the worker.
7. Loss of Sense of Responsibility: None can be held responsible for bad production because
none makes the complete article. Everybody tries to shift the blame to somebody else.
8. Evils of Factory System: Division of labour gives rise to factory system which is full
of evils. It spoils the beauty of the place all round, leads to exploitation of women and
children and removes the personal factor in production and management.
9. Problem of Distribution: Under division of labour, many persons contribute to the
production of an article. They must receive a due share of the product and it is not easy
to determine this share. Hence, it is difficult to determine wage of a labour in the factory
system.
10. Fear of Over Production: Division of labour leads to large scale production. There is
always the danger of goods being produced in excess of their demand. This cause price to
fall and results in loss to the producers.
Glossary Specialization: A particular area which someone concentrates upon
Lockouts: The exclusion of employees by their employer from their place of
work until certain terms are agreed to
Monotony: Lack of interest
4.11 EFFICIENCY OF LABOUR
Efficiency of labour’ mean the productive capacity or productivity of labour. The
supply of labour measures the quantity of labour that is available in a country.
However, the productive capacity of the labour force of a country depends not only on
the quantity of available labour but also on its quality. This qualitative aspect of labour
is emphasized in the discussion of efficiency of labour.
According to Marshall, “At a particular time the ability of a labourer to do better or
much better and more work is deemed as the efficiency of labour.”
The ability or capacity of doing work in a specified time, working more and performing
quality work is known as efficiency of labour. It refers to quantitative and qualitative
efficiency.
Efficiency of labour can-
Efficiency of labour is a relative concept. It compares the the not be measured in ab-
work of two or more workers. The efficiency of a worker is solute sense, it can only
found by comparing his performance with that of another be compared
worker under similar conditions.
FACTORS AFFECTING THE EFFICIENCY OF LABOUR
Major factors affecting the efficiency of labour are as follows:
i. Racial Characteristics: The efficiency of labour to a great extent depends upon the
racial group to which it belongs and the heredity of labour. People of some regions are
physically sturdy and hard-working as compared to other places. As such, they are
very enterprising and comparatively more efficient in jobs where physical labour is
involved.
2. Climatic Conditions: It has been found that climatic conditions influence the efficiency
of workers. Generally, cold climate is more conducive to hard work than hot climate.
The workers of the temperate regions are harder working than those of tropical regions.
However, extremely cold climate is also unfavourable for human activities.
3. Standard of Living: The standard of living enjoyed by the worker also affects his
efficiency. If worker gets good food and leisure, their physical power and mental
101 Vedanta High School Economics - Book 9
capacity increase because they do not easily fall ill. Poor workers are less efficient
mainly because of low standard of living.
4. Personal Qualities and Character: The worker possessing Key Term
good moral character and having qualities like honesty,
intelligence, perseverance, resourcefulness, sense Perseverance: persistence in
doing something despite dif-
of responsibility and ability to take correct decision ficulty
(judgment) will definitely be more efficient than those who
do not possess the above qualities.
5. Wage Rate: Efficiency of labour is also affected by the wage rate. If the wage rate is
high, the living standard will be better. So for better life standard labourers will be
more interested to work and their efficiency will increase. But contrary to this, low
wage rate will discourage labourers towards work decreasing their efficiency.
6. Working Environment: Efficiency of labour is also affected by the working environment.
If the working place is neat and clean and all the equipments are available, the efficiency
of labour will increase. But if working place is dirty and unorganized and lacks facilities
and equipments, efficiency of labour will decrease.
7. General and Technical Education: The general education broadens the knowledge,
develops the intellect and improves the skill of a working person. The technical
education trains a worker concerning different systems of work of the productive units.
All these make an educated person more efficient and better in skill, as compared to an
uneducated and untrained person.
8. Experience: Besides general and technical education, the experience of the job makes a
man more and more efficient person. The practical experience of work is gained by the
worker during the training period. After that, he becomes perfect by doing day- to-day
work, regularly and repeatedly; simultaneously his efficiency also goes on increasing.
9. Reward and Promotion: If the labourers get reward and promotion, they will be
motivated towards work thereby increasing their efficiency. Labourers will work harder
if they expect reward and promotion. Lack of reward and promotion will decrease the
efficiency of labour.
10. Fair and Prompt Payment: The adequate and timely paid wages, act as a catalyst to
improve the productive capacity of the workers. A worker will obviously be interested
to work in those industries where fair and prompt payment is made. A well-paid
worker is contended and thus puts his heart in his work especially if he is promptly
and punctually paid.
CHECKPOINT 1. What can be the reasons for non performance of public enterprises in Nepal?
2. Define division of labour. What are its types?
3. point out the merits and demerits of division of labour.
4. How does higher higher wages and incentives affect he efficieny of labour
4.12 THEORIES OF POPULATION
The theorizing about population (population size and change) have remained an
important subject since time immemorial. Various economists and demographers have
provided different theories relating to the population. But, there are mainly two well-
known theories of population in demography, which are equally important in economics
too. They are:
1. Malthusian theory of population
2. Optimum theory of population
Vedanta High School Economics - Book 9 102
A MALTHUSIAN THEORY OF POPULATION
The Malthusian theory of population was propounded by Thomas Robert Malthus in
his book “Essay on the principle of population” in 1798 A.D. This theory explains the
relationship between population growth and food supply in an economy. The rapidly
increasing population of England distressed him very deeply. He feared that England was
heading for a disaster, and he considered it his solemn duty to warn his country-men of
impending disaster. So he published the theory of population.
According to Malthus, “By nature human food increases in a slow arithmetical ratio,
man himself increases in quick arithmetical ratio unless want and vice stop him”
Malthus further stated, “The increase in numbers is necessarily limited by the means of
subsistence Population invariably increases when the means of subsistence increase, unless
prevented by powerful and obvious checks.”
The Malthusian theory explains the relationship between the growth in food supply
and in population. It states that population increases faster than food supply and if
unchecked leads to vice or misery. Malthus was an economic
Basis of Malthus Reasoning KEY pessimist, viewing poverty as
Malthus based his reasoning on two important facts: IDEA
man’s inescapable lot
a. The Power of Procreation: Sex is a natural urge of every species. Every living organism,
including humans, tends to multiply to an unimaginable extent thereby causing
population to increase in geometric progression.
b. Diminishing Returns in Agriculture: Production of food is subject to the law of
diminishing returns. It implies that increasing cultivation cause agricultural production
to increase at a decreasing rate.
On the basis of these two premises, Malthus asserted that population tends to outstrip
the food supply.
Main Propositions of the Theory
Malthusian theory of population can be explained dividing it in four parts.
1. The Fertility of Man higher than the Fertility of the Soil: The biological urge for sex cause
every living organism tends to multiply to an unimaginable extent. On the other hand,
food production is subject to diminishing returns. As such, man multiplies at a much
faster rate than the growth of food production.
2. Growth rate of Population: Malthus asserted that population increases at a geometric
ratio i.e. 2, 4, 8, 16, 32, 64 …. Unless prevented by powerful checks. The size of the
population of a country tends to double every 25 years. This is due to the strong fertility
of mankind.
3. Growth rate of Food Production: Malthus observed that food supply increase at a slow
arithmetic ratio, i.e. 2, 4, 6, 8, 10, 12...... due to the application of law of diminishing
returns in agriculture.
4. Food Production cannot Catch up with Population Growth: The growth of population
is much greater than the growth of food production, putting in danger the survival of
mankind. This imbalance creates starvation, hunger, malnutrition etc in the country.
5. The Living Standard of the People cannot Improve Permanently: Initially as means of
sustenance increase, the living standard of the people improves. More marriages take place
and more children are produced. Eventually population increases and characterizes hunger,
diseases, malnutrition etc. As a result, the living standard of the people falls.
103 Vedanta High School Economics - Book 9
6. Population Increases as Means of Subsistence Increases: Food is necessary for the life of
a man and therefore exercises a strong check on population. Unless prevented by some
powerful and obvious checks, population invariably increases as the means of subsistence
increases. Increased means of sustenance induces more marriages and more births. This
cause population to increase.
Malthus advocated celibacy
7. Control of Population: Malthus has suggested two and sexual restraint to check
KEY population as there were no
types of checks to keep population in balance with IDEA contraceptives during his time
food supply.
a. Preventive Checks: Preventive checks are the measures applied by man himself.
Preventive checks applied by man are celibacy, late marriage, avoidance of sex and
moral restraint during married life etc. These checks decrease the birth rate and help
to maintain balance between population and food supply.
b. Positive Checks: Positive checks control the population by increasing the death
rate and are painful. The positive checks to population are various and include
every cause, whether arising from vice or misery and shorten the natural duration
of human life. Famine, war, diseases, malnutrition, bad nursing of children etc. are
some examples of positive checks which shorten human life and increase the death
rate. These checks apply naturally if preventive checks are not applied in time.
Malthus recommended the use of preventive checks if mankind was to escape from the
impending misery. If preventive checks were not effectively used, positive checks like
diseases, wars and famines would come into operation. As a result, the population would
be reduced to the level which can be sustained by the available quantity of food supply.
CRITICISMS OF THE MALTHUSIAN THEORY OF POPULATION
Malthusian theory of population has been criticized modern economists. The following
are some of the grounds on which it has been criticized:
1. A Pessimistic Theory: The Malthusian theory is a pessimistic theory. It made a gloomy
forecast for mankind. However, the gloomy forecast made by Malthus has been falsified
in the Western world. Population has not increased as rapidly as predicted by Malthus;
on the other hand, production has increased tremendously because of the rapid advances
in technology.
2. Ignores Scientific Inventions and Discoveries: Malthus asserted that food production
would not keep pace with population growth owing to the operation of the law of
diminishing returns in agriculture. But due to rapid advances in technology and with
the use of improved inputs, advanced countries have been able to postpone the stage of
diminishing returns.
3. Doesn’t Consider all types of Production: Malthus compared the population growth with
the increase in food production alone. Malthus held that because land was available in
limited quantity, food production could not rise faster than population. But he should
have considered all types of production in considering the question of optimum size of
population.
4. Living Standard is Higher than Subsistence Level: According Key Terms
to Malthus, living standards of the people cannot rise in
the long run above the subsistence level. But, the living Vice: immoral or wicked be-
havior
standards of the people in the Western world have risen Celibacy: to remain unmar-
greatly and stand much above the minimum subsistence ried
level.
Vedanta High School Economics - Book 9 104
5. Wrong Mathematical Expression: Malthus gave no proof of his assertion that population
increased exactly in geometric progression and food production increased exactly in
arithmetic progression. It has been rightly pointed out that population and food supply
does not change in accordance with these mathematical series.
6. Population is not always a Problem: Malthus considered that population growth creates
many social and economic problems. It is a narrow concept because size of population is
not a problem; the problem is its proper management.
7. Neglects the Influence of Standard of Living: This theory neglects the influence of
standard of living on population growth. People now began to care more for maintaining
a higher standard of living rather than for bearing more children. This change in the
attitude towards children and the wide use of contraceptives in western world has
falsified Malthusian doctrine.
8. Overpopulation is not the only Cause of Poverty: Growing incidence of starvation
may not be the only indicator of overpopulation. This theory shows that a situation of
overpopulation is responsible for such growing incidence of poverty and starvation. But,
inequality in the distribution of income and wealth can also create such a situation.
