# **1. Introduction**

Nepal’s first comprehensive poverty assessment was published in 1991. The report – based on the Multi-Purpose Household Budget Survey conducted in 1984/85 – depicted dire living conditions in Nepal more than 30 years ago. Using what was considered then a very conservative poverty line, at least 40 percent of the population was deemed absolutely poor.<sup>2</sup> Except for a very few professionals and business persons, however, everyone in Nepal then would have been regarded poor by any reasonable international standard (World Bank 1991). Nepal was one of the poorest countries in the world at that time.

The report attributed Nepal’s poverty to four prominent factors. First, Nepal is landlocked, and borders on China and India, the two most populous countries in the world which were also two of the poorest countries at the time of that assessment. Second, Nepal has limited resource base and arable land. While known for its stunning natural beauty, Nepal’s mountainous and rugged terrain posed a significant challenge for rural development. Third, Nepal had a high population growth rate; the population had almost doubled between 1960 and 1990 (World Bank 2016b) and was projected to double again between 1990 and 2015 (World Bank 1991). Fourth, Nepal’s overall economic growth experience to date had been sluggish at best, presumably as a result of the aforementioned factors.

Poverty in Nepal was predominantly rural. Rural areas accounted for 93 percent of the population and 95 percent of the poor in 1984/85 (World Bank 1991; World Bank 2016b). The share of labor force dependent on agriculture was 93 percent, the highest of any country listed in the 1989 World Development Report (World Bank 1989). The overwhelming majority of poor Nepalis made their living by subsistence farming. As of 1984/85, most poor households barely met the minimum caloric requirement<sup>3</sup> by depending heavily on rice and dal – almost 90 percent – and rarely afford vegetables and fruits, let alone meat and eggs. Due to insufficient resource base to develop non-agricultural sectors, the country was inevitably and excessively dependent on subsistence agriculture with limited arable land. Very limited accessibility in the hills and mountains made transportation cost prohibitively so expensive that it was ironically rational for rural residents to stay engaged in subsistence agriculture rather than attempting to market farm commodities let alone developing non-farm businesses (World Bank 1991). The rapid population growth exacerbated the tendency to cultivate unproductive land unsuitable for farming in rural areas (Bista 2003).

There was very little optimism about any poverty reduction strategy that could plausibly make a meaningful dent in poverty in Nepal. For example, the 1991 report emphasized the need for support programs for the poor on the ground that the poverty rate would most likely persist. At the same time, poverty reduction by means of social transfers was considered untenable, as “there are too many poor and too few resources to realistically consider large-scale transfer or subsidy programs” (World Bank 1991). Of the four factors that entrenched Nepal in chronic poverty, nothing could be done about the difficult geography or natural resource endowments. The only glimmer of hope for Nepal was to slow down population growth and formulate effective policies focused on boosting agricultural productivity in rural areas.

Much like most severely impoverished countries in Sub-Saharan Africa, the Nepali economy at that time was characterized by high population growth, sluggish economic growth, a

> 2 A poverty line is a threshold below which individuals are deemed poor. The poverty line used in the report was Rs. 210 per person per month in the hills and Rs. 197 in the terai, in 1988/89 prices.

> 3 Minimum daily caloric requirement of 2340 kcal was used in World Bank (1991).

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