Nepal WT/TPR/S/257/Rev.1 
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  IV. TRADE POLICIES BY SECTOR 
(1) AGRICULTURE AND RELATED ACTIVITIES  
(i) Main features 
1. Agriculture, forestry and fishing accounted for 35.7% of Nepal's real GDP in 2010/11 
(Chapter I(1)(iii)).  The sector also employs around two thirds of the labour force, mostly in 
subsistence farming;  provides the livelihood for 76% of the population;  and contributed 23% to 
export earnings in 2010 (Table AI.1).  Agricultu re in Nepal is mainly a private-sector activity 
supported by the Government.  Nonetheless, there are some key agricultural public  enterprises such as 
Dairy Development Corporation, Agriculture Inputs Company, and Nepal Food Corporation 
(Chapter III(3)(iv)). 
2. Nepal has three major ecological belts:  the Te rai in the south comprises 23% of total land 
area, 40% of which is cultivated and is often referre d to as the granary of Nepal;  hills in the middle 
(42% of total land area, 20% of which is cultivated);   and mountains in the north (35% of total land, 
55% of which is cultivated).1  About 21% of the total land area of Nepal is agricultural land.  Most 
farms are small, with an average holding of only 0. 8 ha, and an average of four parcels per holding.  
Nearly half of all farms have less than 0.5 ha, a nd nearly three fourths of all holdings have less than 
1 ha.  The scope of agricultural mechanization is  limited because of the difficult terrain in the 
mountains and hills, and even in the Terai due to small size of farms.2  Other key problems facing the 
sector are the limited irrigation system3, natural disasters4, poor access to infrastructure and markets5, 
and the low priority of agricultural R&D.  As a r esult, productivity is low with  little specialization in 
agricultural production.  
3. Nepal produces most subtropical agricultural pr oducts, with 97% of food consumed being 
produced domestically.  It imports fruits, livestock,  and processed products, while grains are imported 
only during drought years.  Nepal's major export items comprise basic agricultural products, such as 
maize, mustard, ghee, ginger, pulses (lentil and gr am), broom grass, live animals, wheat flour, oil 
cake, jute, fresh vegetables and vegetable seeds, or thodox tea, hide and skin, rice bran, vegetable oil, 
spices, large cardamom, coffee, and fruits. 
4. Nepal has a mixed crop-livestock-forest farming system.  Cereal production accounts for 
about two thirds of total agricultural production.  Main food crops are paddy, millet, wheat, barley, 
and maize, while cash crops include sugarcane, oil seeds, tobacco, potato, and jute (Table IV.1).  
Current crop yields lag behind other countries in the region.6  The yield rate for rice, which accounts 
for 20% of Nepal's agricultural GDP and 49.4% of total food grains, lags far behind rates in other 
rice-producing countries.  
                                                      
1 Nepal Agricultural Re search Coun cil (2010). 
2 Average farm size in Nepal declined by 28% be tween 1961 and 2001 (Nepal Agricultural Research 
Council, 2010). 
3 About 33% of Nepal's cultivated land is irri gated.  Difficult topography has limited irrigation 
development to only some 10% of cu ltivated land in the mountain and hill di stricts.  In the Terai, 56% of 
cultivated land is irrigated (Nepal Agricultural Research Council, 2010). 
4 In general, hills are prone to landslides/hailstorms,  and the Terai is prone to floods, drought, and fire. 
5 Although roads have expanded in the last few years, many are of poor quality and are impassable 
during the rainy season.   One fourth of Nepal's area is still more than a four-hour walk from a road head. 
6 A comparison of crop yields across South Asian co untries indicated that Nepal's cereal yields were 
about 89% of India's, 88% Pakistan's , 65% Sri Lanka's, and 60% Banglade sh's (Nepal Agricultural Research 
Council, 2010). WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 58 
  
  Table IV.1 
Area, production and yield of principal food and cash crops, 2005-11 
 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11a 
Food crops       
Paddy       
Area 1,549 1,440 1,549 1,556 1,481 1,496 
Production 4,209 3,681 4,299 4,524 4,024 4,460 
Yield 2.72 2.56 2.77 2.90 2.72 2.98 
M a i z e        
Area 851 870 870 875 876 906 
Production 1,734 1,820 1,879 1,931 1,855 2,067 
Yield 2.04 2.09 2.16 2.20 2.12 2.28 
Wheat       
Area 672 703 706 695 731 736 
Production 1,394 1,515 1,572 1,344 1,556 1,698 
Yield 2.07 2.16 2.22 1.93 2.13 2.31 
B a r l e y        
Area 26 27 26 26 27 28 
Production 28 28 28 23 28 29 
Yield 1.06 1.06 1.07 0.90 1.06 1.06 
Millet       
Area 262 265 265 266 268 270 
Production 291 285 291 293 299 303 
Yield 1.11 1.07 1.09 1.10 1.12 1.12 
Total area 3,098 3,040 3,151 3,152 3,383 3,436 
Total production 7,365 7,044 7,778 7,822 7,762 8,557 
Cash crops       
Sugarcane       
Area 62 64 63 58 61 65 
Production 2,463 2,600 2,485 2,354 2,592 2,932 
Yield 39.68 40.61 39.47 40.52 42.50 45.11 
Oil seeds       
Area 188 184 180 181 199 205 
Production 139 136 134 135 150 175 
Yield 0.74 0.74 0.74 0.75 0.75 0.85 
Tobacco       
Area 2.73 2.73 2.69 2.54 2.53 1.60 
Production 2.72 2.65 2.61 2.50 2.50 2.40 
Yield 1.00 0.97 0.97 0.98 0.98 1.50 
Potato       
Area 151 154 157 182 183 186 
Production 1,975 1,943 2,055 2,424 2,459 2,597 
Yield 13.09 12.66 13.11 13.3 13.43 13.96 
J u t e        
Area 11.97 11.72 11.59 11.40 13.10 10.51 
Production 17.10 16.81 16.98 15.70 20.96 12.95 
Yield 1.43 1.43 1.46 1.38 1.60 1.23 
Total area 415.70 416.5 414.3 434.94 458.63 468.11 
Total production 4,596.8 4,698.5 4,693.6 4,931.2 5,224.5 5,719.4 
a Preliminary estimate. 
Note: Area:  thousand hectares 
 Production:  thousand tonnes 
 Yield:  tonnes/hectare 
Source: Ministry of Finance (2011b), Economic Survey, Fi scal Year 2010/11 , Statistical Tables, Vol. II, Kathmandu. Nepal WT/TPR/S/257/Rev.1 
 Page 59 
 
 
  5. Livestock is reared throughout Nepal and account s for about one fourth of total agricultural 
production.  Livestock plays an important role not only as food source, but also in terms of power 
(pack and draft) and manure for crop cultivation,  and as a hedge against shocks.  Poor access to 
animal feed and better quality breeds are the main co nstraints for livestock in Nepal.  The availability 
of green fodder has declined drastically as a resu lt of dwindling grazing area and access to forests.  A 
considerable livestock population of  cattle, buffalo, goats, and poultry produces insufficient food for 
local needs.  Sheep rearing is popular in the mountai n areas.  Nepal is about 10% deficit in milk, and 
38% deficit in meat production.  Nepal's livestock sect or suffers from a 34% deficit of total digestible 
nutrients.  Table IV.2 describes production of meat , milk and milk products , and eggs during 2005-11. 
Table IV.2 
Livestock production, 2005-11 
('000 tonne) 
Description 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11a 
Meat 219.20 227.11 233.90 241.69 250.21 276.66 
Milk and milk products 1,312.14 1,351.39 1,388.73 1,445.41 1,497.42 1,556.50 
Egg (million) 600.80 614.85 631.25 629.94 648.10 704.12 
a Preliminary estimate. 
Source:  Ministry of Finance (2011b), Economic Survey, Fi scal Year 2010/11 , Statistical Tables , Vol. II, Kathmandu.  
6. Forestry contributes about 8% to Nepal's total agricultural production, and is a significant 
source of employment, particularly in rural areas.  Forests cover about 40% of Nepal's landmass (over 58,000 sq km), and almost every known forest type, with the exception of the equatorial tropical rain 
forest, is found in Nepal.  Key problems facing the subsector include severe deforestation leading to 
erosion and flooding, which threatens the livelihoods of farmers due to increased agricultural activity. 
7. Despite being a landlocked country, fishing contri buted 0.6% to Nepal's real GDP in 2010/11.  
Fish production increased from 45,400 tonnes in 2005/06 to an estimated 51,800 tonnes in 2010/11.  Of the total fish produced, around half is from fi sh ponds and the other half from other natural 
sources.
7 
(ii) Agricultural policy 
8. The main institutions involved in agriculture  and related activities in Nepal include:  the 
Ministry of Agriculture and Cooperatives (MoAC);  th e Ministry of Forests a nd Soil Conservation;  
the Ministry of Irrigation;  as well as the Ag ricultural Development Bank (ADB) and the Small 
Farmers Development Bank (SFDB), both under the Ministry of Finance.  In addition, Nepal 
Agricultural Research Council (NARC), establishe d in 1991 as an autonomous organization under the 
Nepal Agricultural Research Council Act,  conducts agricultural research.   
9. With 38 of 75 districts estimated to face f ood deficit and 10 more considered as vulnerable, 
Nepal's key objective for agriculture is food security8, while maintaining proper conservation and 
management of its natural resources.9  
10. Forest areas are managed with, inter alia , the objective of maintaining at least 40% of forest 
land, as well as the ecological balance of plants , watersheds, conservati on of biodiversity, and 
                                                      