RELEVANCE OF THE MALTHUSIAN THEORY OF POPULATION
The Malthusian doctrine may not be applicable now to its place of origin, but its influence spreads
over two-third of this universe. Developing countries of Asia, Africa and South America come under
its purview. It is still relevant in developing countries where population growth and food
shortage and the resultant problems like famine, domestic conflict, etc. are very common.
We must, however, add that though the gloomy conclusions of Malthus have not turned
out to be true, yet the essentials of the theory have not been demolished. He said that
unless preventive checks were exercised, positive checks would operate. This is true even
today.
The developing countries are in that unenviable position which Malthus feared. The
developing countries of Asia, Africa and Latin America have the highest birth-rate and the
highest death-rate in the world. Grinding poverty, ever-recurring epidemics, famine and
communal quarrels are the order of the day.
The real aim of population policy is, however, not to avoid starvation but to eliminate
poverty so as to raise output per head in an accelerated manner. Thus the Malthusian
theory is fully applicable to developing countries like Nepal. No wonder that intense
family planning drive is on in Nepal at present. Walker was right when he wrote:
“The Malthusian theory is In 1798 Malthus described all the checks, such as
applicable to all communities infanticide, abortion, wars, plagues, and death from
without any consideration of colour disease or starvation, as resolvable into “misery and
and place. Malthusianism has vice.” In 1803 he added a third pigeonhole, moral
stood un-shattered, impregnable restraint, defined as “that restraint from marriage
amid all the controversy that has which was not followed by irregular gratification.”
raged around it.”
Keynote • The Malthusian theory relates population with food production
• Malthus predicted that population doubles up every 25 yeaars
• Preventive checks are applied due to man’s foresight
• As per Malthus, living standard of people cannot improve permanently
105 Vedanta High School Economics - Book 9
B OPTIMUM THEORY OF POPULATION
The optimum theory of population was propounded by Edwin Cannan in his book
Wealth published in 1924 and popularized by Robbins, Dalton and Carr-Saunders.
The core of the theory is a concept called “Optimum Population”. It was held that for
every economy there is an optimum level of population.
Unlike the Malthusian theory, the optimum theory does not establish relationship
between population growth and food supply. Rather, it is concerned with the relation
between the size of population and production of wealth.
According to Sidgswick,”The population yielding maximum return is the optimum
population that produces maximum economic welfare”
According to Robbins, “Optimum population is that population which just makes the
maximum returns possible.”
The optimum population is the ideal population which combined with the other
available resources or means of production of the country will yield the maximum
returns or income per head. It is fully consistent with the available resources of the
country. It depends upon the existing technology, capital stock and the amount of
natural resources of the country. It is the size of the population which is enough for
the efficient utilization of natural resources and factors available in the country so that
output is maximized and the income per head is maximum.
Stages of Population According to Dalton, “Optimum
The three stages of population as stated in the KEY population is that which gives the
optimum theory of population are explained as: IDEA maximum income per head.”
a. Under Population: If the population of a country is below the optimum, i.e., below what
it ought to be, then the country is said to be under-populated. The number of the people
is insufficient to take the fullest possible advantage of the natural and capital resources
of the country. I f the population increases in such a situation, there will be increasing
returns. This cause income per head to increase till the optimum level of population is
reached.
b. Optimum Population: The word ‘optimum’ means the best and the most desirable entity.
Optimum population is the size of a country’s population consistent with its resources.
When a country’s population is neither too big nor too small, but just that much which
the country ought to have, it is called the optimum population. In such a population
situation, returns will be maximum and per capita income is the highest.
c. Over Population: If the population increases beyond the optimum level, then we shall
have a state of over-population. With too many people in hand, the resources will not be
sufficient to provide gainful employment to all. They will be thinly spread over the teeming
millions. Per capita income will diminish; the standard of living will fall; war, famine and
disease will be constant companions. These are the symptoms of over- population.
The Optimum theory of population can be explained with the following table
Population (In crores) Income per head Size of Population
(in Rs)
1 8,000 Under population
2 16,000 Under population
3 24,000 Optimum population
4
5 16,000 Over population
8,000 Over population
Vedanta High School Economics - Book 9 106
As shown in the above schedule, when population rises from 1 crores to 2 crores, per
head income per capita increases from Rs. 8,000 to Rs 16,000 which is the situation
of under population. When population is Rs 3 crores, income per capita is highest
which is Rs 24,000. The population that corresponds to the highest per capita income
is optimum population. When population rises from Rs 3 crores, 4 crores to 5 crores,
per capita income decreases. This indicates over population.
Diagrammatic Explanation
The stages of under population, optimum population and over population can be explained
with the help of following diagram:
Output per capita P A s shown in the above figure, the segment
R AP shows under population. In this
Y region output per head rises along with
Optimum population rise in population. The point N shows
A optimum population where output per
capita is highest. The segment PR
shows over population. In this region
output per head or per caita income
falls as population increases.
But it may be noted that optimum population
is not a fixed and rigid number but is a
X moving figure. As explained above, optimum
ON population is relative to resources and
Size of population
technology. Given the amount of capital and
natural resources and the state of technology, there will be a definite size of population at
which the output per capita is maximum. But the quantity of capital and natural resources
and the state of technology are subject to changes. When there is any change in them, the
optimum level of population will also change.
Prof. Dalton has formulated the following formula to measure the actual state of
population of a country.
A−O POINTS TO NOTE
M= A
The optimum level is not a
Where M= Degree of maladjustment fixed point. If due to inventions
there are improvements in the
A= Actual population techniques of production, the
average product of labour might
0= Optimum population increase and push the level of
per capita income upward so
If M<0: Under population that the optimum point rises.
If M=O: Optimum population
If M>0: Over population
An economy is said to be under populated if A < O and Overpopulated, when A > O.
Only when A = O that resources of the economy are used in the best possible way to
secure the highest possible return for manpower.Other things being equal, any deviation
from this optimum-sized population will lead to a reduction in the per capita income.
Pessimistic: Tending to see the worst aspect of things
Glossary
Optimum: Ideal or the perfect
Per Capita Income: Average income of the country in a year
Deviation: Departing from an established course or accepted standard
107 Vedanta High School Economics - Book 9
CRITICISMS OF THE OPTIMUM THEORY OF POPULATION
Optimum theory of population is also not free from criticisms. Some of the major
criticisms are as follows:
i. Impractical Definition: It is very difficult to find out the point of optimum population.
As the state of optimum level changes due to development, it is very difficult to locate
it. As such, there is no practical importance of this theory.
ii. Narrow Concept: For optimum population this theory has considered per capita
income as its only base. But the optimum level of population.is fully influenced by the
efficiency of the population, social, religious and political factors.
iii. Hypothetical Theory: Optimum theory of population is a hypothetical theory because
it explains optimum level of population only. It does not explain anything about the
basis of the relation between increase in population and its consequences. This theory
has been taken as only a way of criticizing Malthusian theory of population.
iv. Indifference Towards Distribution: The theory explains that if per capita income
increases then increase in population is not harmful for a country. The theory neglects
the efficient distribution of increased income among the population of the country. If
increased national income is not efficiently distributed then maximum social welfare
cannot be achieved.
v. Ignores Non-economic Aspects of Population Problems: This theory considered
economic aspects of population problem only. It ignores the political, social and
biological aspects of population problems.
vi. Neglects Social and Institutional Conditions: The optimum theory considers only the
economic factors which determine the level of population. Thus it fails to take into
consideration the social and institutional conditions which greatly influence the level
of population in a country.
COMPARISON BETWEEN MALTHUSIAN THEORY AND OPTIMUM THEORY
The following are the main differences between the Malthusian Theory and the
Optimum Theory:
1. Malthus focussed his attention on land and food production, whereas the optimum
theory takes into consideration all the resources and economic development in all its
aspects, i.e., all types of production.
2. Malthus seemed to be thinking of a maximum number for a country which, if exceeded,
would spell misery. According to the optimum theory, there is no rigidly fixed maximum.
3. To Malthus, famine, war and diseases were the signs of over-population. But the
optimum theory tells us that, even in the absence of such distressing phenomena, there
can be over-population.
4. The optimum theory is optimistic, whereas the Malthusian theory is pessimistic in
outlook. Malthus was haunted by the fear that population would outstrip food supply.
The modern economists do not suffer from any such apprehensions.
5. The Malthusian Theory is only applicable in the underdeveloped countries. But the
Optimum Theory is applicable in both developed, developing and under developed
countries.
6. The Malthusian Theory gives the impression that every increase in population is
harmful. But the Optimum Theory does not support this conclusion. If a country is
under-populated, the increase in population is beneficial since it raises output per
capita. The increase in population becomes harmful only when the population crosses
the optimum limit.
Vedanta High School Economics - Book 9 108
CONCEPTS FOR REVIEW
Division of labour Efficiency of labour Power of procreation
Diminishing returns Preventive checks Positive checks
Optimum population Capital Organization
Innovation Unlimited partnership Limited partnership
Limited liability Artificial person Partnership deed
Capital formation Entrepreneur Public enterprises
EYE ON THE PAST
Division of Labour
When Adam Smith visited a pin factory he discovered that 10 people, each specializing in a small
task, could make 48,000 pins a day. By dividing pin- making into small parts, what he called the
division of labor, he found that people were 240 times as productive as they would be if each person
performed all the tasks needed to make a pin.
You can see the productivity of specialization and the division of labor in many everyday places.
One of these is a fast-food restaurant. One person special- izes in keeping the kitchen stocked with
bread, salad materials, meat, sauces, boxes, and wrappers. One works the grill and another the fry
maker. Another spe- cializes in assembling the meals. Yet another takes the customers’ orders and
han- dles payment. Another has the job of keeping things clean and hygenic.
In an 18th century pin factory
KNOW YOUR ECONOMIST
THOMAS ROBERT MALTHUS
Thomas Robert Malthus (13 February 1766 – 23 December 1834) was an
English cleric and scholar, influential in the fields of political economy and
demography. He came to prominence for his 1798 essay on population
growth. In it, he argued that population multiplies geometrically and food
arithmetically; therefore, whenever the food supply increases, population
will rapidly grow to eliminate the abundance. Malthus stated that population
growth generally expanded in times and in regions of plenty until the size of
the population relative to the primary resources caused distress:
Malthus argued that two types of checks hold population within resource
limits: positive checks, which raise the death rate; and preventive ones, which
lower the birth rate. The positive checks include hunger, disease and war;
the preventive checks: abortion, birth control, prostitution, postponement of
marriage and celibacy
109 Vedanta High School ETc.RonMomaltichsu-s Book 9
GLANCING THE UNIT
Production: It is defined as any economic activity 8. Introduction of machinery
that leads to the creation of goods and services 9. Inventions and innovations
having utility. 10. Cheaper output at lower cost
The act of production possesses the following three
characteristics: Demerits of division of labour
1. Creation of utility 1. Monotony
2. Promotion of utility 2. Kills creative instinct
3. Exchange value 3. Loss of skill
In traditional economic theory, the inputs are 4. Checks mobility
classified into four factors of production. They are: 5. Risk of unemployment
1. Land 6. Checks development of personality
2. Labour 7. Loss of sense of responsibility
3. Capital 8. Evils of factory system
4. Organization 9. Problem of distribution
10. Danger of overproduction
Land: Land as a factor of production refers to all Efficiency of labour: It is the capacity of a worker
those natural resources or gifts of nature which are to produce the quantity and quality of goods and
provided free to man. services over a given period of time.
