rs. 15 crores to Rs. 50 crores are called medium scale industries.

5. Large Scale Industries: The industries having a fixed capital of more than Rs. 50 crores, uses well equipped modern machines, instruments and tools are called large scale industries.

Cottage and Small Scale Industries in Nepal

Importance of Cottage and Small Scale Industries in Nepal:

1. Easy to Establish: Cottage and small scale industries are easy to establish since these industries require fewer resources, capital and technical knowledge.

2. Generation of Employment: Cottage and small scale industries can generate more employment opportunities since these industries are labour intensive. The cottage and small scale industries absorb excess pressure of manpower in agriculture.

3. Proper Utilization of Local Resources: Since cottage and small scale industries are established at the local level, these industries utilize local resources efficiently and effectively. The proper utilization of local resources leads to the production of necessary goods and promotes self-sufficiency.

4. Earning of Foreign Currency: The products of Nepalese cottage and small scale industries have good markets. By exporting the products abroad, a substantial amount of foreign exchange can be earned.

5. Supply of Consumer Goods: The cottage and small scale industries are established locally and they can produce consumer goods according to the specific consumer taste and preference. They can also produce a variety of goods to satisfy consumers at the local level.

6. Subsidiary Source of Income: The majority of agricultural workers can earn additional income by working in the cottage and small scale industries during the off-season of agriculture. Moreover, cottage and small scale industries preserve local culture and tradition, increase national income, use local skill etc.

7. Basis of Development of Large Industries: Entrepreneurs learn management skill and technique from such industries. Moreover, large industries require refining raw materials for production. This work is done by cottage and small scale industries. Hence, cottage and small scale industries are the basis of the development of large scale industries.

8. Preservation of Traditional Art and Culture: Small scale industries produce cultural goods that show traditional art. Therefore, cottage and small scale industries are helpful in the preservation of traditional art and culture.

9. Basis of Foreign Trade: The goods produced from cottage and small scale industries are incident in nature which is very popular among tourist as a memento. Annually, a large number of antic goods are purchased by foreigners which improve Nepalese foreign trade.

Problems of Cottage and Small Scale Industries in Nepal:

1. Lack of Sufficient Finance: The major problem of cottage and small scale industries is the lack of sufficient finance. Existing financial institutions are not providing sufficient financial support to these sectors. Due to the complicated procedure to take a loan from these institutions the people with a different set of skills cannot establish cottage and small scale industries.

2. Competition with Large Industries: Since cottage and small scale industries are labour intensive in nature, the output produced by them are expensive in comparison to the output produced by large industries. Therefore, goods produced by these industries cannot compete in domestic as well as foreign markets with the goods produced by large industries.

3. Deficiency of Raw Materials: Most of the raw materials available in the country are exported to foreign countries and the remaining raw materials are of low quality. Therefore, existing small scale industries are running below their capacity and producing low-quality products.

4. Primitive Technology: The techniques used in the cottage and small scale industries are very primitive. Therefore, the goods are of low quality which cannot catch up with changing consumer’s taste. This limits the commercial production of these industries.

5. Lack of Protection Policy: Government policies are not paying attention to protection policies for these industries. Therefore, these industries cannot operate for a long time since they have to face unnecessary and unhealthy competition.

6. Lack of Skilled and Trained Manpower: Most of the cottage and small scale industries use local manpower who do not have sufficient ideas and skills about these industries. Due to the lack of efficient and skilled manpower, they have lower productivity.

7. Lack of Basic Infrastructure: There is a lack of basic physical infrastructure for the development and smooth operation of these industries. Due to the lack of such infrastructures development of these industries has not taken place.

8. Limited Market: Due to the limited market, producers are compelled to sell their products at a very low or nominal price which discourages them to produce with full capacity.

Medium and Large Scale Industries in Nepal

Importance of Medium and Large Scale Industries in Nepal:

1. Basis of Economic Growth: With the development of these industries other sectors will be automatically developed so that the development of medium and large scale industries can help in economic growth.

2. Development of Agricultural Sector: The development of the agriculture sector requires modern tools, machinery etc. These things can be produced within the country by establishing medium and large scale industries which help to increase the production and productivity of the agricultural sector.

3. Employment Opportunities: Development of medium and large scale industries creates employment opportunity for all kinds of human resources. The industrial sector is quite flexible and can be expanded. It can generate sufficient employment for the unemployed human resources.

4. Development of Infrastructure: For the development of industries, sufficient infrastructural development is essential. The development of medium and large scale industries leads to the development of infrastructures.

5. Proper Utilization of Natural Resources: The development of medium and large scale industries is essential for the proper utilization of the available resources otherwise these resources have to be exported to other countries at relatively cheap prices.

6. Source of Government Revenue: Development of medium and large scale industries increase government revenue as a result of which the government can spend more on the development of the economy.

7. Sources of National Income: Medium and large scale industries are one of the major sources of national income. It also helps to enhance the national income.

8. Increase in Foreign Trade: The goods produced from medium and large scale industries are in the nature of international competitive ones and demanded by global markets. It promotes foreign trade.

9. Advancement of Technology: Medium and large scale industries are intended to produce goods and services with the help of the latest and modern technology. On one side it reduces the production cost of goods and on the other, it promotes seller to compete with international markets.

Problems of Medium and Large Scale Industries in Nepal:

1. Lack of Capital: Medium and large scale industries are capital intensive in nature but Nepalese entrepreneurs do not have sufficient capital for investment. Those who are able to invest are not investing due to unfavourable industry policy and lack of an investment-friendly environment.

2. Lack of Raw Materials: Lack of sufficient raw materials for medium and large scale industries is a major problem. The available raw materials are either inadequate or are of inferior quality. Therefore, the required raw materials are to be imported from abroad which increases the cost of production.

3. Lack of Infrastructure: The development of medium and large scale industries requires sufficient infrastructure facilities. However, the development of infrastructure is not adequate in Nepal. Therefore, infrastructural development is a problem for the development of medium and large scale industries.

4. Lack of Technical Know-How: Development of medium and large scale industries require technical know-how. But Nepal does not have adequate technical manpower for running these industries. Therefore, technical manpower planning is essential for the overall development of these industries.

5. Lack of Entrepreneurship: Industrialization requires capable entrepreneurs who can conceive, promote, implement and take risk of any types. However, Nepal lacks such entrepreneurs.

6. Limited Market: The market is limited for Nepalese industrial products due to the low level of income and purchasing power of the people. Due to the lack of infrastructure, the goods produced by these industries cannot be sold throughout the country.

7. Lack of Protection Policy: One of the main problems of medium and large scale industries is the lack of protection policy. Nepal has adopted a liberalization policy since 1991. The liberalization policy encourages the promotion of international goods in the domestic market without any barriers. It promotes competition between domestic and international goods in favour of price and quality.

8. Competition with Foreign Goods: Nepalese goods are expensive in nature in comparison with foreign in all aspects. Since Nepalese goods are a bit expensive they are in less demand in the market.