7 Ministry of Finance (2011b). 
8 The Interim Constitution of Nepal recognizes food security as a fundamental human right. 
9 MoAC, for example, received 3.1% of the total national budget in 2010/ 11 (3.7% in 1997/98). WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 60 
  
  protected areas.  Nepal also aims to devel op and expand forestry technology through the 
establishment of forestry management demonstration plots.10  
11. The five main objectives of Nepal's food and nut rition security plan are to:  increase Nepal's 
self-reliance for basic food stuffs;  improve the nutriti on situation;  enhance the standard and safety of 
food stuffs available in markets;  develop capacity for managing food insecurity that arises from emergency conditions;  and improve access to food by groups prone to food a nd nutritional insecurity.  
Early warning and disaster preparedness strategi es are also needed, to ensure food security.
11  
12. Under the Agriculture Perspective Plan (APP) 1995-2015, Nepal's five interrelated objectives 
are to:  (i) increase factor productivity;  (ii) alleviate poverty and significantly improve living standards through accelerated growth and expande d employment opportunities;  (iii) transform 
subsistence agriculture into commercial agricu lture through diversification and exploiting 
comparative advantage;  (iv) expand opportun ities for overall economic transformation by fulfilling 
the precondition of agricultural development;  and (v) identify immediate, short-term, and long-term 
strategies for implementation and provide clear guidelines for preparing periodic plans and programmes in future.
12 
13. In June 2010, NARC launched its Strategic Visi on for Agricultural Research 2011-2030.  
Future research priorities in agriculture s hould create the necessary technologies to increase 
production, diversify crops, contribute to food secu rity, promote value addition, and be able to 
compete worldwide.  The major agricultural research  areas include field crops, horticulture, livestock, 
fisheries, on-farm water management, agri-forestry, post-harvest operations, and policy research.13 
14. In April 2010, the UN International Fund fo r Agricultural Development (IFAD) and the 
Government of Nepal signed a US$7.6 million loan  agreement and a US$7.6 million grant agreement 
aiming to reduce poverty and vulnerability of peop le living in the hills and mountains through 
agricultural diversification.  About 52,000 households (285,000 people) are expect ed to benefit, and it 
will focus on high-value crops, non-timber forest products, medicinal and aromatic plants, and 
livestock.  Other programmes financed by the IF AD and the Nepalese Government aim to increase 
farmers' incomes through better use/management of  natural resources, and improved agriculture and 
livestock production techniques.14 
15. Government assistance is provided through a combination of border measures (basically 
tariffs);  domestic support (mainly loans, including  through the ADB);  and structural policies, 
including credit and support for general research a nd extension services by the SFDB.  Nepal does not 
have tariff-rate quotas on agricultural products, or a system of guaranteed prices. 
16. In 2009/10, the ADB disbursed loans of Nr 15.2 billion and recovered Nr 14.9 billion, while 
Nr 39.4 remained in arrears (Table IV.3).   In the first eight months of 2010/11, 2,924 units of 
livestock worth Nr 54.8 million were insured through local organization under the Livestock 
Insurance Programme.  Other agricu ltural support includes:  loans for irrigation from the Ministry of 
                                                      
10 Ministry of Finance (2011b). 
11 Nepal Agricultural Re search Coun cil (2010). 
12 Nepal Agricultural Re search Coun cil (2010). 
13 Nepal Agricultural Re search Coun cil (2010). 
14 Nepal was one of the first countries to benefit from IFAD loans.  Since 1978, IFAD has provided 
Nepal a total of US$146.2 million in loans for 13 projects, 4 of which are still ongoing.  For every dollar lent by 
IFAD, an additional dollar was committed by the Government and other donors (IFAD online information.  
Viewed at:  http://www.operations.ifad.org/we b/ifad/operations/country/home/tags/nepal#). Nepal WT/TPR/S/257/Rev.1 
 Page 61 
 
 
  Irrigation15;  dairy development grants from the Dairy Development Board;  financial support for tea 
and coffee promotion from the Tea and Coffee Promotion Board;  financial support for the import and transport of chemical fertilizers
16, as well as for soil tests in some districts from the MoAC.17  
Table IV.3 
Agricultural credits and collection, 2005-11 
(Nr 10 million) 
Description 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11a 
Disbursement 1,285.56 1,465.02 1,853.00 1,926.00 1,524.00 1,131.00 
Food grains and cash crops production 179.95 363.03 459.00 316.00 127.00 91.00 
Agri-tools and irrigation 39.58 28.98 37.00 55.00 71.00 31.00 
Agricultural business 187.27 165.89 210.00 330.00 290.00 276.00 
Agri-industries marketing and 
godowns 659.04 654.34 827.00 979.00 725.00 488.00 
Horticulture 3.19 5.64 8.00 5.00 4.00 3.00 
Tea/coffee cultivation 2.36 3. 89 5.00 4.00  0.00 0.00 
Housing and land development loan 214.17 243.25 307.00 237.00 307.00 242.00 
Collection 1,184.16 1,378.89 1,746.00 2,026.00 1,492.00 1,062.00 
Food grains and cash crops production 181.05 141.56 180.00 507.00 336.00 102.00 
Agri-tools and irrigation 58.51 48.56 62.00 77.00 65.00 45.00 
Agricultural business 177.98 221.25 280.00 263.00 196.00 172.00 
Agri-industries marketing and 
godowns 586.64 789.23 998.00 781.00 596.00 471.00 
Horticulture 5.19 6.19 8.00 9.00 6.00 3.00 
Tea/coffee cultivation 2.78 2. 15 3.00 3.00  3.00 2.00 
Housing and land development loan 172.01 169.95 215.00 386.00 290.00 267.00 
Total loans outstanding 2,218.70 2,419.48 2,571.00 2,512.00 3,938.00 4,031.00 
a First eight months. 
Source: Ministry of Finance (2011b), Economic Survey, Fi scal Year 2010/11 , Statistical Tables , Vol. II, Kathmandu.  
17. Other agricultural programmes are in operation in  certain districts of Nepal:  (a) programmes 
to increase production and promotion of onions, maize, lemons, fish, and oilseeds have been in place 
since 2007/08, with the objective of substituting imports;  (b) the Cooperative Poultry and Pig 
Farming Programme was initiated in 2008/09 in four districts;  a nd (c) the One Village, One Product 
Programme, based on public-private  partnerships, began in 2005/06.18 
18. Nepal has a food reserve stock capacity of 15,000 tonnes (e.g. for cereals);  the authorities 
aim to increase this to some 25,000 tonnes.  Nepa l deposits 4,000 tonnes annually of rice and wheat 
for the South Asian Association for Regiona l Cooperation (SAARC) Food Security Bank 
(Chapter II(4)(ii)(a)). 
19. While the majority of tariff lines are subject to ad valorem  rates, some agricultural products 
(i.e. liquor, and tobacco and tobacco products) are subject to specific rates (Chapter III(1)(iii)(b)).  
The simple average applied MF N tariff on agriculture, hunting, forestry, and fishing (Major 
Division 1 of ISIC Revision 2) is 9.7%, i.e. 2.6 pe rcentage points lower than manufacturing (12.3%).  
                                                      
15 Land under irrigation increased from 6,200 ha in 1956 to 583,000 ha in 1990, and is currently 
1,283,000 ha. 
16 In 2010/11, Nepal allocated Nr 2.35 billion to subsidize the import and transport of chemical 
fertilizers. 
17 On the request of farmers, subsidies for soil tests are used to establish the best crop for their land. 
18 Ministry of Finance (2011b). WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 62 
  