Labour: In economics labour is the mental and Factors affecting the efficiency of labour
physical efforts of humans used for the production 1. Racial stock
of goods and services with the motive of earning 2. Hereditary traits
income. 3. Common sense
Capital: It refers to that part of man-made wealth 4. Power to work
which is used for the further production of wealth. 5. Education
6. Training and skill
Organization: Organization may be defined as a 7. Wages and benefit
factor which brings together the required factors of 8. Moral qualities
production, manage them in right proportion, make 9. Climate and physical conditions
them work harmoniously, determine remuneration 10. Working environment
and undertake risk and uncertainty in production Malthusian theory of population
process. The Malthusian theory of population was
Division of labour: Division of labour is the act of propounded by Thomas Robert Malthus in his book
splitting a work into several specialized process “Essay on the principle of population” in 1798 A.D.
and assigning each process of the work to different
workers on the basis of their skill, efficiency and Statement of the theory
capability. According to Malthus, “By nature human food
Types of division of labour: increases in a slow arithmetical rate, man himself
1. Simple division of labour increases in a quick geometrical rate unless want
2. Occupational division of labour and vice stop him”.
3. Complex division of labour Main propositions of the theory
Merits of division of labour 1. The fertility of man higher than the fertility of
1. Right man in the right place the soil
2. Improvement in skill
3. Better quality of work 2. Population grows at geometrical rate
4. Saving of time 3. Food production increases at arithmetical rate
5. Less strain 4. Food production cannot catch up with
6. Less training required
7. Economies of large scale production population growth
5. Living standard cannot improve permanently
6. Population increases as the means of
Vedanta High School Economics - Book 9 110
GLANCING THE UNIT
The optimum theory of population was propounded Forms of business organization
by Prof. Edwin Cannon in the book ‘Wealth’ 1. Sole Proprietorship
published in 1924 A.D. The core of the theory is a 2. Partnership
concept called “Optimum Population”. 3. Joint stock company
Optimum population refers to the size of population
that is fully consistent with the available resources Sole proprietorship: A business organization with a
of the country. single owner.
Partnership: Partnership is an association of persons
Three stages of population growth who agree to combine their financial resources and
1. Under population managerial abilities to run a business and share
2. Optimum population profits in an agreed ratio.
3. Over population
In under population stage population is less and Joint stock Company: A joint stock company is
unable to fully exploit productive resources. Output defined as a voluntary association of persons having
per capita is low separate legal existence, perpetual succession and a
In optimum population stage population perfectly common seal.
balances the available resources and output per
capita is maximum Capital formation: Capital formation refers to the
In over population stage there is overcrowding du increase in productive capacity of an economy over
e to large size of population. So output per capita time.
is low.
Public enterprises: Public enterprise, as a business
entity, refers to any industrial or commercial
undertaking which is owned and managed by the
central, state or local government.
MALTHUSIANISM
Malthusianism is the idea that population
growth is potentially exponential while
the growth of the food supply is linear. It
derives from the political and economic
thought of the Reverend Thomas Robert
Malthus, as laid out in his 1798 writings,
An Essay on the Principle of Population.
111 Vedanta High School Economics - Book 9
QUESTIONS FOR REVIEW
Very Short Answer Type Questions
1. What do you mean by factors of production?
2. Define labour.
3. What is meant by division of labour?
4. What is meant by efficiency of labour?
5. What is capital?
6. What is partnership?
7. What is a joint stock company?
8. What is meant by limited liability?
9. What is a partnership deed?
10. What is meant by Articles of Association?
11. What is meant by Memorandum of Association?
12. Define capital formation.
13. Define organization.
14. What do you mean by public enterprises?
Short Answer Type Questions
1. Explain the characteristics of land.
2. What are the characteristics of labour?
3. What are the characteristics of capital?
4. Explain the merits of partnership.
5. Write any five merits of division of labour.
6. Write any five demerits of division of labour.
7. How is the optimum theory of population superior to the Malthusian theory?
8. Is Malthusian theory applicable to developing countries? Explain
9. Explain the process of capital formation.
10. Explain any five internal sources of capital formation.
11. Write the significance of capital formation.
12. What are the features of public enterprises?
13. What are the main functions of an entrepreneur? Explain.
14. Distinguish between limited partnership and unlimited partnership.
Long Answer Type Questions
1. Explain the Malthusian theory of population.
2. Explain the optimum theory of population.
3. Explain the factors determining the efficiency of labour.
4. What is a joint stock company? Write its merits and demerits.
Vedanta High School Economics - Book 9 112
5UNIT NATIONAL INCOME
Learning Objectives Weight: 11 Lecture Hours
On Completion of this unit the student will be
able to:
• Understand the concept of National Income
• Define and explain the various concepts of
National Income
• Distinguish between GDP and GNP
• Understand the concept of Per Capita Income
• Learn the computation of national income
• Explain the difficulties in the measurement of you begin
Beforenational income
• Point out the special difficulties in national National income is the total income earned
by a nation’s residents in the production
income measurement in LDC’s of goods and services. It differs from net
national product by excluding indirect
business taxes (such as sales taxes) and
including business subsidies.
Very Short Type Short Type Long Answer Type Total Marks
1 1 0 6
113 Vedanta High School Economics - Book 9
5.1 MEANING OF NATIONAL INCOME
The term National Income is used to denote money value of the aggregate production
of goods and services of a country during a specific period, usually one-year. In other
words, it is the total income recieved by the citizens of a country in a year. It includes
payments made to all productive resources in the form of wage, interest, rent, profits, etc.
Samuelson and Nordhaus defined national income as: “Total value of income (output
or expenditure)generated within the economy in a particular year”
National income is a measure of the value of the output of the goods and services produced
by an economy over a period of time, usually one year. It is also a measure of the incomes
which flow from that output and the expenditure involved in purchasing that output. It is
used inter changeably with National dividend, National output and National expenditure.
National income has been defined, by different economists from different approaches.
The various definitions are classified as:
A. TRADITIONAL DEFINITION National income is the
The definitions of Marshall, Pigou and Fisher are the KEY total income of a country
IDEA
traditional definitions of national income. in a year from all sources
1. Marshall’s Definition
Marshall defined national income from the production side. He defined national
income as the total net value of all goods and services produced by a nation including
net income from abroad.
According to Marshall, “The labour and capital of a country acting in its natural resources
produce annually a certain net aggregate of commodities, material and immaterial
including services of all kinds. This is the true net annual income or revenue of the
country or national dividend”.
In this definition, the word “net” means the deduction from
the gross national income due to depreciation of machines Net income from
abroad is the difference
and capital. Net income from abroad is added in the national KEY between export earnings
income. IDEA and import payments
2. Pigou’s Definition
Pigou defined national income from the income side or the distribution side. He defined
national income as the total income received by the citizens of a country in a year from
According to Pigou, “National income is that part of objective income of the community
including of course income derived from abroad which can be measured in money”.
all possible sources.
According to him all goods and services which are expressed in monetary terms should
be included in national income.
3 . Fisher’s Definition
Fisher defined national income from the consumption side or expenditure side. He
defined national income as the total net expenditure made in an economy in a year.
According to Fisher, “The true national income is that part of annual net produce
which is directly consumed during that year”
In Fisher’s point of view national income should include those goods and services
which are consumed by the people.
Vedanta High School Economics - Book 9 114
B. MODERN DEFINITION
Simon Kuznets who received Nobel Prize for his work on national income accounting
considers national income as the total net value of goods and services which reach the
hands of the citizens of a country in a year.
Simon Kuznets defined national income as “the net output of commodities and services
flowing during the year from the country’s productive system in the hands of ultimate
consumers”.
From the analysis of the various definitions, the following points may be noted in regard
to national income:
1. National income is related to any particular country.
2. This is a perennial flow, which is estimated, year after year, on annual basis.
3. National income is calculated on the basis of production, consumption and distribution.
4. National Income is measured in units of money.
5. National income included commodities, as well as services.
5.2 VARIOUS CONCEPTS OF NATIONAL INCOME
1. Gross Domestic Product (GDP)
It is the total amount of final goods and services produced within the domestic territory
of the country over a period of time, generally one year.
Samuelson and Nordhaus: “This is the value of output produced (and incomes
received) by domestic residents, in other words, by firms and households located
within the domestic economy”
GDP may be expressed as the summation of product GDP is the measure of
goods and services and their respective prices. the productive capacity of
KEY the economy
GDP =∑( P×Q)
IDEA
Where,
P = Price of the goods or services produced within a country.
Q = Quantity of good or service produced within a country, and
While calculating GDP, the output should have market value and final goods and
services should be taken into account.
2. Gross National Product (GNP)
It is the monetary value of all final goods and services during a specific time period
including net factor income from abroad.If we include net factor income from abroad
in GDP we get GNP.
Samuelson and Nordhaus: “This is the value of output produced (and incomes
received) by domestic residents from their ownership of resources, wherever these
resources happen to be located, whether inside or outside the domestic economy”
Net factor income from abroad is the difference between total receipts from foreign
countries and total payment to the foreign countries. So, GNP is calculated as follows:
GNP= GDP +Net income from abroad
115 Vedanta High School Economics - Book 9
DISTINCTION BETWEEN GDP AND GNP
There are some differences between GDP and GNP which are given below:
Gross Domestic Product Gross National Product
GDP is a narrow concept and confines GNP is a broad concept and crosses the
within the domestic territory of the national boundary as it includes net
country income from abroad
It includes all final goods and services It includes all final goods and services
produced by residents and non-residents produced by the normal residents
within the country. anywhere in the world.
If we subtract net factor income from abroad If net factor income from abroad is added
from GNP, we get GDP. to GDP, we get GNP.
If net factor income from abroad is GNP will be greater than GDP if net factor
negative, GDP would be greater than GNP. income from abroad is positive.
Higher GDP implies higher domestic Higher GNP may not imply higher
production capacity. domestic production capacity.
1. Net National Product (NNP)
It may be defined as the total net monetary value of final goods and services produced
within the country. If we deduct value of depreciation from gross national product we
get net national product (NNP) or the Net National Product at Market Price (NNPMP)
NNP is calculated as follows:
NNP = GNP -Depreciation
4. Net National Product at Factor Cost (NNPFC) or the National Income (NI)
National income at factor cost is the national income. It is obtained by deducting
indirect taxes from NNPMP and adding subsidies to it.
National Income (NI) or NNPFC = NNPMP - Indirect Taxes + subsidies
= NNPMP - Net Indirect Taxes
Pause for Thought
Where, Why is GDP greater than
NNPMP = NNP at market price. GNP in Nepal? When can
GNP be greater than GDP?
5. Per Capita Income (PCI)
Per capita income is average income of the citizens of a country earned in a particular
unit of time. It is defined as the ratio of national income to total population of the
county in a particular period of time.
Per Capita Income PCI = National Income NI
Population
Per capita income is one of the indicators of national income. Higher per capita income
indicates higher level of economic development.
Glossary Depreciation: Wear and tear of capital and machinery
Objective income: Income which can be measured in monetary terms
Indirect tax: Tax on consumption and production
Vedanta High School Economics - Book 9 116
5.3 MEASUREMENT OF NATIONAL INCOME
There are three methods of measuring Did you Know? Simon Kuznets was best known
national income. Strictly speaking, the for his studies of national
national income accounts are defined in such income and its components.
a way that the three methods of measurement Many economists believe that
should give exactly the same result. The three Kuznets received the 1971 No-
bel Prize for his measurement
methods are:
in national income accounting,
a. Product Method and certainly that was enough to merit the prize.
b. Income Method But in fact, the prize was awarded for his empiri-
c. Expenditure Method cal work on economic growth.
1. PRODUCT METHOD
This method measures national income from the production aspect. In this method the
economy is divided into various sectors, viz primary or agricultural sector, the secondary
or manufacturing sector and the tertiary or service sector. The market value of output
produced by different sectors of the economy is then added up to find out the national
income. This method traces the origin of national income from different producing sectors
of the economy. So the method is also called national income by industrial origin or
sectoral origin. ‘Market prices’ is a valua-
There are two approaches in the product method: tion approach which includes
Final Product Method KEY the impacts on price of both
Value Added Method IDEA taxes and subsidies.
A. FINAL PRODUCT METHOD
In this method the total value of final goods and services produced in a country during
a year is calculated at market prices. The data of all productive activities such as
agricultural products, industrial products, forest products, contribution made by transport,
communication, insurance companies, etc are assessed at market price to obtain the GNP.
Only final goods and services are considered and all intermediate goods are excluded in
order to avoid double counting.
The steps involved in this method are:
Step 1: The market value of all final goods and services are added up to obtain GDP at
market prices.
i,e GDPMP= ∑P×Q
Step 2: Net Income from Abroad is added to obtain GNP at market price.
i,e, GNPMP= GDP + Net Income From Abroad (X-M)
.Step 3: Depreciation is deducted from GNP to obtain NNP at market price
. i,e, NNPMP= GNP – Depreciation
Step 4: Net Indirect taxes are deducted from NNPMP to obtain NNPFC or the NI. i,e,
NNPFC or NI= NNPMP- Net indirect taxes ‘Factor cost’ is a valuation
i,e NNPFC or NI= NNPMP- Net indirect taxes approach which seeks to ex-
clude the ‘distorting’ impacts
KEY on the prices of products of
IDEA any taxes or subsidies
117 Vedanta High School Economics - Book 9
Precautions in the Use of Final Product Method
1. To avoid double counting only the value of final goods or services are considered.
Intermediate goods are excluded.
2. Money value of goods and service not offered for sale should not be included. For example
the services of house wives are not included.
B. VALUE ADDED METHOD
Value added is the difference between the value of goods as they leave a stage of production
and the cost of the goods as they entered that stage. It is the difference between a firm’s
sales and its purchases of materials and services from other firms.
i, e, Value Added= Value of Output – Cost of Inputs.
A hypothetical example of value addition is given below: POINTS TO NOTE
• A final product is
Step Details Value of output Cost of inputs Value Added one that is produced
and sold for consump-
(in Rupee) (in Rs) tion or investment.
1 Wheat 20 - 20 • To avoid double
2 Flour 50 counting,we include
20 30 only fi nal goods in GDP
3 Bread 80 50 30 • National income is
measured by taking the
4 Delivered bread 100 80 20 value added at each
Total 250 150 100 stage of production
In the above example, suppose a farmer grows wheat worth Rs.
20 and sells it to the miller for Rs. 20, thereby adding value of Rs. 20. The miller processes
the wheat into flour and sells it to the baker for Rs. 50. He adds value of Rs. 30. Likewise,
the baker sells bread to the retailer for Rs. 80 and thus adds value of Rs. 30. The retailer
sells bread to the consumer for Rs. 100 and adds value of Rs. 20. The total value added in
all these stages is Rs. 100. Such value additions for all the producing units of the economy
are added up to obtain the national income.
The steps involved in this method are:
Step 1: The total value added by all the producing units in an economy at different stages
are added up to obtain GDP at market price.
i,e,GDPMP = Sum of all value additions in an economy.
Step 2: Net Income from Abroad (X-M) is added to GDPMP to obtain GNP at market price.
i,e, GNPMP= GDP + Net Income From Abroad (X-M)
Step 3: Depreciation is deducted from GNPMP to obtain NNP at market price
i,e, NNPMP= GNPMP – Depreciation
Step 4: Net indirect taxes are deducted from NNPMP to obtain NNPFC or the NI.
i,e NNPFC or NI= NNPMP - Net indirect taxes
• The outputs of some firms are the inputs of other firms.
Keynote
• Self-provided commodities are omitted from the national income statis-
tics because it is impractical to monitor their production
• Intermediate goods are used up to produce other goods
Vedanta High School Economics - Book 9 118
2. INCOME METHOD
This method approaches national income from the distribution side. According to this
method, national income is obtained by summing up of the incomes of all individuals in
the country. Only those incomes paid in return for some productive activity during that
year and for which there is a corresponding output are included. Of course, it is the gross
value of these factor rewards which must be aggregated, since this represents the value of
the output produced.
Thus, national income is calculated by adding up the rent of land, wages and salaries
of employees, interest on capital, profits of entrepreneurs and income of self-employed
people.
Under this method, the net income received by individuals and business enterprises in
a country during a year is collected and added up. The total obtained is called the factor
payments total.
The steps involved in this method are:
Step 1: All the factor payments are classified in the following headings:
1. Wages and benefits paid to workers When calculating national product
2. Proprietors’ income as a flow of incomes it is important to
3. Rent (including imputed rent) ensure that only the rewards for fac-
4. Interest KEY tor services which have contributed to
IDEA output in that year are included
5. Corporate profits (dividend plus undistributed profits)
6. Mixed incomes of self employed.
7. Net Indirect taxes (indirect taxes minus subsidies)
8. Income from government sector including property income and public undertakings
income. Transfer payments must
9. Capital consumption allowance (depreciation).
These are added to obtain GDP at market price. KEY be excluded from aggre-
IDEA
gates of factor incomes
Step 2: Net income from abroad is added to GDP or GDI to obtain GNP at market price.
i.e. GNPMP= GDP + Net income from abroad
Step 3: Depreciation is deducted from GNP to obtain NNP at market price.
i.e. NNPMP=GNP-Depreciation
Step 4: Net indirect taxes (Indirect taxes- Subsidies) are added to NagNePMpPentosioobnt,aiunnNemNP- at
factor cost or the National Income
Old
KEY ployment allowance are
IDEA
i.e. NNPFC or NI=NNPMP - Net indirect taxes transfer payments
This method of estimating national income has great advantage of indicating the distribution
of national income among different income groups such as landlords, capitalists, workers,
etc.
Glossary Subsidy: A sum of money given to an individual, business or institution
to remove some type of burden
Tertiary sector: Segment of the economy that provides services to its consumers
Dividend: Distributed profits
119 Vedanta High School Economics - Book 9
3. EXPENDITURE METHOD
The method measures national income from the consumption side or the expenditure
side. This method arrives at national income by adding up all the expenditure made on
goods and services during a year. This approach to GDP accounting emphasizes the fact
that all the output produced in the economy must be claimed by someone.
The steps involved in this method are:
Step 1: The private consumption expenditure(C), Private investment expenditure (I),
Government expenditure (G) and net foreign investment or net exports (X-M) are
all added up to obtain GDP at market price.
i,e, GDPMP= C+I+G+(X-M)
Step 2: Net Factor Income From Abroad is added to obtain GNP at market price.
i,e, GNPMP= GDP+Net Factor Income From Abroad (NFIA)
Step 3: Depreciation is deducted from GDP to obtain NNP at market price
i,e, NNPMP= GNP – Depreciation
Step 4: Net indirect taxes are deducted from NNPMP to obtain NNPFC or the NI.
i,e NNPFC or NI= NNPMP- Net indirect taxes
Net indirect taxes refers
Precautions in the Use of Expenditure Method KEY to indirect taxes minus sub-
IDEA
sidies
While estimating the value of expenditure certain
precautions should be made. They are as follows:
1. Expenditure on second hand goods should not be included.
2. Expenditure on shares, debentures, bonds and securities should not be included, because
they represent only paper titles.
3. Transfer payments like pension, scholarship, unemployment allowances, and old age
allowances should not be included
4. Expenditure on final goods and services only should be included. Expenditure on
intermediate goods should not be included.
The three methods stated above give the same result. The difference comes only as regards
to a level at which the national income is calculated or non-availability of statistics or
overlooking of certain items. Otherwise income, expenditure and output are the same
thing looking from three different angles.
The ‘black economy’:
One way in which the so-called ‘black economy’ can be estimated is through the
difference between national income when measured by the income method and when
measured by the expenditure method. If, however, people receive income and do not
declare it in tax returns, it will not appear on the income side,though expenditure will
increase as the unrecorded income is spent on goods and services
Vedanta High School Economics - Book 9 120
5.4 DIFFICULTIES IN THE MEASUREMENT OF NATIONAL INCOME
The calculation of NI is a complex and challenging task. There are some conceptual and
statistical difficulties which are as follows:
1. Danger of Double Counting: If care is not taken in estimating the income, national
income will be overestimated. For example- sugarcane is final goods for a farmer but it is
intermediate good in sugar mill. There is a possibility of double counting while calculating
the value of sugar. To avoid double counting, value added method may be adopted.
2. Self-consumed Production: In developing countries, a significant part of the output is not
exchanged for money in the market. It is either consumed directly by producers or bartered
for other goods. This unorganized and non-monetized sector makes calculation of national
income difficult. Goods which, are retained by the producer for personal consumption are
difficult to be estimated and pose a problem in national income accounting.
3. Price Level Changes: Since national income is measured in money terms, fluctuation
in the general price level will render unstable the measuring rod of money for national
income. As such, national income can change even without any change in output. When
prices are rising, the national income figures rise even though production might have
gone down.
4. Illegal Activity: There are many illegal activities that are prevailing in our economy
such as smugglings and production of banned product. These hidden economic
activities and the incomes accrued from them are not included in national income.
This underestimates the value of national income.
5. Transfer Payments: The transfer payments like pension, unemployment allowance, disability
allowance etc. are a part of individual income but these are also a part of government
expenditures. So, it creates problems whether it should be included in national income or not.
6. Illiteracy: In one hand illiterate people do not know the importance of national income
calculation. On other hand they are unable to give accurate information. So due to lack
of actual information accurate national income cannot be calculated.
7. Calculation of Depreciation: Capital depreciation should be deducted to find the net
national income. But present value of depreciation rate of capital goods cannot be
accurately measured because of long life of capital goods. Further, there are differences in
lives of capital assets. This creates problem in calculation of depreciation.
8. Non-availability of Statistical Material: Some persons like electricians, plumbers, etc.,
do some job in their spare time and receive income. It is very difficult to know the exact
amount received from such services. This income which should have been added to the
national income is not recorded due to lack of full information of statistics.
9. Problem of Expertise: The shortage of professional in most developing countries is a
major problem. To estimate national income accurately, the services of statisticians,
analysts, programmers, researches and others is needed. These professionals will be
able to present the national income data with the minimum technical and human
errors. However, there is lack of such trained and expert enumerators.
10. Problem of False Information: Businessman and other self-employed people usually
underestimate their earning primarily to evade paying high taxes. This would of course
lower the national income figures of the country.
121 Vedanta High School Economics - Book 9
5.5 IMPORTANCE AND USES OF NATIONAL INCOME ANALYSIS
National income data are of great importance for the economy of any country. The following
points highlight the importance of national income analysis.