  However, under the WTO definition for agriculture19, the average applied MFN rate is 12.4%, i.e. 
0.3 percentage points higher than for non-agricultural products (12.1%) (Table III.2). 
20. Nepal bound its tariff lines on agri cultural products (WTO definition) at a final simple 
average rate of 42.4% leaving am ple margin for increasing applied MFN tariffs.  The Government of 
Nepal stated in the context of this Review that applied tariffs have been maintained at below bound 
levels. 
21. For religious reasons, Nepal ba ns the importation, domestic pr oduction, and sale of beef and 
beef products, as well as liquor containing more than  60% alcohol, in accordance with the Export and 
Import Control Act of 1957, the Narcotics Drug Cont rol Act of 1976, and the Country Code (Muluki 
Ain).  Nepal also applies restrictions on imports  of other agricultural products (Table IV.4). 
Table IV.4 
Restrictions on imports of agricultural products, 2011 
Items Reason/Act 
Citrus sapling/plants To prevent citrus decline syndrome as per Plant Protection Act 2007 
Bread fruit plants To prevent pingalap disease as per Plant Protection Act 2007 
Potato tuber from Indian wart-affected areas To prevent wart disease as per Plant Protection Act 2007 
Lathyrus sativus Because of high content of BOAA (B-N-Oxalyl/Amino-L- Alanine) responsible 
for causing Lathyrosis diseases (published in Nepal Gazette , 1992) 
BVO containing drinks  For health reasons (Food Act, 1967) 
DDT, methyl parathion For reasons of health and e nvironment protection (Public Enterprises Act, 1991) 
Beef For religious reasons 
Source:  Information provided by the Nepalese authorities.  
22. Nepal levies export duties on some agricultural pr oducts, including margarine, and molasses.  
The purposes of these export duties are to discourag e environmental degradation, to ensure food 
security, and to discourage trade diversion to  neighbouring countries (Chapter III(2)(iii)). 
23. As an LDC, Nepal enjoys duty-free, quota-fr ee market access to the markets of most 
developed countries and certain deve loping countries.  According to the authorities, however, Nepal 
has not been able to benefit much, owing to  the stringent rules of origin applied. 
24. Nepal applies an agriculture reform fee of 5% (p reviously 2.5% to 14.5%) on the c.i.f. value 
of imports from India and Tibet Autonomous Region of China (Chapter III(1)(iv)).  No other duties 
and charges are levied on imports of agricultural products. 
25. Given the small average farm size and the fractured  nature of farms, restructuring policies in 
Nepal are particularly important.  The main struct ural policy instruments include support for general 
research relating to different products;  extensi on services;  marketing and promotion activities, 
including agriculture market information;  support for natural disaster relief through crop subsidies;  
other infrastructure support for small farmers;  and investment programmes in favour of rural 
development and less-favoured agricultural areas.   
26. The SFDB is involved in uplifting the economic and social status of small farmers and 
deprived people in rural parts of Nepal thr ough microfinance programmes and promotion of 
                                                      
19 WTO definition of agriculture:  HS Chapters 01-24 less fish and fishery products (HS 0301-0307, 
0509, 051191, 1504, 1603-1605 and 230120) plus some selected products (HS 290543, 290544, 290545, 3301, 
3501-3505, 380910, 382311-382319, 382360, 382370, 382460, 4101-4103, 4301, 5001-5003, 5105-5103, 5201-
5203, 5301 and 5302). Nepal WT/TPR/S/257/Rev.1 
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  cooperatives.20  In the first eight months of 2010/11, Nr 933.9 million credit was disbursed by the 
SFDB and Nr 627.1 million was recovered, while interest recovery was Nr 90.2 million.  With the objective of substituting imports by promoting m eat-oriented livestock business and generating 
income from poor and small farmers, the SFDB has started a meat-oriented livestock credit 
programme with Nr 1 billion credit assistance. 
27. Nepal's commitments on agricultural tariffs, on domestic support, and on export subsidies for 
agricultural products are contained in the Sc hedule of Concessions and Commitments on Goods 
annexed to its Protocol of Accession to the WTO.  Nepal did not make any reduction commitments on 
domestic support.  Financial support to agricu ltural producers, as measured by the Aggregate 
Measurement of Support (AMS), was below the de minimis  level of 10% for which no reduction 
commitments were required.
21 
28. There are no specific incentives for exports of agricultural commodities, and Nepal does not 
have agricultural export subsidies.  The Govern ment facilitates exports by providing market 
information and easy access to foreign exchange as a general policy.  For this purpose, the 
Government provides exporters with technical f acilities to open foreign currency accounts with the 
income generated from exports.22 
(2) MANUFACTURING  
(i) Main features 
29. The contribution of the manufacturing sector to  real GDP was 6.1% in 2010/11 reflecting 
Nepal's early stage of industrial development.  There were some 4,310 registered large and 
medium-scale industries (2010/11), up from 3,302 in  mid-April 2006.  In addition, there were 
8,184 registered cottage and small enterpri ses (2010/11), with fixed capital investment of 
Nr 9,629 million.23  However, less than 40% of the regi stered small and cottage enterprises are 
estimated to be functioning.24  Some of the key problems facing the sector are lack of infrastructure, 
energy, and skilled labour;  deteriorating labour an d industrial relations;  and political instability. 
30. The share of textiles and clothing goods (inc luding manufacture of wearing apparel and of 
knitted crocheted fabrics) in total manufacturi ng fell from 20.1% in 2006/07 to 11.7% in 2009/10, 
while the share of metal products increased (Cha rt IV.1).  Manufacturing of chemical and 
pharmaceutical products, a private-sector activity based on imported raw materials, has been 
increasing over the last few years.  The Nationa l Drug Policy 1995 emphasizes self-sufficiency and 
quality in the production of pharmaceuticals.  At present, 41.3% of Nepal's demand for 
pharmaceutical products is met by domestic produ cers, with very few pharmaceutical exports.  
31. Manufactured exports accounted for 72.2% of total merchandise exports  in 2010 (74% in 
2003), and consisted mainly of tex tile and clothing products (39. 8% of total merchandise exports) 
(Chart I.1).  Manufacturing represented 56.5% of total merchandise imports in 2010, down from 
57.4% in 2003, and are concentrated in more cap ital-intensive industries, such as machinery and 
transport equipment, and chemicals (Chapter I(2)(ii)(a)). 
 
                                                      
20 In 2010/11, there were 243 coop eratives affiliated with the SFDB. 
21 Information concerning domestic support and export subsidies in the agriculture sector was 
circulated in document WT/ACC/SPEC/NPL/2/Rev.1 and WT/ACC/SPEC/NPL/2/Corr.1, 26 August 2003. 
22 WTO document WT/ACC/NPL/16, 28 August 2003. 
23 Ministry of Finance (2011b). 
24 Ministry of Industry and Ministry of Commerce and Supplies (2009). WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 64 
  
  2006/07
Source :  Ministry of Finance (2011), Economic Survey Fiscal Year 2010/11 Statistical Tables Vol. II, Kathmandu.Chemical products
10.3%
Textiles & clothing
20.1%Non-metallic
mineral products
5.3%Other 
6.6%Vegetable oils & fats
15.8%
Grain mill products &
animal feeds
8.2%2009/10Chart IV.1
Main manufacturing industries, 2006/07 and 2009/10
Tobacco
6.5%Other fabricated
metal products 
5.2%
Other food products
10.7%
Beverages
6.6%Plastic products
4.8%Vegetable oils & fats
9.6%
Grain mill products &
animal feeds
9.3%
Other food products
8.4%
Beverages
6.7%
Tobacco
6.7%
Textiles & clothing
11.7%Chemical 
products
6.5%Plastic products
5.7%Non-metallic
mineral products
7.9%Other fabricated
metal products 
19.7%Other 
7.7%
 
(ii) Manufacturing policy 
32. The Ministry of Industry is responsible for the manufacturing sector.  It launched the 
Industrial Policy 2010, which re placed the Industrial Policy 199225, with the aim of promoting 
industrial activity and increasing its contribution to  GDP, generate more job opportunities, boost per 
capita income, and reduce poverty. 
33. Some of the salient features of the Industrial Policy 2010 include:  (i) flexible labour policy, 
including the "no-pay-for-no-work" principle,  allowing easy exit from business for investors 
(domestic and foreign), freeing them from long-term labour and other liabilities;  (ii) tax and income 
rebate incentives and easy credit to export-oriented fi rms;  (iii) tax holidays for 10, 7, and 5 years for 
firms that invest, respectively, in highly underdeveloped (21 districts), undeveloped (15 districts) and less developed (24 districts) areas;  (iv) promoting special economic zones (SEZs) through, inter alia , 
the enactment of a special law on SEZs
26;  (v) instituting a "one-window" policy for all industrial 
activities27;  and (vi) reforming the Nepal Industrial Development Corporation (NIDC), which is 
currently inactive due to inadequa te capital and weak management.28  In addition, the Industrial Policy 
2010 aims to promote value-added industries and fac ilitate supply and adoption of new technology to 
                                                      