1. Importance in Economic Planning: Framing an economic plan requires a prior knowledge
of the trends in national income. It is a useful aid in planning and formulation of realistic
plans. It helps in judging which sectors should be given more emphasis. Accordingly
resource allocation is done in an economy.
2. Economic Policy: National income figures are an important tool of macroeconomic analysis
and policy. National income estimates are the most comprehensive measures of aggregate
economic activity in an economy. It is through such estimates that we know the aggregate
yield of the economy and can lay down future economic policy for development.
3. Basis of Budgetary Policies: Modern government prepares their budgets on the basis
of national income statistics and makes necessary changes in taxation and borrowing
policies. It helps to avoid fluctuations in national income.
4. Inter- sectoral Comparisons: It helps to study inter-sectoral growth. Such comparisons
are useful to find out inter-sectoral development gap. Share of various sectors can be
studied to find out structural defects and weaknesses of the economy.
5. Indicator of Economic Welfare: It enables us to study per capita income and per capita
consumption which are the general indicators of economic growth. Other things remaining
the same, economic welfare is considered greater if national income is high.
6. Making International Comparisons: National income estimates enables us to make
international comparisons and standard of living of the people. It helps in comparing the
situations of economic growth in two different countries.
7. Economy’s Structure: National income statistics enable us to have clear idea about the
structure of the economy. It enables us to know the relative importance of the various
sectors of the economy and their contribution towards national income. From these
studies we learn how income is produced, how it is distributed, how much is spent, saved
or taxed.
8. Inflationary and Deflationary Gaps: National income and national product figures enable
us to have an idea of the inflationary and deflationary gaps. For accurate and timely anti-
inflationary and deflationary policies, we need regular estimates of national income.
CONCEPTS FOR REVIEW
National income National output National expenditure
Gross Domestic Product Gross National Product Net Domestic Product
Net National Product Per Capita Income Personal Income
Disposable Income Depreciation Enumerator
Illegal Income Value Added Method Transfer Payments
Vedanta High School Economics - Book 9 122
READING BETWEEN THE LINES
APPROACHES TO NATIONAL INCOME ACCOUNTING
The production-expenditure-income approaches constitute the basic ways of compiling national
accounts. These simplest approaches to national accounting aim at estimating GDP and its alternative
breakdowns by economic activity or industry, by expenditures, and by income.
The income approach is used by relatively few countries because of statistical measurement
problems. If applied, however, independent estimates are most frequently made for compensation of
employees which are based on labour statistics and wage rates, and taxes on production and imports
which are estimated based on government data.
Estimates of consumption of fixed capital are often not included because they can only be made if
produced capital stock data are available. The operating surplus can be estimated using as a basis
profit and loss accounts and similar statements of enterprises.
GLANCING THE UNIT
National Income National Income at factor cost (NNPFC) or NI
National income is a measure of the money National income at factor cost is the
value of the final goods and services national income. It is obtained by
becoming available to the economy from deducting indirect taxes from NNPMP and
economic activities. adding subsidies to it.
Gross Domestic Product (GDP) National Income (NI) or NNPFC = NNPMP -
Indirect Taxes + subsidies
Gross Domestic Product (GDP) is the
market value of final goods and services Per capita income (PCI)
produced within the domestic territory of
a country during a specific time period, The average income of the people of a
usually a year. Difficulties in the measurement of NI
Gross National Product (GNP) 1. Danger of double counting
2. Existence of non-monetized sectors
GNP is the total of the flow of goods and 3. Self-consumed production
services at the market value resulting 4. Illegal income
from current production during a year 5. Price level changes
in a country, including net income from 6. Non-availability of statistical material
abroad. 7. Calculation of depreciation
8. Transfer payments
Net Domestic Product (NDP) 9. Lack of statistical data
10. Problem of false information
NDP is the total net value of all goods
and services produced in a country
during a year. It is obtained by deducting
depreciation from GDP.
Net National Product (NNP)
NNP is the total net value of all goods and
services produced in a country during a
year, including net income from abroad..
It is obtained by deducting depreciation
from GNP.
123 Vedanta High School Economics - Book 9
QUESTIONS FOR REVIEW
Very Short Answer Type Questions
1. Define national income.
2. What is GDP?
3. How is per capita income calculated?
4. Define Net National Product at factor cost?
5. What is Gross National Product?
6. What is Net Domestic Product?
7. What is meant by Net Income from Abroad?
8. What is double counting in national income?
Short Answer Type Questions
1. How is national income defined by Marshall, Pigou and Fisher?
2. Explain the various concepts of national income.
3. Distinguish between gross domestic product and gross national product.
4. What are the special difficulties of measuring national income in developing countries?
5. Explain the final product method of measuring national income.
6. How is national income measured by value added method?
7. How is national income measured by income method?
8. How is national income measured by expenditure method?
Simon Kuznets EYE ON THE PAST
Simon Kuznets is best known for his studies of
national income and its components. Prior to World
War I, measures of GNP were rough guesses, at
best. No government agency collected data to
compute GNP, and no private economic researcher
did so systematically, either. Kuznets changed
all that. With work that began in the 1930s and
stretched over decades, Kuznets computed national
income back to 1869. He broke it down by industry,
by final product, and by use.
Vedanta High School Economics - Book 9 124
6UNIT ECONOMIC RESOURCES
Learning Objectives Weight: 15 Lecture Hours
On Completion of this unit the student will be
able to:
• Know the current situation and importance
of forest resources in Nepal
• Know the current situation and importance
of mineral resources of Nepal
• Explain the importance of water resources
• Explain the potentiality and current situation Before you begin
of water resources in Nepal
• Point out the problems of water resources Nepal is developing country with an agri-
development in Nepal
cultural economy. Water resources is the
• Explain the importance of human resources most prominent resources of Nepal. With
• Know the current population situation in over 6000 rivers and rivulets it is the
second richest country in the world next
Nepal
• Understand the indicators of human after Brazil, in terms of inlend water
resources
development
Very Short Type Short Type Long Answer Type Total Marks
1 1 0 6
125 Vedanta High School Economics - Book 9
6.0 NATURAL RESOURCES
Natural resources refer to the things that exist freely in nature for human use and
don’t necessarily need the action of mankind for their generation or production.
The key aspect of natural resources is that they dictate the survival of humans and
other life forms on earth. These resources include land, rocks, forests (vegetation),
water (ocean, lakes, streams, seas, and rivers), fossil fuel, animals (fish, wild life, and
domesticated animals), minerals, sunlight and air.
In general natural resources can be divided into three types:
a Inexhaustible Natural Resources: There are some natural resources which are
inexhaustible despite using them continuously. In general wind, air, sunlight are
inexhaustible natural resources.
b Renewable Natural Resources: Renewable resources are the ones that are consistently
available regardless of their use. They can be fairly recovered or replaced after
utilization. Examples include vegetation, water and animals. can also be categorized as
renewable resources.
c Non renewable Natural Resources: Non-renewable resources are the ones that cannot
simply be substituted or recovered once they have been utilized or destroyed. Examples
of such natural resources include fossil fuels and minerals. Minerals are categorized as
non-renewable because, even though they take shape naturally through the rock cycle,
their formation periods take thousands of years.
There are three major natural resources of Nepal. They are:
1. Forest resources Of the three natural re-
2. Water resources
3. Mineral resources KEY sources, water resources is
IDEA
the most prominent natural
resources of Nepal
6.1 FOREST RESOURCES
Forest resource is an important natural resources of Nepal.In the past Nepal was very
rich in forest resources and forest was considered an unlimited source of revenue to the
government. Therefore, it was rightly said, “Hariyo ban Nepal ko Dhan”. It means, “Green
Forest, the wealth of Nepal”.
In Nepal, 56.40% of the total energy demand is fulfilled by forest resources. It also
contributes around 15% to the GDP of Nepal. So, it is imperative to provide support
to economic development through proper conservation, sustainable management and
utilization of forest resources including forest, vegetation, wild-life and bio-diversity.
As per the Economic Survey of 2018/19, forest area has covered 5.962 million hectares
of land which is 40.4 percent of the total land areas and Other Wooded Land (OWL)
has covered 0.648 million hectares of land, which is 4.4 percent of the total land areas.
Altogether the total areas covered by forest is 44.8 percent of the total land areas. At least
42% forest area is needed for sustainable and clean environment.
Glossary Fossil fuel: Coal, petroleum and natural gas
Revenue: Income
Exhaustible: Which cannot be renewed or recovered
Environment: The sorrounding where we live
Vedanta High School Economics - Book 9 126
IMPORTANCE OF FOREST RESOURCES
Forest resource is an important resource of Nepal. It contributes around 15% to the GDP
of Nepal. The importance of forest resources can be explained as follows:
1. Source of Fuelwood: Forest is the source of firewood. It is the cheapest source of energy.
It is the main source of fuel in rural areas. According to the Economic Survey of 2018/19
supply of firewood fulfills 56.40 % of the total energy demand of Nepal. Therefore
forest resource is important as the source of energy.
2. Source of Raw Materials: Forest resource is the main source of raw materials required
for furniture industry, medicine industry, match industry, paper industry, paint
industry, handicraft industry etc. Therefore development of forest based industries
depends upon regular and sufficient supply of raw materials from the forests.
3. Source of Agricultural Inputs: Forest resource has a significant role in the agricultural
development of Nepal. As more than 65% population of Nepal are engaged in agriculture,
they depend upon forest resource for agricultural inputs like plough, harrow and
compost manure etc.
4. Habitat for Wildlife: Forest is the habitat as well as the source of food for birds and
animals. Preservation of wildlife helps to maintain ecological balance, preserves bio-
diversity and promotes tourism industry in the country. Therefore forest resource is
very essential both to wildlife and human being.
5. Source of Foreign Currency: Nepal has a great scope to earn large amount of foreign
currency by exporting timber, herbs, industrial raw materials and wooden handicrafts
to foreign countries. These are all obtained from the forest. Thus forest resource can be
taken as the source of foreign currency earning of the government.
6. Support to Agriculture: The decayed leaves and plants from forest can be used to prepare
compost manure which helps in enriching soil fertility. Dense forest causes timely rainfall and
also protects the sources of water. This helps to increase agricultural production.
7. Tourism Development: Forest is habitat of wildlife. Different kinds of birds and animals
are found in the forest. Many rare birds, animals and plants are found in forests.
National parks,wildlife sanctuaries and conservation areas attract tourists. In the fiscal
year 2017/18, Rs.705.9 millions have been generated as revenue from tourists visiting
protected areas. Thus forest resource can promote tourism.
8. Employment Opportunities: Forest resource is useful to generate direct and indirect
employment opportunities. Establishment of industries based on forest resource
increases the employment opportunities in the country. Apart from the industries, a
large number of people are employed as Forester, Ranger etc in government service.
9. Residential Construction: Timber is used for residential construction. The window
frames, doors, furniture are mostly made out of wood. People in rural areas depend on
forest products for residential construction..
10. Prevention of Landslide and Soil-erosion: Forest is the collective body of different
types of trees and plants. It is estimated that about 240 million cubic meter of soil is
eroded every year. The natural vegetation helps to prevent soil erosion and landslide. The
roots of plants grip the soil firmly and prevent top soil being eroded by rainfall. It also controls
landslides which usually take place in hills and mountains.
127 Vedanta High School Economics - Book 9
PRESENT SITUATION OF FOREST RESOURCES
Prior to 1965 A.D, forests once covered more than two-thirds of Nepal. At present,
forest areas has covered 5.962 million hectares of land which is 40.4 percent of thetotal
land areas and Other wooded Land (OWL) has covered 0.648 million hectares of land,
which is 4.4 percent of the total land areas. Altogether the total areas covered by forest
is 44.8 percent of the total land areas.
According to landscape distribution of forest areas, the mid-hill has the highest coverage
and the Terai has the lowest coverage. By province, Karnali Province occupies highest
forest areas, and Province No. 2 occupies the lowest. Among Protected Forest Areas,
Gandaki province occupies the highest 45.8 percent, and Province no. 2 occupies the
lowest 10.5 percent.
As per the Economic Survey of 2018/19, out of the total stem volume of 982.332 million
cubic meters in the forest area, 19.0 percent has been covered by Saal species. In Nepal,
the total biomass is 1159.7 million tons, the average stem volume is 165 cubic meters
per hectare, and average number of trees is 430 per hectare.
Until now, 191 thousand hectares of area has been conserved as 10 forest areas, and
8,64,015 households have been benefited from 30 Deforestation in Terai has
Partnership Forest covered by about 76 thousand KEY been observed at 0.4 percent
IDEA
hectares of forest area. Similarly, 2,360 hectares of per annum between 1991 to
area has been covered by 2,458 Private Forests. 2010
Deforestation is relatively higher in Terai region rather than in hilly and mountain
regions. Deforestation rates are estimated at 1.7% per annum based on forest assessment
studies conducted in 1978/79 to 1994. Fertile soil and migration are the main reasons
for higher rate of deforestation in Terai region. Land settlement schemes in the Terai
region, enabled by the control of malaria in the 1960s, initiated an acceleration of forest
clearance that continues till today.
The forest area in the Terai has decreased by 32,000 hectares with annual rate of 0.40%Keynote
in the last 19 years from 1991 to 2010. High population growth, unmanaged settlement,
unemployment, encroachment, grazing and forest fire are some of the underlying
causes for the depletion of forest resources in the region.
• Forest helps to maintain ecological balance
• It is estimated that about 240 million cubic meter of soil is eroded every year.
• Forest covers about 44.8 percent of the total land areas of Nepal
• At least 42 percent forest area is needed for sustainable environment
CAUSES OF DEFORESTATION IN NEPAL
There are several reasons behind rapid deforestation in Nepal. Some major reasons are
explained below:
1. Rapid Population Growth: Population of Nepal is increasing very rapidly. Population
growth rate during 2038 BS to 2048 BS was 2.1 percent while it was 2.24 during
2048 BS to 2058 BS. The population growth rate in Nepal is 1.35 percent per annum.
(Population Census 2068). The pressure of population growth directly falls upon
forest resource as forest is cut down to provide land for cultivation and settlement for
increased population.
Vedanta High School Economics - Book 9 128
2. Source of Energy: Firewood is the main source of energy for the rural people. People in
rural areas use firewood for cooking and other purposes. About 56.40 percent of energy
demand of the country is fulfilled from the forest. Due to wide use of firewood as the
source of fuelwood, deforestation has been very rapid in Nepal.
3. Demand for Raw Materials: Forest based industries such as matches, paper, herbal,
rubber, furniture etc. obtain raw materials from forest. There is no proper mechanism to
manage the supply of raw materials to industries. This creates the situation of using forest
resources indiscriminately, thereby leading to deforestation.
4. Migration: Internal and external migration is one of the causes of deforestation.
Migration towards Terai from Hills and Mountains has also contributed to deforestation
in Nepal. In migration from Bhutan, India and Tibet also take place. In the process, forest
is cleared for the purpose of settlement as well as cultivation. As a result the forest of
Terai is being destroyed by 1.3 percent every year. Key Terms
5. Lack of Employment Opportunities: Due to subsistence farming In-migration: migration into
and backward state of industrial development, job opportunities in the country
Deforestation: act of clear-
Nepal are severely limited. As a result, trees are cut down and sold ing forest
for earning income by ruralpeople living near forest.
6. Extension of Cultivation: For the extension of cultivation the forests of hilly and Terai
region are being destroyed very rapidly. According to the data of 1964 AD total land
covered with forest was more than 45 percent.Currently it is estimated that only 40.4
percent of the total land is covered with forest. (Economic Survey 2018/19)
7. Urbanization and Rehabilitation: Due to urbanization and rehabilitation in various
districts of Nepal, forest is being destroyed. The result of urbanization and rehabilitation
has been seen in districts like Jhapa, Morang, Chitwan and Parsa. New area required for
urbanization and rehabilitation is made available by destroying forest.
8. Illiteracy and Lack of Public Awareness: There is lack of public awareness with
Nepalese people. People are only after immediate benefit rather than long term benefit.
Uneducated people are not aware of the consequences of deforestation. They cut down
trees to further their mutual interests. This has contributed to rapid deforestation in Nepal.
9. Lack of Strict Government Policy: The government policy regarding preservation and
development of forest is defective. It changes frequently and lacks people’s participation
in afforestation and preservation programs. Due to political interference, actions are
seldom taken against people involved in deforestation.
10. Illegal Trade: Nepal shares an open and porous border with Key Terms
India. There is illegal sale of timber to India. The supply of Porous: open not secure
Timber: log of wood
timber is encouraged by corrupted forest officials for their Afforestation: act of plant-
benefit. As a result, forest resource of Nepal is gradually ing trees
decreasing.
11. Defective Government Policy: There is lack of proper government policy towards forest
protection and conservation. The government policy of community managed forest has
also not been effective. The community forest policy is more utilization oriented than
protection oriented. It has contributed to deforestation in Nepal. Furthermore, due to
political interference, actions are seldom taken against people involved in deforestation.
129 Vedanta High School Economics - Book 9
CONSEQUENCES OF DEFORESTATION
Deforestation has serious effects on ecological and economic condition of the country.
The negative effects of deforestation in the economy are as follows:
1. Ecological Imbalance: Deforestation has an adverse effect on climate. Trees release water
vapour in the air which helps in rainfall. Trees also provide the required shade that
keeps the soil moist. This is affected with the lack of trees. Furthermore, the haphazard
clearance of forests has forced wildlife to shift from their native environment. This brings
ecological imbalance.
2. Global Warming: Forests play a major role in controlling global warming. Trees utilize
the green house gases, restoring the balance in Greenhouse gases are gases
the atmosphere. With constant deforestation the in Earth’s atmosphere that
ratio of green house gases in the atmosphere trap heat. They prevent the
has increased. This causes increase in global heat that the sunlight brings
warming. from leaving the atmosphere
3. Soil Erosion and Landslide: With deforestation, the top soil in hills and mountains
become weak and can be easily eroded by agents like wind and rain. With deforestation,
cracks are formed on land. As rainwater enter those cracks, huge mass of land fall down
and cause landslide.
4. Decline in Underground Water: Forest helps to maintain underground water by absorbing
water with its roots. So, the more the forest is destroyed the more will be the reduction
in the level of underground water. Due to decline in underground water people face the
shortage of water.
5. Effects on Tourism: Deforestation destroys the natural and sylvan beauty of the country.
Similarly, it also causes disappearance of rare animals, birds and other natural attraction
of forest. This adversely affects the tourism sector. Key Terms
6. Shortage of Fuelwood: Forest is the source of firewood for Habitat: shelter
the people. In Nepal, about 56.40 percent of the domestic Sylvan: pristine, unspoilt
fuel requirement is met by forest. Deforestation causes Extinction: to disappear
shortage of firewood for the rural population.
7. Degrades Top Soil: Forest helps to control landslide, soil erosion and protect the fertile
top soil. Fertile top soil is essential for agricultural production. With deforestation the
intensity of soil erosion, landslide, floods, increases. This destroys the fertile top soil and
adversely affect agricultural production.
8. Decrease in Employment: Forest based industries such as furniture industry, paper
industry, rubber industry etc. are dependent on raw materials from the forest. These
industries provide employment to skilled and unskilled people. But deforestation
collapses all these employment opportunities.
9. Floods: Trees are highly effective in absorbing water, keeping the amount of water in
watersheds to a manageable level. Forest also serves as cover against erosion. Once they
are gone, too much water can result in downstream flooding.
10. Extinction of Wildlife: Forest is the natural habitat of wild animals. Due to massive felling
down of trees, various species of animals are lost. They lose their habitat and are forced
to move to new location. Some of them are even pushed to extinction.
Vedanta High School Economics - Book 9 130
REMEDIAL MEASURES OF DEFORESTATION
Control of deforestation is inevitable. for economic development. The following are
some measures to control deforestation.
1. Afforestation: The priority for afforestation has to be addressed properly to encourage
people to participate in it especially in rural areas. Other Wooded Land refers
For this, the government should encourage public KEY to land covered by bushes
IDEA
participation. The plantation of new sapling helps to and shrubs
maintain forest area in the long run.
2. Controlling Population and Migration: Increase in population and migration from
hilly region to Terai is another cause of deforestation. So if we can stop high population
growth rate and migration, more forest area can be saved.
3. Public Awareness: In order to generate sense of belonging, the feeling of ownership
and awareness among the people about the importance of forest conservation, various
conservation programmes have to be launched in print and electronic media regularly.
Symposium, seminar and conference need to be organized frequently.
4. Alternative Employment Opportunities: Due to lack of employment opportunities,
thousands of people depend on forest to generate income by selling the firewood,
timber etc. illegally. This has lead to deforestation. If such people can be employed in
other sectors, forest can be saved. Pause for Thought
5. Fixing Forest Boundaries: Encroachment of forest has been What can be done to make
a major problem in Nepal. There has to be demarcation of forest conservation program ef-
all forest areas in order to avoid illegal encroachment. fective in Nepal?
6. Emphasizing on Natural Parks and Reserve Areas. If more national parks and reserve
areas are established in many parts of the country, we can control poaching; hunting
etc. People are not allowed to enter such areas by the security. It helps to control
deforestation.
7. Use of Alternative Source of Energy: There must be alternative choice of energy like solar,
electricity, kerosene and biogas in order to control deforestation in the country. Simple and
affordable means of energy sources must be available to the people at an affordable price.
If the alternative source of energy like electricity, solar energy, petroleum products etc
is developed, the dependence on fire wood can be reduced. Key Terms
8. Forest Technicians: Appropriate training should be given to Poaching: illegal hunting
the people in order to increase human resources necessary Demarcation: set boundary
to conserve the forest area. The training policy and module Biogas: gas from degradable
should be adhered to women as women are not only users matter
of fuel, fodder and other forest products but are also the one
who are directly affected by deforestation.