25 During its WTO accession negotiations, Nepal i ndicated that the Industrial Policy 1992, the 
Industrial Enterprises Act 1992, and the Industrial Enterprises Regulations would be amended to bring them into conformity with the WTO Agreements on Subsidies and Countervailing Measures and on Trade Related 
Investment Measures.  Nepal also stated that it woul d identify subsidy measures incompatible with the WTO 
and these would be eliminated (WTO docu ment WT/ACC/NPL/16, 28 August 2003). 
26 SEZs will be developed in Jhapa, Dhanusha, Bir gunj, Panchkhal, Jumla, and Dhangadi to accelerate 
the establishment of infrastructural industries to e nhance Nepal's export capacity and increase industrial 
processing of local products. 
27 The One Window Committee has been established to  provide facilities and incentives to industries 
on the basis of the Industrial Enterprises Act 1992 (as amended). 
28 Ministry of Industry and Ministry of Commerce and Supplies (2009). Nepal WT/TPR/S/257/Rev.1 
 Page 65 
 
 
  increase production and productivity.29  It aims to upgrade technical and skill-related aspects of the 
administrations related to the industrial sector.  However, delays in enacting the new Industrial 
Enterprises Act has led to difficulties in providi ng facilities and incentives as envisaged in the new 
Industrial Policy. 
34. Under Nepal's Trade Integration Strategy (NTI S) 2010, 19 priority economic activities with 
export potential were identified, including certain  manufacturing industries such as:  medicinal 
herbs/essential oils;  handmade paper;  silver je wellery;  iron and steel;  pashmina;  and wool 
products.  Other potential export activities are:  cement;  dairy products;  and transformers 
(Chapter II(3)).30  
35. Despite Nepal's privatization programme, the Stat e continues to play an important role in 
manufacturing, mainly through public enterprises (PEs), some of which are loss-making.  There are 
36 full or majority PEs, 7 of which are active in the production of manufactures such as cement and 
cigarettes (Chapter III(3)(iv)).31   
36. Nepal does not provide direct payments to any manufacturing industry.  Nonetheless, under 
the Industrial Enterprises Act 1992 (as amended) and the Industrial Enterprises Regulations 1992 
there are certain incentives in the form of in come tax, VAT, excise duty, and customs duty 
exemptions or deductions for certain manufacturi ng industries (Table IV.5).  According to the 
authorities, the purpose of these incentives is to  ensure balanced industrial development both 
regionally and sector-wise.  Nepal has not compiled da ta on the revenue exempted by such incentives 
or on the identification of recipients. 
Table IV.5 
Incentives provided in the manufacturing sector, 2011 
Activity Incentive 
All industries Deduction of 10% of the gross profit from the taxable income on 
account of expenses related to te chnology, product development, and 
efficiency improvement; 
No income tax on dividends earned from investment; Up to 5% deduction of gross income spent for the advertisement of 
the products or promotion services, hospitality and any other similar 
expenses; 
No income tax is levied on the profits earned through export; 
Deduct (for the purpose of the income tax) expenses incurred for the 
long-term benefit of its worker s and employees including housing, 
life insurance, heal th facilities, education and training 
Cottage industries Exemption from VA T, excise duty, and income tax 
All industries except those utilizing tobacco as their basic raw 
material and alcohol- or beer-producing industries Income tax in excess of 20% is not levied on income 
All industries except those utilizing tobacco as their basic raw 
material, alcohol- or beer-produc ing industries and saw-mill and 
catechu industries using at least 80% of indigenous raw material 
and supplying all its manpower from among Nepalese citizens Rebate of 10% on income tax 
Table IV.5 (cont'd)  
                                                      
29 The Government promises to purchase goods that are produced by domestic firms if there is 30% 
value-addition in the final product. 
30 Ministry of Commerce and Supplies (2010a). 
31 These are:  Dairy Development Corporation;  Herbs Production and Processing Company;  Hetaunda 
Cement Industries;  Janakpur Cigarette Factory;  Nepal Ausadhi;  Udayapur Cement Industry;  and Nepal Orind 
Magnesite.  The State has a minority share-holding in other manufacturing industries, such as Nepal Metal 
Company, Morang Sugar Mills, and Nepal Foundry Industry. WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 66 
  
  Activity Incentive 
Any national priority industry which constructs and operates 
roads, bridges, tunnels, rope  ways, flying bridges, and 
manufactures and operates trolley buses and trams Rebate of 50% of the income tax on their income for 10 years from 
the date of operation 
Other national priority industries:  e.g. agri/forest-based;  agricultural and industrial machinery;  manufacturing fuel-
saving/pollution-control devices;  solid waste processing; hospital and nursing home (only outside the Kathmandu valley);  
producing ayurvedic, homeopa thic and other traditional 
medicine for the disabled/orthopaed ic;  cold storage installed for 
the storage of fruits and vegetables Rebate of 50% of the income tax on their income for 7 years from the 
date of operation 
All industries except those utilizing tobacco as their basic raw material, and alcohol- or beer-pr oducing industries established in 
remote, undeveloped, and underdeveloped areas Rebate of 30%, 25%, and 20% of the income tax for remote, 
undeveloped, and underdeveloped, respectively, and 35%, 25% and 
15% of the excise duty, respectively, for a period of 10 years from the date of operation 
Fruit-based fruit processing and cider and wine industries with 
fixed assets up to Nr 2.5 million, established in particular areas Excise duty and VAT exemption for 10 years 
Fruit-based-alcohol industries Excise  duty and VAT exemption for 5 years 
Any industry that diversifies its elf through reinvestment, in the 
same or any other industry, and expands its installed capacity by 
at least 25%, modernizes its technology or develops ancillary 
industries Full deduction of new, additional fixed assets from its taxable 
income 
Any industry investing in process or equipment that has the objective of controlling pollution or may have a minimum effect 
on the environment Reductions of up to 50% from the taxable income for such 
investment 
All industries providing direct employment to at least 
600 Nepalese citizens in a year Additional income tax rebate of 10% for that year 
All industries utilizing locally available raw materials, 
chemicals, and packing materials, etc. Exempted from excise duties and VAT 
 
Source:  Information provided by the Nepalese authorities. 
37. Under the Industrial Infrastructure Development Programme, introduced in 2008/09, road 
construction and electricity transmission line expans ion works are under way in certain districts where 
cement industries are to be established.32 The Micro Enterprise Development Programme started 
operations in 1998 with the assistance of donor agen cies.  Nepal plans to establish special economic 
zones and export processing zones (Chapter III(3)(ii)). 
38. MFN customs tariffs on manufactured goods (major division 3 of ISIC, Revision 2) average 
12.3%, with rates ranging from zero to 80% (Chart IV .2).  The tariff escalation from first stage of 
processing, to semi-processed, and fully processed produc ts in some industries, i.e. food, beverages 
and tobacco;  textile and leather;  paper printing an d publishing;  and chemicals, means relatively high 
effective rates of protection, which somewhat  impede Nepal's export competitiveness of those 
manufactured products (Chapter III(1)(iii)(b)). 
 
                                                      
32 Ministry of Finance (2011b). Nepal WT/TPR/S/257/Rev.1 
 Page 67 
 
 
  01020304050607080
311
312
313
314
321
322323
324
331
332
341342
351
352
353
354355
356
361
362
369
371
372381
382
383
384
385390
410Chart IV.2
Tariff protection in the manufacturing sector, 2010/11
Per cent
Source: WTO Secretariat calculations, based on data provided by the Nepalese authorities.Avera geMaximu m
Minimu m
International Standard Industrial Classification, Revision 2
311
312
313314
321
322
323
324
331332
341
342
351
352353Description
Food production
Other food products and animal feeds
Beverages
Tobacco manufacturing
Textiles
Manufacture of wearing apparel, except footwearLeather products, except footwear and wearing apparel
Footwear, except vulcanized rubber or plastic footwear
Wood and wood products, except furnitureManufacture of furniture and fixtures, except primarily of 
metal
Paper and paper productsPrinting, publishing and allied industries
Industrial chemicals
Other chemicals, including pharmaceuticalPetroleum refineriesDescription
Manufacture of miscellaneous petroleum and coal products
Manufacture of rubber products n.e.s.
Manufacture of plastic products n.e.s.
Pottery, china and earthenware
Manufacture of glass and glass products
Other non-metallic mineral productsIron and steel basic industries
Non-ferrous metal basic industries
Fabricated metal products, except machinery and equipment
Non-electrical machinery including computers
Electrical machinery apparatus, appliances and suppliesTransport equipment
Professional and scientific equipment
Other manufacturing industriesElectrical energy354
355
356
361
362
369371
372
381
382
383384
385
390410
 
(3) SERVICES  
(i) Overview 
39. Services is, increasingly, a key sector of Nepal's economy in terms of contribution to real 
GDP (49.8% in 2010/11) and employment (15% of  the labour force).  Moreover, services companies 
(notably tourism-related) represent about two thirds of all companies registered with the Office of the 
Company Registrar.  In 2010/11, wholesale and retail  trade contributed 13.8% to real GDP, followed 
by transport, storage, and communications (8.2%);  real estate, renting and business activities (8.2%);  
education (6.4%);  and financial inte rmediation (4.4%) (Table I.3).   WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 68 
  
  40. Balance-of-payments data indicate that Nepal is a net importer of services, with a deficit 
averaging Nr 10,981 million per year during 200 6/07-2010/11.  In 20 09, Nepal ranked 103rd among 
world exporters and 105th among importers in terms of commercial services trade.33  
41. Services are covered in some of Nepal's pref erential trading arrangements, e.g. the SAARC 
Agreement on Trade in Services (SATIS) under SAFTA (Chapter II(4)(ii)). 
42. Under the General Agreement on Trade in Se rvices (GATS), Nepal scheduled extensive 
specific commitments, including on financial services, telecommunications, transport, tourism, and 
professional services.34   
(ii) Financial services 
(a) Overview 
43. Nepal's financial services have grown rapidly in recent years.  The sector is composed of 
institutions licensed and regulated by the Central Bank (Nepal Rastra Bank, NRB)35, and other, 
non-NRB licensed/regulated institutions.  In July  2011, the financial institutions under the 
responsibility of the NRB comprised:  31 commercia l banks ('A' class financial institutions);  
87 development banks ('B' class fina ncial institutions);  79 finance companies ('C' class financial 
institutions);  21 micro-finance institutions (' D' class financial institutions);  16 cooperatives36;  
38 non-governmental organizations (NGOs)37;  54 money transfer firms38;  and 238 money changers.39  
Nepal Bank, Rastriya Banijya Bank, and Agricu ltural Development Bank are the only remaining 
public enterprise commercial banks40;  the others are private (seven  are registered as joint-ventures 
and the remainder are local).  The proliferation of financial institutions over the last few years has 
strained NRB's supervisory capacity.41 
44. The remaining financial institutions include tho se licensed and regulated by the Ministry of 
Finance:  25 insurance companies;  Nepal Stock Exchange (NEPSE);  Employees Provident Fund42;  
                                                      
33 WTO online information.  Viewed at:  h ttp://stat.wto.org/Countr yProfile/WSDBCountryPF 
View.aspx?Language=E&Country=NP. 
34 WTO documents GATS/SC/139, 30 August 2004;  and GATS/SC/139/Corr.1, 3 November 2005. 
35 Under the Nepal Rastra Bank Act 2002. 
36 Cooperatives, established under the Cooperatives Act 1992, undertake limited financial transactions 
under the directives issued by the NRB in 2002 (revised in 2003). 
37 NGOs are licensed by NRB to undertake limited financial transactions.  They are registered under 
the Institutions Registration Act 1977 and undertake limited banking transactions  in accordance with the 
provision of the Financial Intermediation Related Institutions Act 1999. 
38 To channel inflow of foreign currency through a formal channel, particularly earned by Nepalese 
workers abroad, the NRB started to grant licences to mone y transfer firms in 2001 under the Foreign Exchange 
Regulations Act 2019 B.S. 
39 The NRB started granting licences to moneychangers in 1995 to facilitate the general public in the 
exchange of foreign currencies.  Th e moneychangers are licensed under th e Foreign Exchange Regulations Act 
2019 B.S. 
40 The State has a minority shareholding in Nepal Bank, and a majority stake in the other two banks. 
41 IMF (2010). 
42 The Employees Provident Fund, an autonomous entity established on 16 September 1962 under the 
Employees Provident Fund Act 1962, mobilizes the savings collected through the provident fund of government 
employees, army, police, teachers, government corporations, and some private companies. Nepal WT/TPR/S/257/Rev.1 
 Page 69 
 
 
  Citizen Investment Trust43;  Deposit and Credit Guarantee Corporation44;  and Credit Information 
Bureau45;  as well as the Postal Savings Bank (licensed and regulated by the Ministry of 
Communications)46;  and more than 10,600 Savings and Cr edit Cooperatives (licensed and regulated 
by the Ministry of Agriculture and Cooperatives).  
45. According to the IMF, although Nepal's key fi nancial indicators appear sound and compare 
well internationally47, risks to financial stability increased in the wake of the global financial crisis as 
a result, inter alia , of real estate exposure (particularly of credit and savings cooperatives), poor asset 
quality, and liquidity problems (section (b) belo w).  Moreover, some non- banking institutions have 
been found to have inadequate loan loss provisions  and, reportedly, some are funded by commercial 
banks.  Thus, a crisis in the non-banking s ubsector could quickly spill over into banking.  The ratio of 
total assets/liabilities of financial institutions to GDP, including that of contractual saving institutions, was 
126.2% in mid-July 2010.48  
46. Nepal has been implementing its financ ial sector reform programme since 2000.49  I t  h a s  
three major components:  reengineering of the NRB50;  restructuring of Nepal Bank Limited and 
Rastriya Banijya Bank51;  and capacity enhancement of the overa ll financial system.  The tenure of the 
Financial Sector Technical Assistance Project was extended until 31 December 2011.52  According to 
the IMF, amendments to the Banks and Financia l Institutions Act 2006 (BAFIA), if approved by 
Parliament, would go some way to bolsterin g the bank resolution framework and resolve 
inconsistencies between exis ting laws regarding liquidati on of financial institutions.53 
47. Under the GATS, Nepal made specific commit ments (and put some conditions) on financial 
services, including:  (i) branches will be allowe d for insurance services and wholesale banking as of 
1 January 2010;  (ii) only a licensed commercial ba nk, a licensed specialized  bank or a registered 
finance company may accept deposits;  (iii) only a li censed commercial bank may accept deposits that 
are repayable upon demand;  (iv) only financial instit utions with a rating of at  least 'B' by a Credit 
Rating Agency may have commercial presence in Ne pal;  (v) the total foreign shareholding in any 
                                                      
43 The Citizen Investment Trust, established on 18 March 1991 under the Citizen Investment Trust Act 
1991, mobilizes private as well as institutional savings, extends loans and advances, and works as an issue 
manager. 
44 The Deposit and Credit Gu arantee Corporation was established on  20 September 1974 to encourage 
commercial banks to extend loans to priority sectors a nd serve remote areas and poor families.  It guarantees a 
number of loans including priority sector loans, livesto ck loans, vegetable farming loans, foreign employment 
loans, micro and deprived sector credit, and credit for small and medium industries. 
45 The Credit Information Bureau, established in 1989, started operations as a company in March 2005.  
It is the prime organization in Nepal acting as the re pository for credit information of the consumers and 
commercial borrowers of all financial institutions. 
46 The Postal Savings Bank, established under the Postal Services Department, entered into operation in 
1976.  The Postal Savings Bank has 117 offices engaged in collecting deposits. 
47 Private banks have capital adequacy ratios above 12%.  However, since state-owned banks were 
undercapitalized, the banking subsector in Nepal had a ca pital adequacy ratio of 5.6% in 2009 (IMF, 2010). 
48 Including the market capitalization of the shares listed in the Nepal Stock Exchange, this ratio was 
158% (NRB, 2010a). 
49 The programme is supported by the World Bank and the United Kingdom. 
50 The second phase of the NRB's reengineering programme is being implemented through, inter alia , 
human resource development, strengthening/streamlining its regulatory/supervisory capacity, upgrading its 
auditing/accounting systems to international standa rds, and simplifying its functions (NRB, 2009). 
51 For the purpose of restructuring Nepal Bank and Rastriya Banijya Bank, their management has been 
taken over by the NRB under the NRB Act 2002. 
52 NRB (2009). 
53 IMF (2010). WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 70 
  