CHECKPOINT 1. Explain the role of forest in the economic development of Nepal
2. What are the major causes responsible for deforestation in Nepal
3. What are the consequences of deforestation in Nepal
4. What measures can be suggested to control deforestation in Nepal
131 Vedanta High School Economics - Book 9
6.2 MINERAL RESOURCES
Amineral is a pure inorganic substance that occurs naturally in the earth’s crust. Mineral
resources are one of the important natural resources of Nepal. They are the non-
renewable natural resources. They constitute Dr. Toni Hagen, a Swiss Ge-
the vital raw materials for many basic industries ologist was the first foreigner
and are a major resource for development. Nepal to trek throughout Nepal dur-
being a mountainous country is believed to have ing geological and geographic
huge mineral deposits. Sustainable development survey work and mapping on
of such resources helps to strengthen the national behalf of the United Nations
economy. in 1952
IMPORTANCE OF MINERAL RESOURCES IN ECONOMIC DEVELOPMENT
Mineral resource plays an important role in the economic development of a country. It
helps in the development of agriculture, industry and trade. The importance of mineral
resource in economic development are as follows:
1. Industrial Development: Mineral resources play an important role in the industrial
development of a country. The heavy machinery and equipments needed for industries
are made from mineral resource. Similarly, energy like petrol, diesel, coal, etc needed for
industries are supplied by mineral resources.
2. Increase in Employment: The existence of mineral resources and their proper utilization
provides employment opportunities to the people. Mineral resources help to establish
new industries where skilled and unskilled people can get employment opportunity. The
mineral resource provides direct as well as indirect employment opportunities.
3. Source of Energy: Mineral resource is the major source of energy. There are various
sources of energy like petrol, diesel, natural gas, etc. in Nepal. If these minerals can be
extracted, they can provide the necessary energy for industrial sectors and household use.
The existence of this energy helps save foreign currency.
4. Source of Government Revenue:Mineral resource and mineral based industries are the
important source of government revenue. The government can receive royalty from
mining industries.Similarly, the government can earn foreign currency from the export of
minerals and mineral based products.
5. Development of Transport Sector: Energy is an important input in the development of
transport sector. The different means of transport like bus, truck, train, aeroplane, etc.
need energy to run.
6. Supply of Construction Materials: The construction materials can be supplied cheaply
and adequately if there are mineral resources in the country. This accelerates the pace of
economic development in the country.
7. Increase in National Income: The optimum utilization of available mineral resources
within the country would generate more employment opportunities in all sectors of the
economy. It helps to increase the amount national income of the country.
8. Foreign Exchange Earning: The development of mineral resources also helps to earn
foreign exchange by exporting raw minerals as well as finished mineral products. The
foreign exchange earned from export can be used for the import of goods from abroad.
Vedanta High School Economics - Book 9 132
9. Self Depedency: Mineral resource development can make a country self dependent. If
mineral resource based industries are developed,more jobs are created along with quality
products. It reduces dependence on imports of minerals and mineral based products. This
helps to make a country self reliant.
10. Agricultural Development: Some mineral resources are used to make modern agricultural
tools machines and fertilizers, etc. They can be used for the modernization and
commercialization of agriculture, which help to develop agriculture.
CURRENT SITUATION AND POTENTIALITY OF MINERAL RESOURCES IN NEPAL
Nepal is a mountainous country. So, there is a great prospect of developing mineral
resources. The exact situation of mineral resources is difficult to assess due to lack of
extensive and scientific geological survey of the country. The contribution of mineral
resources and mineral based industries to the GDP is estimated to be 2.4 %. As many as 63
minerals have been identified in Nepal. The preliminary surveys and studies indicate the
availability of the following mineral resources in Nepal.
Iron Ore:
Iron ore is the main mineral resource of Nepal. It is found in different parts of the
country, some of which are Phulchoki in South of Kathmandu, Thosey in Ramechhap and
Labdikhola in Narayangadh. It is estimated that about 10 million metric tons of iron ore
from each of the site can be obtained. Besides, these, Jirwang and Gothe Danda in Chitwan,
Ghatkhola in Bajhang, Bhootkhola near Bandipur. Bhainse, Kulekhani, Pyuthan, Godavari
and Pharping are said to be other probable areas. However, commercial production has
not taken place in any of these areas.
Copper:
Nepal has great prospect of copper mines as well. The main areas where Copper is found
are Budhakhola near Bandipur, Gyaji in Gorkha, Arkhauli in Makwanpur, Nangre in
Nuwakot, Baitadi, Illam, Wapsa, Banglung and Barabise. The other copper mines identified
are Gyaji, Baglung, Barabise, Kulekhani, Bhutkhola etc.
Mica:
Mica is used in electrical works. It is estimated that mica is also found in large quantity
in Nepal. Mica is found in several places of Nepal. The main areas are Bajhang, Chainpur,
Doti, Bhojpur, Lamjung, Gosaithan, Nuwakot, Dhankuta, Bhojpur, Sundarijal and Sindhuli.
However, the exact quantity is difficult to estimate due to lack of authentic information.
Limestone: Pause for Thought
As a mountainous country,
Limestone is essential for cement products. The high
grade limestone has been found in Markhu, Chovar, Nepal is believed to have large
Bhaise, Jogimara, Hetauda, and Godavari. The quality of mineral deposits.How can this
limestone in Nepal is of high quality
claim be substainted?
Cobalt:
It is found in Netadarling & Tamghas (Gulmi) and Samarbhamar (Arghakhanchi). It is also
recorded from Lamadanda (Dhadhing), Nangre (Kavre), Bhorle (Ramechhap), Bauli Gad
(Bajhang).
133 Vedanta High School Economics - Book 9
Lead
Lead is found in several places of Nepal. The main places are Ganesh Himal area, Arkhuli,
Rasuwa, Banglung, Phulchoki, Baitadi and Tipling.
Zinc:
It is found in several places of Ganesh Himal, Phulchoki, Rasuwa, Majer Khola and Tipling
in Nuwakot.
Silver:
Silver are associated with zinc-lead ore of Ganesh Himal (Rasuwa), Barghare (Makwanpur),
polymetal sulphide of Bering Khola (Ilam), cobalt in Netadarling (Arghakhanchi) and
Samarbhamar (Gulmi).
Tin:
Tin mineralization is recorded at Meddi (Dadeldhura) and Mandu Khola (Makwanpur).
But both prospects do not appear as economic deposit.
Magnesite:
This is important raw material for the production of chemical fertilizer. Its production
started in Dolakha for some time. It is also found in Udaipur at Kampughat.
Coal:
Coal peat is found in various parts of Kathmandu valley. This is fossil fuel. But they
are not of high quality. The main areas of coal are Dang, Salyan, Chatra, Thakkhola in
Mustang, Chitwan, Kailali and Kanchanpur.
Petrol & Gas:
Petrol and natural gas are called fossil fuels. Commercialization of these mineral resources
is not made so far. The main areas of occurrence are Surkhet, Dailekh, Muktinath, Pyuthan,
Dhangadi, Chisapani and Kathmandu.
Gold: Tiny flakes of
gold found in
Tiny flakes of gold are occasionally found in the sand of sand is called
various rivers like Sunkoshi. Kali Gandaki, Marsyangdi & placer gold
Budhi Gandaki. However, scientific survey on the volume of
deposit has not done so far.
Nickel:
The main places of occurrence of Nickel are Ramechhap, Sindhupalchok, Khakling and
Tungdhap. But the availability of actual quantity is not known yet.
Tungsten:
Tungsten occurrences are known from Bamangaon polymetal sulphide deposit and other
places in Dadeldhura and Makwanpur districts. The grade of copper - tungsten prospect
in Bamangaon is not that impressive for economic mining. However, polymetal mining
could be economical.
Vedanta High School Economics - Book 9 134
PROBLEMS OF MINERAL RESOURCES DEVELOPMENT IN NEPAL
There are various problems for the development of mineral resources in Nepal which are
as follows:
1. Lack of Capital: The exploration and exploitation of mineral resources need large
amount of capital. But Nepal is a poor country. Therefore, there is lack of capital for the
development of mineral resources. Similarly, Nepal has not been able to receive foreign
assistance for mineral exploration and exploitation. Different metallic and
2. Lack of Modern Machinery and Equipments: The mineral non metallic minerals
resource exploration needs expensive machinery and equipments. are believed to be found
These machinery and equipments will have to be imported from in Nepal but these re-
foreign countries. But there is lack of capital for these purposes. main unexploited.
3. Insufficient Infrastructures: The mineral resources of Nepal are largely located in remote
hilly areas. These areas do not have access to transport, communication and electricity
facilities.This is also one of the obstacles for mineral resource development.
4. Lack of Technical Manpower: The mineral resource exploration and utilization needs
specialized technical manpower. But there is lack of such manpower in Nepal.
5. Defective Government Policy: The government has not been able to adopt an appropriate
mineral policy. Government has no clear policy for the development of mineral resource
due to frequently changing the government. Therefore, foreign investors are not encouraged
to invest their capital in Nepal. High end technology
6. Inadequate Research: There is inadequate research in the field and expertize are need-
ed for mineral resources
of mineral resource in Nepal because there is lack of experienced exploration and exca-
human resource, modern technology and equipments.
vation, which is lacking
7. Lack of Courageous Entrepreneurs: The development of mineral resources requires lots
of industries of various scales.Establishment of these industries need large amount of
capital investment and courageous entrepreneurs. But there is lack of suchentrepreneurs
in Nepal.
8. Lack of Transportation Facilities: Nepal is poor in various infrastrucature. Transportation
is one of them. Due to lack of adequate transoprt facilities minerals deposits in various
parts of nepal cannot be explored and exploited so far.
9. Lack of Database: There is no adequate database for mineral development. Seismic,
geophysical, geochemical and cartographic data are lacking. Because of the lack of data
mineral development programming along scientific lines has not been possible.
10. Shortage of Energy: The sources like coal, petrol, diesel, etc are the pre-requisite for the
extraction, purification & utilization of mineral resources. However, the supply of energy
is still inadequate in Nepal.
CHECKPOINT 1. What are the major mineral resources found in Nepal/
2. Explain the role of mineral resources in the economic development of Nepal.
3. What has hampered the development of mineral resources in Nepal?
4. What can be done for mineral resources development in Nepal?
135 Vedanta High School Economics - Book 9
6.3 WATER RESOURCES
Water resource is the most prominent natural resources of Nepal. The major sources
of water are glaciers, snow melting from Himalayas, rainfall, ground water and
lakes. Nepal has over 6000 small and big rivers. The first grade rivers are the Karnali,
Narayani, and the Sapta Koshi. The second grade rivers are the Bagmati, Rapti, Kamala,
Mechi, Kankai, Babai etc. These rivers have high potentiality for hydropower generation,
irrigation, water transportation and fish farming. Besides rivers, Nepal has many lakes,
springs and underground water. There are other rivers too which originate in the Siwalik
range and dry up during dry season.
Bestowed with 2.27% of the world water resources, 818,500 hectares of total water
surface area, about 6,000 rivers including rivulets and tributaries totaling about 45,000
KM in length, Nepal is the second richest country in inland water resources, next only
to Brazil. It has a theoretical hydropower potential of 83000 MW and techno economic
potential of 44000MW. Due to its immense potential in hydropower generation,
irrigation and drinking water, water resources of Nepal is also popularly known as
White Gold.
IMPORTANCE OF WATER RESOURCES IN NEPAL
The development water resource can be of graet help in the economic development of
the country. The following are the importance of water resource.
1. Hydro Electricity: Nepal has huge potentiality to generate hydro electricity power. The
country not only has perennial rivers but also posses many waterfalls. The estimated
theoretical potentiality of hydro electricity is 83, 000, MW and techno economic potential
is 44,000 MW.
2.. Preservation of Forest Resources: Forest is the principal source of energy especially in
rural areas. Most of the rural people depend upon firewood. The development of hydro-
electricity substitutes the use of firewood for energy. The excessive use of firewood is
one of the causes of rapid deforestation. Thus, the development of water resources
helps to preserve forest resources.