  financial services institution is limited to 67% of the issued share capital (for banks this threshold has 
recently been increased to 80%);  (vi) the shares  held by foreign nationa ls and foreign financial 
institutions in their locally incorporated compan ies are not transferable without the prior written 
approval of the NRB or any other competent authority ;  (vii) representative offices may not be engaged 
in commercial business;  and (viii) members of the Board of Directors of a financial service supplier 
will be in proportion to equity represen tation of that financial service supplier.54 
(b) Banking 
48. Approval for establishing a commercial bank is gr anted on the conditions set out by NRB and 
in accordance with BAFIA and other accompanying legislation.  The minimum share capital 
requirement to establish commercial banks, de velopment banks, finance companies, and 
micro-finance institutions ranges from Nr 10 million to Nr  2,000 million.  
49. On the basis of Nepal's commitments made  during its WTO accession negotiations, foreign 
banks/financial institutions are allowed to  open branches for wholesale banking, as from 
1 January 2010.  They require approval by the NR B, an assigned capital of at least US$30 million;  
deposits must be from corporations/associations regi stered in Nepal, of a minimum of Nr 100 million 
and in the form of fixed deposits for more than one year.55 
50. In principle, all commercial banks in Nepal are universal banks (i.e. allowed to carry out all 
types of banking activities).  With a view to provi ding freedom to commercial banks in the selection 
of their loan portfolio, NRB phased out the priority -sector lending programme in 2007/08.  However, 
it has continued the deprived-sector lending pr ogramme in order to provide credit access to 
marginalized and deprived people.  The ratio of  total assets/liabilities of commercial banks to GDP 
was 66.6% in mid-July 2010.56 
51. The NRB recently issued a set of prudential me asures aimed at containing banks' credit and 
liquidity risks57:  
- In July 2009, the NRB imposed a moratorium on bank licence applications while the licensing 
policy is being reviewed.  This moratorium was lifted in April 2010 for microfinance banks 
and eased for development banks with the aim of promoting banking service provision in 
rural areas;  
- In January 2011, single borrower limits were lowered from 50% to 25% of core capital.  
Banks were required to gradually  lower exposure to real-estate loans (real estate and housing) 
to 25% of total loans.  Loans above the limit w ill be penalized by provisioning on the basis of 
a risk weight of 150%; 
- Banks are limited to issuing loans of no more th an 60% of fair market value of the collateral 
or project; 
- Each bank's credit-to-deposit ratio for real-estat e loans including core capital is not to exceed 
85% by end 2010/11, and 80% by mid-January 2012;   
                                                      
54 WTO document GATS/SC/139, 30 August 2004. 
55 NRB (2010b). 
56 NRB (2010a). 
57 IMF (2010). Nepal WT/TPR/S/257/Rev.1 
 Page 71 
 
 
  - NRB has begun liquidation of Nepal Develo pment Bank (NDB) and Samjhana Finance 
Limited, while the rest ructuring of Nepal Bank Limited a nd Rastriya Banijya Bank is under 
way; 
- Banks are required to invest (provide) 20% of thei r total loan portfolio in (to) the real sector 
of the economy by 2012/13;  and 
- Provision has been introduced to provide a refina nce facility during times of liquidity crisis.  
52. Many development banks have been set up with the active participation of the private sector 
since the Development Bank Act 1996 entered into e ffect.  The main objectives of this Act were to 
enhance agriculture, industry, and commerce by exte nding credit facility to the public.  Prior to the 
Act, there were only two state-owned developmen t banks, the Agricultural Development Bank (which 
was converted into a commercial bank in 2006) and Nepal Industrial Development Corporation.  At 
present, development banks operate under the Banks a nd Financial Institutions Act 2006.  The ratio of 
total assets/liabilities of development banks to GDP was 9.9% in mid-July 2010.58 
53. According to the authorities, Nepal implements international banking practices.  In this 
regard, the new standard of capital fund (B asel II) was fully implemented as from 2008/09. 
54. Banks in Nepal are not allowed to carry  out activities related to insurance.59  Nonetheless, 
commercial banks, development ba nks, and finance companies may maintain equity stakes in 
insurance companies.60  
(c) Insurance 
55. Nepal has 25 insurance companies:  8 carry out life insurance business, 16 non-life, and 
1 composite (both life and non-life insurance)61;  17 insurance companies are listed on the Nepal 
Stock Exchange (NEPSE).  According to the ow nership structure, 1 insurance company is 
state-owned, 18 are owned by the private sector, 3 are foreign joint ventures, and 3 are foreign 
branches.  The ratio of total assets/liabilities of  insurance companies to GDP was 3.9% in 
mid-July 2009.62 
56. The Insurance Act 1992, which established th e Insurance Board as the regulatory body for 
insurance companies, requ ires insurance businesses to, inter alia , obtain a licence to set up an office 
in Nepal, and for all intermediaries wishing to  operate in the insuran ce business (e.g. agents, 
surveyors, brokers).  It also requires a minimum share capital of Nr 250 million for life insurers, and 
Nr 100 million for non-life insurers.  There is no minimum capital requirement for establishing a 
branch insurance office or a reinsurance business.63  No new composite insurance companies are 
permitted. 
57. Third-party liability insurance for motor vehicles is compulsory.  Under Section 26 of the 
Foreign Employment Act, no Nepalese citizen is allo wed to work abroad with out an insurance policy 
                                                      
58 NRB (2010a). 
59 Article 47 of BAFIA. 
60 For example, Laxmi Bank, a leading commercial bank, has a 15% stake in Prime Life Insurance 
Company. 
61 The state-owned National Insurance Corporation. 
62 NRB (2009). 
63 Insurance branches and reinsurance business ar e subject to the working capital requirement 
stipulated by the Insurance Board. WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 72 
  
  covering any kind of accident, disability or death. Section  38 of the Labour Act of 1992 (as amended) 
establishes mandatory insurance for certain occupa tions, which are provided via a personal accident 
policy.64  
(d) Securities 
58. The Nepal Stock Exchange (NEPSE) inde x reached its peak (1,175 points) on 
31 August 2008;  it ended 2010 at 478 poin ts and deteriorated further in 2011, partly due to the effects 
of the global economic crisis, and the 10-15% increase in the capital gain tax.  The number of listed 
companies increased from 142 in 2007/08 to 176 in 2 010/11.  The ratio of market capitalization of the 
NEPSE to GDP was 53.4% in mid-July 200965, and 28.6%  at the end of 2010. 
59. The Security Board of Nepal (SEBON) has b een the regulatory body for the capital and 
securities market since June 1993.  Under the 2007 Securities Act, some of the key functions of 
SEBON include:  offering advice to Government on matters connected with the development of the 
capital market;  registering the securities of corpor ate bodies established with the authority to make a 
public issue of its securities;  regulating and systema tizing the issue, transfer, sale, and exchange of 
registered securities;  supervising and monitoring the functions and activities of stock exchange;  and 
granting permission to operate collective investme nt schemes and investment fund programmes, and 
supervising and monitoring them.66  According to the latest available figures, SEBON approved 
Nr 14.6 billion in 2008/09 to issue 11 ordinary shares, 50 right shares, and 2 debentures for 
63 companies (11 commercial banks, 16 developmen t banks, 32 finance companies, 2 insurance 
companies, and 2 hydro-companies).67 
60. SEBON implemented the 2010 Mutual Fund Re gulation and the 2010 Central Securities 
Depository Service Regulation to mobilize the scat tered savings of small investors and promote 
institutional investment through the medium of mutu al funds.  It also issued the 2010 Bonus Share 
Issue Guidelines to regulate bonus share issues.  Moreover, the 2008 Securities Registration and Issue 
Regulation was amended:  a corporate body using local natural resources and materials as its raw 
materials is now required to set aside at least 10% of its issued capital for the people residing in the 
local area, in order to encourage public issues fro m companies in the infrastructure and manufacturing 
and processing sectors.  The 2008 Stock Exchange  Operation Regulation was also amended to 
facilitate government purchase of securities from outside the stock exchange.  With the aim of further 
developing Nepal's capital and securities market, the Fi ve Years Capital Market Master Plan is being 
developed with the assistance of the World Bank.68 
(iii) Telecommunications and postal services 
61. Nepal's telecommunications  network has grown considerably over the last few years, notably 
the mobile market where the number of cellula r subscribers jumped from 227,000 in 2005 to 
11.6 million in July 2011 (Table IV.6).  The estimat ed number of internet users (per 100 inhabitants) 
increased from 0.83 to 10.9 over the same period.   By mid-July 2011, there were 260,808 fixed 
broadband subscriptions, and about 839,000 fixe d telephone lines in service.  Nepal's 
telecommunications network is all digital with the majority having been installed in the late 1990s. 
                                                      
64 PA policy includes, minimum requirement property damage/bodily injury of US$10,000. 
65 NRB (2009). 
66 SEBON online information.  Viewed at:  http://www.sebonp.com/. 
67 NRB (2009). 
68 SEBON (2010). Nepal WT/TPR/S/257/Rev.1 
 Page 73 
 
 
  Table IV.6 
Selected teleco mmunication indicators, 2005-11 
  2005 2006 2007 2008 2009 2010 2011a 
Fixed telephone lines ('000) 485 612 701 805 812 842 839 
Fixed telephone lines per 100 inhabitants 1.78 2.20 2.47 2.79 2.76 2.81 2.93 
Mobile cellular subscriptions ('000) 227 1,157 3,269 4,200 5,598 9,196 11,602 
Mobile cellular subscriptions per 
100 inhabitants 0.83 4.16 11.52 14.53 19.02 30.69 40.59 
Estimated Internet users per 
100 inhabitants 0.83 1.14 1.41 1.73 1.97 6.78 10.9 
Fixed broadband subscriptions 0 963 10,957 10,000 15,561 113,485 260,808 
Fixed broadband subscriptions per 
100 inhabitants  0.00 0.00 0.04 0.03 0.05 0.38 0.93 
a Up to 4 July 2011. 
Source:  ITU online information, "ICT Statis tics Database".  Viewed  at:  http://www.itu.int/I TU-D/ict/statis tics/; and 
information provided by the Nepalese authorities. 
62. Under the 1997 Telecommunications Act and the 1997 Telecommunications Regulations, 
telecommunications and postal services are the res ponsibility of the Ministry of Information and 
Communication.  The Act also established the Nepal Telecommunications Authority (NTA) as an autonomous regulatory and licensing authorit y for all telecommunication services except 
broadcasting.
69  The objective of the NTA is to create a favourable and competitive environment for 
the development, expansion, and operation of telecom services.  Nepal's main policy objectives in 
telecommunications include:  universal access in ru ral areas;  universal service obligation in urban 
areas;  liberalization of all telecom services;  open licensing regime except for systems requiring scarce resources;  encourage private-sector participation and economic efficiency;  and a technology-neutral licensing regime.
70 
63. Under the Telecommunications Act and its Re gulations, all telecom operators require a 
licence from the NTA.  Licences are issued for a maximum of 10 years subject to fees ranging from 
Nr 100 to Nr 3 million, and renewable every 5 years for up to 25 years.71  NTA charges all licensees 
an annual Rural Telecom Development Fee.72  In addition, every basic mobile telecom operator must 
invest 15% of their total investment to expand their network outside rural areas.  Licensees who 
require the spectrum must pay a frequency fee set by the Radio Frequency Determination Committee. 
64. Nepal Telecom (NT), also known as Nepal Doorsanchar Company (previously Nepal 
Telecommunications Corporation), is the leading operator and, until October 2002, held the monopoly 
over all aspects of telecommunications.73  There are six operators in Nepal's fixed market:  NT, 
United Telecom74, and NCEL (previously Spice Nepal)75, which operate throughout Nepal;  and STM 
Telecom Sanchar, Nepal Satellite, and Smart Telecom, which cover certain districts. 
                                                      
69 NTA is fully independent financially.  Nonethele ss, its members (including  the Chairperson) are 
appointed by the Government, and the NTA Board is accountable to the Government.  
70 NTA online information.  Viewed at:  http://w ww.nta.gov.np/articleimages/file/brochure.pdf. 
71 The Telecommunications Regulations 1997 (Annexes). 
72 Set at 2% of the licensees' total adjusted gross revenue. 
73 NT was converted into a Public Limited Company on 14 April 2004;  8.5% of its shares have been 
issued to the public;  the remaining shares are still state-owned. 
74 On 4 October 2002, United Telecom was granted a second licence to operate in the fixed telephony 
market.  It is a private operator with 80% foreign equity of Indian investors.  
75 On 1 September 2004, the NTA granted Spice Nepa l a licence to operate GSM mobile services, both 
post-paid and pre-paid.  It was rebranded as NCEL in March 2010.  The company is now 80% owned by 
Swedish/Finnish TeliaSonera Holdings. WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 74 
  
  65. The mobile telephony market has two operators :  NT and NCEL.  In February 2011, NT 
dominated the fixed and mobile phone markets, with 90% and 55%, respectively, of total subscribers.
76  The NTA has also granted licences to 47 internet service providers. 
66. Telecommunication tariffs are fixed by the NTA.   Tariffs for basic and mobile telephone 
services are revised continuously for balancing.  
67. In 2008, NTA issued its Interconnection Gu idelines pursuant to Section 52 of the 
Telecommunications Act.  Each licensee is requi red to make available its telecommunications 
network and services to any other licensees wishing to interconnect, on an appropriate basis.  The 
charges that a licensee offers for all interconnec tion services must be cost-based and reflect the 
carrier-to-carrier relationship between licensees.77 Where feasible, the licensees must use an 
established cost methodology.78  The NTA fixes tariffs for inte rconnection services to international 
call termination to reduce illegal Voice Over Internet Protocol (VoIP) call bypass.79  The average 
price of out-going calls from Nepal is Nr 1-2, while  the average rate of incoming calls is Nr 10-16, 
which has encouraged illegal VoIP.80 
68. Under the GATS, Nepal made several specific commitments on telecommunications 
including:  (i) no limitation on the number of serv ice providers for both basic telecom and mobile 
telephony as from January 2009, although foreign par ticipation is permitted through joint-ventures 
with up to 80% equity participation81;  and (ii) opening its value-added services.82  Nepal accepted the 
Reference Paper on basic telecommunications services.83 
69. The Postal Services Department of Nepal, established in 1971, is under the Ministry of 
Information and Communication.  It has recen tly launched programmes aimed at improving the 
capabilities and effectiveness of postal service by arranging its operation as an autonomous body.84  
Internal courier service is not open to foreign investors (Chapter II(5)). 
(iv) Transport 
(a) Overview 
70. As a landlocked country and with mainly mount ainous terrain, Nepal's roads and aviation are 
its major modes of transportation.  The presence of railways is negligible, and urban transport services 
are few.  Nepal uses India's eastern port of Kolkata as its main gateway to the sea.   
                                                      
76 NTA online information.  Viewed at:  http://w ww.nta.gov.np/articleimag es/file/NTA_MIS_46.pdf. 
77 This generally involves the provision of services that are not available to customers or to unlicensed 
third parties.   
78 NTA online information.  Viewed at:  ntp://w ww.nta.gov.np/articleimag es/file/Interconnection_ 
guidelines_2009.pdf. 
79 International call termination is carrying international voice traffic from around the world and 
delivering it to the desired local telephone number. 
80 The Himalayan Times,  20 April 2011. 
81 In addition, the majority of the members of the Board of Directors of a joint-venture should be 
Nepalese nationals. 
82 Including Internet, e-mail, voice mail, fax mail,  VSAT, audio conference,  pay phone, pre-paid 
calling card, local, long-distance and international data communication, radio paging, and trunk mobile. 
83 WTO document GATS/SC/139, 30 August 2004. 
84 It provides traditional postal services, and other services such as EMS services, general post box, 
financial services, general services, and parcel service. Nepal WT/TPR/S/257/Rev.1 
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  71. The main institutions involved in the sector are the Ministry of Fiscal Planning and Works, 
the Ministry of Labour and Transport Management, the Ministry of Tourism and Civil Aviation, and 
the Nepal Civil Aviation Authority. 
72. Nepal faces several policy, ins titutional, and financial constrai nts in the development of its 
transport sector, notably:  (i) lack of integrated sector policies and of an effective implementation 
strategy for the development of rural roads;  ( ii) weak institutional capacity of local agencies, 
inefficient incentive structure, poor monitoring, and lack of accountability of the public sector 
agencies;  (iii) weak domestic resource mobiliza tion and heavy dependence on foreign assistance in 
the road subsector;  (iv) inadequate  and irregular road maintenance, resulting in the rapid deterioration 
of road conditions and quality;  (v) poor accessibility in the remote hill and mountainous districts, and 
insufficient connectivity in five district headquart ers, which are not connected by road;  (vi) poor 
maintenance systems for motor vehicles, which lead s to an increasing number of polluting vehicles 
and road accidents;  (vii) high transportation costs fo r Nepalese exports due to transit and high vehicle 
operating costs;  (viii) unreliability of freight tran sit services, as the average transit time through India 
varies from 3 to 8 days;  and (ix) the backlog of road maintenance is ever increasing, rendering the 
present local road network unserviceable.85 
(b) Air transport 
73. With 1 international and 52 domestic airports, air transport is crucial for Nepal's economy, 
including for trade and tourism, as villages in h ills and mountains are inaccessible by road.  Most 
airports are green-field without modern navigation systems.  The Tribhuvan international airport at 
Kathmandu connects Nepal with Europe and South and East Asia. 
74. The national carrier, the state-owned Nepal Airlines (NA), once connected European 
destinations such as Frankfurt, London, and Pa ris directly to Kathmandu.  However, due to 
mismanagement, expansion of NA's fleet was constrained and it no longer provides this service.86  NA 
mostly operates in Asian countries.  Major airlines connect Nepal with Europe via the Middle East. 
75. Air fares, routes, and capacities (domestic and international) are set freely, subject to 
authorization from the Ministry of Tourism and Civil Aviation, while the Nepal Civil Aviation 
Authority regulates licences for private operators, and air transport services. 
76. Foreign airlines are not allowed to carry domestic  traffic between locations within Nepal.  
77. Nepal has signed 36  bilateral agreements on air transport.  It has not signed any open sky 
agreements.87 
(c) Road transport and railways 
78. Nepal's total road network has around 21,500 km  (44.6% are earth, 32% are black-top, and 
23.4% are gravel).88  Some 43% of the population has access to  all-weather roads.  Over 60% of the 
                                                      
85 World Bank online information.  Viewed a t:  http://www.worldbank.org/WBSITE/EXTERNAL/ 
COUNTRIES/SOUTHASIAEXT/EXTARREGTOPTRANSPORT/0,,print:Y~isCURL:Y~contentMDK:205609
14~menuPK:869038~pagePK:3400.html. 
86 Nepal Tourism Board (2010). 
87 Ministry of Tourism and Civil Aviation online information.  Viewed at:  http://www.tourism.gov.np/ 
page.php?nav=16. 
88 Ministry of Finance (2011b). WT/TPR/S/257/Rev.1 Trade Policy Review 
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  network is concentrated in the Terai areas of Nepal.89  The poor condition of the road network 
hampers the delivery of social services in the remo te hill and mountainous districts and affects Nepal's 
economic development.  Moreover, high transport costs and the lack of connectivity are major 
impediments to its development.  The Inte rim Three Year Plan (2007-2010) was aimed, inter alia , at 
connecting the five unconnected district headqua rters through roads, and establish an enabling 
environment for public/private partnerships.  
79. The Department of Roads, under the Ministry  of Labour and Transport Management, has 
completed an integrated ten-year sector-wide plan and a Priority Investment Plan (2007-2016) for the 
development and management of strategic roads, in cluding institutional develo pment requirements.  It 
aims to bring the entire hill population within a f our hour walk of an all-season road and the Terai 
population within two hours.  The policy also commit s to a decentralized governance system for rural 
roads development and operation in districts.  
80. The Roads Board Nepal (RBN) was established in  late 2003 to create a stable fund, through 
the collection of road-user charges, and channel it to  the road subsector to implement the integrated 
annual plan and other road-development and research activities.  However, the RBN needs to improve 
its resource generation and efficiency to be able to fulfil its mandate. 
81. The World Bank is supporting two road projects in Nepal:  the Road Sector Development 
Project (RSDP), and the Rural Access Improvement  and Decentralization Project (RAIDP).  The 
RSDP aims to reduce poverty in rural areas by improving rural access and prompting higher 
agricultural output, as well as non-farm in come, in remote hill areas of Nepal.90  The RAIDP was 
designed for the residents of 20 districts to enable them to utilize improved rural transport 
infrastructure, and services, and benefit from improved access to social services and economic opportunities.
91 
82. Foreign trucks, mostly from neighbouring countr ies, are allowed to transport people and 
goods between locations within Nepal on the basis of reciprocity. 
83. Nepal's total physical railway line is 57 km .  The state-owned Nepal Railways Company 
(NRC) owns the 53 km narrow-gauge rail line, wh ich comprises two sections:  32 km between 
Jaynagar in India to Janakpur in Nepal, and 21 km from Janakpur to Bijalpura.92  Indian Railways 
manages 6 km of railway line, 4 km of which are in Nepal connecting Inland Clearance Deport in 
Birgunj (Nepal) to Raxaul (India). 
(v) Tourism 
84. Nepal earned US$330 million in tourism receipts  in 2010 (up from US$148 million in 2005) 
from about 602,000 tourist arrivals (Table IV.7);  75% arrived by air and the rest by land;  the goal is 
to increase arrivals to two million by 2020.93  The average length of stay of a tourist in Nepal has 
remained constant at around 12 days during the past  few years, while the number of licensed beds 
                                                      
89 The road network has expanded by 5% per year, on average, over the last decade, focusing on 
connecting district headquarters with the national network and improving access between rural areas and market centres.  
90 The RSDP started on 21 February 2008. 
91 Additional financing was approved for the project in December 2009 to enable it to expand to 
ten additional districts.  The revised closing date for the project is 31 December 2013. 
92 The Janakpur to Bijalpura networ k is not operational at present. 
93 Ministry of Tourism and Civil Aviation (2009). Nepal WT/TPR/S/257/Rev.1 
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  rose from 24,722 in 2005 to 30,502 in 2010.  In 2010, 20.1% of visitors came from India, followed by 
China (7.7%), Sri Lanka (7.6%), the United States (6%), and the United Kingdom (5.8%).94 
Table IV.7 
Selected tourism indicators, 2005-10 
 2005 2006 2007 2008 2009 2010 
Tourist arrivals ('000)a 375 384 527 500 510 602 
Tourist receipts (US$ million)b 148 163 231 352 317 330 
Number of hotels 603 607 619 669 736 812 
Number of beds 24,722 24,260 24,681 26,063 28,485 30,502 
 
a International tourist arrivals at fr ontiers (excluding same-day visitors). 
b Gross foreign exchange earnings, excluding earnings from Indian tourist. 
Source:  Ministry of Tourism and Civil Aviation (2010), Nepal Tourism Statistics , Kathmandu.  
85. Nepal is renowned worldwide as a tourist destin ation due to its natural beauty;  ethnic, 
lingual, and social diversity;  and cultural wealth.  Nepal is also a key tourist destination for hikers 
and mountain climbers because it is  endowed with eight of the world's ten highest mountain peaks in 
the Himalayas, including Mt. Everest;  and it is home to four UNESCO World Heritage Sites.95  Nepal 
has a pleasant year-round climate and people are renowned for their hospitality.  Nonetheless, tourism in Nepal faces key problems, such as poor infrast ructure, inadequate investment, limited air 
connectivity
96, shortage of good-quality accommodation an d skilled manpower, limited capacity to 
promote tourism, and political instability.97  With the aim of tackling these problems and promoting 
the sustainable growth of tourism, the authoriti es launched the Tourism Policy 2009, the Tourism 
Vision 2020, the Strategic Plan for Tourism Pr oducts and Resources, and the campaign Nepal 
Tourism Year 2011. 
86. The Ministry of Tourism and Civil Aviation is responsible for policy formulation, including 
the development of air transporta tion and other tourism trade-rela ted services.  The Nepal Tourism 
Board was established in 1997 to promote and regul ate tourism activities, and foster partnerships 
between the Government and the private sector.   
87. Tourism is regulated by a set of general rules, laws, and industrial acts, such as:  the Tourism 
Act, 2035 (1978) amended in 2053 (1997);  the Hotel,  Lodges, Restaurants, Bar and Tourist Guide 
Regulation, 2038 (1981);  the Travel and Trekki ng Agency Regulation, 2062 (2005);  the Rafting 
Regulation, 2063 (2006);  and the Mountaineeri ng Rules, 2059 (2002).  In addition, foreign 
investment in tourism is regulated under the Fore ign Investment and Technology Transfer Act of 
1992 (as amended in 1996).98 
                                                      
94 Ministry of Tourism and Civil Aviation (2010). 
95 These are:  (i) the seven monuments of the Kathmandu valley (Kathmandu Durbar Square, Patan 
Durbar Square, Bhaktapur Durbar Square, two Buddhist stupas Swayambhu and Boudanath, and two Hindu 
temples Pashupati and Changu Narayan);  (ii) Lumbini, the birthplace of Bu da;  (iii) Chitwan National Park;  
and (iv) Sagarmatha National Park. 
96 Due to its landlocked situation, visitors must either fly to Kathmandu or enter Nepal by land through 
India.  
97 Tourism has expanded slowly since the political parties and Maoists brokered a comprehensive peace 
agreement in No vember 2006.  
98 See Ministry of Tourism and Civil Aviation online information.  Viewed at:  www.tourism.gov.np. WT/TPR/S/257/Rev.1 Trade Policy Review 
Page 78 
  
  88. Under the Foreign Investment and Technology Tr ansfer Act, no permission is granted for the 
establishment of foreign companies, or foreign invest ment in travel agencies, trekking agencies, water 
rafting, pony trekking, horse riding, or tourist lodgi ng.  Foreign direct investment is allowed in the 
hotel industry, subject to authorization (Chapter I(5)).  In view of the economically underdeveloped 
status of the country and the dependence on tourism of a large number of people for their livelihood, 
during its WTO accession negotiations Nepal calle d for the understanding of WTO Members in the 
opening up of tourism services.99 
 
                                                      
99 WTO document WT/ACC/NPL/16, 28 August 2003. Nepal WT/TPR/S/257/Rev.1 
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