3. Development of Agriculture: Agriculture is the backbone of the Nepalese economy.
Economic growth in Nepal is possible through the development of agriculture sector.
Irrigation facility is a pre-condition for increasing agricultural productivity. Without
proper irrigation facilities, development of the agricultural sector is almost impossible.
4. Development of Industries: Hydroelectricity helps in the development of industries.
Other sources of energy such as coal, gas, etc. are expensive which increase the cost of
production. The availability of electricity at cheaper prices reduce the cost and makes
goods available at lower prices.
5. Development of Transportation and Communication: Energy generated from water
resources can be used to run electric means of transportation such as trolley bus, cable
car, railway, ropeway, etc. and water transportation like rafting, boating, in big rivers
of Nepal. Similarly, modern means of communication like radio, television, email, fax,
etc. are possible only from generated energy from water resources.
6. Source of Foreign Exchange: Since Nepal has great potentiality to produce hydro
electricity. The electricity produced from water resources can be exported to earn
Vedanta High School Economics - Book 9 136
foreign currency. On the other hand, production of more hydroelectricity can reduce
expenditure on import of other source of energy such as petroleum product, coal etc.
6. Drinking and Household use: Water is important for almost all household uses such
as drinking, washing, cleaning and cooking. Sufficient supply of safe drinking water
helps in maintaining good health and hygiene of the citizens. Healthy citizens enrich
the human resource of the country.
7. Fish Farming: Available rivers, lakes and ponds of Nepal can be utilized for the
development of fishraies. If large quantity of fish can be produced with in the country,
it would replace the import of fish from neighbouring countries and would stop outflow
of capital in foreign countries. ‘
8. Tourism Development: Nepal is rich in rivers, lakes, waterfalls, etc. which add to the
natural beauty of the country. The development and conservation of these natural
beauties help to increase the number of tourists from different parts of the world.
Tourism can be promoted by utilizing rivers, lakes and natural springs by providing
the facility of rafting, boating, swimming and other recreational facilities.
9. Irrigation: Irrigation is the life blood of agriculture. The modernization of agriculture
requires dependable irrigation facilities. Irrigation helps in crop diversification,
multiple cropping and use of high yielding varieties of seeds. Thus, to reduce the risk
from the vagaries of monsoon rain, irrigation is very important.
10. Export Promotion: The water resource is considered as white gold for Nepalese
Economy. It can be used for the development of the industrial sector which can increase
the export of goods and services. Besides, electricity is generated from water resources
can be exported to earn foreign currency.
CURRENT SITUATION OF WATER RESOURCES IN NEPAL
Water resource is the most important resource of the country. It can be used for generating
hydroelectricity, irrigation facilities and supplying drinking water. The current situation
of water resources in Nepal is given below:
i. Hydroelectricity
Hydroelectricity is the most important output of water resource. Sufficient amount of
hydro-electricity can be produced from the major rivers of Nepal like Koshi, Gandaki,
Karnali, Mahakali etc. It is estimated that about 83000 M.W of electricity can be
generated from the rivers in Nepal. The economically viable capacity that can be
generated is estimated to be about 44000 M.W. The potentiality of Nepalese rivers in
hydropower generation is shown in the table below.
Rivers Theoretical Hydroelectricity Techno economic potential
Potentiality (In MW) (In MW)
Koshi 22000 M.W. 10860M.W.
Gandaki 21000M.W. 5270M.W.
Karnali 36000M.W. 27360M.W.
Others 4000M.W. 880M.W.
Total 83000M.W. 44370M.W.
Source: Trade Promotion Centre,2002
137 Vedanta High School Economics - Book 9
The development of hydroelectricity was initiated in Nepal in 1968 B.S. at Pharping with
a capacity of 500 KW. Before the first five year plan, 5813 KW electricity was available
in the country including diesel power. However, despite the immense potentiality of
hydro electricity the total installed capacity is 1116.809 MW by 98 operational projects
as of January 2020. This accounts for just over 1 per cent of the potential capacity. This
reflects a situation of poverty in the midst of plenty. This shows that there is a huge
potentiality still to be harnessed. Water resources of Nepal
Over the years, various hydropower projects were KEY is termed “White Gold” due
IDEA
established. Some major existing hydroelectricity to its immense potentiality
projects are given in the following table.
Hydropower projects in operation
SL Project Capacity (MW)
1 Khimti -I 60
2 Seti 1.5
3 Marsyangdi 69
4 Kulekhani-I 60
5 Trishuli 24
6 Gandak 15
7 Panauti 2.4
8 Tatopani 2
9 Kulekhani-II 32
10 Devighat 14.1
11 Sun Koshi
12 Tinau 10.05
13 Andhi Khola 1.024
14 Jhimruk Khola
15 Puwa 9.4
16 Modi Khola 12.5
17 Kali Gandaki A 6.2
18 Upper Bhotekoshi 14.8
19 Chilime 144
20 Indrawati -III 45
21 Madhya Marsyangdi 22
22 Piluwa Khola 7.5
23 Sunkoshi Small 70
24 Mailung Khola
25 Chaku Khola 3
26 Khudi Khola 2.6
27 Thoppal Khola 5
3
4
1.65
Vedanta High School Economics - Book 9 138
28 Chameliya Khola 30
29 Mardi Khola 4.8
30 Ridi Khola 2.4
31 Mai Khola 4.5
32 Hewa khola 4.455
33 Lower Chaku Khola 1.8
34 Sipring Khola 10
35 Lower Modi -1 10
36 Bhairab Kund Khola 3
37 Siuri Khola 5
38 Ankhu Khola - 1 7
39 Baramchi Khola HPP 4.2
40 Bijayapur-1 4.5
41 Upper Madi 25
42 Upper Mai (Panchakanya Mai HPP) 12
43 Mai 22
44 Phawa khola Hydropower Project 5
45 Charnawati Khola Hydroelectric Project 3.52
46 Jiri Khola SHP 2.4
47 Pikhuwa Khola 5
48 Middle Chaku Khola 1.8
49 Radhi Small 4.4
50 Tadi Khola (thaprek) 5
51 Upper Marsyangdi A 50
52 Thapa Khola 11.2
53 Daraundi A 6
54 Jhyari Khola 2
55 Nau Gad Khola 8.5
56 Upper Hugdi 5
57 Midim Khola 3
58 Mai Cascade 7
59 Hewa Khola A 14.9
60 Sabha Khola 3.3
61 Tungun - Thosne Khola 4.36
62 Khani Khola 2
63 Jogmai Khola 7.6
64 Daram Khola-A 2.5
65 Upper Puwa-1 3
139 Vedanta High School Economics - Book 9
66 Sardi Khola 4
67 Upper Mai -C 6.1
68 Kabeli B - 1 25
69 Lower Hewa 21.6
70 Mai Cascade HPP 8
71 Chhandi Khola 2
72 Puwa Khola-1 4
73 Rudi A 8.8
74 Kapadigad 3.33
75 Madkyu Khola 13
76 Chake Khola 2.83
77 Dwari Khola SHP 3.75
78 Bagmati Nadi 22
79 Molun Khola SHP 7
80 Theule Khola HPP 1.5
81 Upper Naugad Gad Hydropower Project 8
82 Upper Mardi Hydropower Project 7
83 Super Mai Hydropower Project 7.8
84 Upper Hadi Khola 0.99
85 Sali Nadi 0.232
86 Syange Khola 0.183
87 Pati Khola 0.996
88 Belkhu Khola 0.518
89 Phewa 1
90 Seti-II 0.78
91 Rairang 0.5
92 Sisne Khola 0.8
93 Chhote khola 0.993
94 Feme khola 0.995
95 Lower Piluwa 0.99
96 Suspa Bukhari Khola 0.998
97 Thame Small HPP 0.63
98 Jhankre Mini HPP 0.635
1116.809 MW
Total
Source: Department of Electricity Development, MOE, (Updated Jan.2020)
Besides the above mentioned projects, many hydropower projects are under construction
and few more are in pipeline. Some of the major projects under construction are:
Vedanta High School Economics - Book 9 140
SL Project Capacity (MW)
1 Upper Tamakoshi Hydropower 456.000
2 Tanahu Hydropower Project 140.000
3 Kulekhani III HEP 14.000
4 Rahuganga HEP 40.000
5 Upper Sanjen 14.600
6 Sanjen 42.500
7 Rasuwagadi 111.000
8 Madhya Bhotekoshi 102.000
9 Upper Trishuli 3B 37.000
Total 957.100 MW
Source: Annual Report 2076, Nepal Electrical Authority Pause for Thought
ii. Irrigation
Dr. Hari Man Shrestha as-
sessed the total hydropower po-
Irrigation is regarded as the life-blood of agriculture. tential in Nepal as 83,000 MW
It plays an important role in the development of in 1966. No further study has, so
agriculture by raising the soil productivity. Due to lack far, been done in this field
of adequate irrigation facility, there is slow development
of agriculture sector. Of the total land area of 14718100 hectares, the cultivable land is
2,641,000 hectare out of which 1766000 hectares can be provided irrigation.
Out of 2.641 million hectares of total arable agricultural land till FY 2017/18, 1.473
million hectares of land has irrigation facility. However, due to lack of availability of
sufficient amount of water in the source and delayed implementation of the projects of
water transfer and multi-purpose water reservoir projects, only 33.0 percent areas of
irrigated land has irrigation facility throughout 12 months of a year. Up to mid-March
2018/19, irrigation facility has been expanded to additional 3,210 hectares. Most of the
irrigated areas (and the future potential) are in Terai. -Economic Survey 2018/19
Nepal has implemented more than 57 irrigation projects till now in the development
of agriculture, but the result achieved is not satisfactory as far. Since the initiation of
economic planning in 1956 A.D, many feasible surface irrigation projects have already
been taken up and a few are awaiting implementation. The major irrigation projects in
Nepal are given in the table below.
SL Project SL Project
1 Bagmati Irrigation project 8 Ranjimara Kulariya Irrigation
2 Mahakali Irrigation Project 9 Surkhet Valley Irrigation Project
3 Narayani Irrigation Project 10 Majula Irrigation Project
4 Rajapur Irrigation Project 11 Bhairawa - Lumbini Irrigation
5 Bhairawa Irrigation Project 12 Sharada Irrigation Project
6 Purbi Rapti Irrigation Project 13 Ban Ganga Irrigation Project,
141 Vedanta High School Economics - Book 9
7 Sikta Irrigation Project 14 Kanchan Danav Irrigation
15 Chandra Nahar Irrigation Project 19 Sunsari Irrigation Project
16 Babai Irrigation Project 20 Pragana Irrigation Project
17 Koshi Irrigation Project 21 Marchawar Irrigation Project,
18 Kankai Irrigation Project 22 Badkapath Irrigation Project
iii. Drinking Water
Nepal has tremendous potential for drinking water and can earn valuable foreign exchange
by its export. Despite immense potential in drinking water in the country, people face
shortage of safe drinking water in both urban and rural areas.
Over the years, various projects were launched to supply pure drinking water to the
people. According to the latest Annual Household Survey 2016/17, less than half of
the households (49.6%) have access to piped water supply. Hand pump or tube well
is another major source of drinking water for households (38%). The following table
shows the present situation of drinking water facility in Nepal.
Annual Household Survey 2016/17 Census Report 2011
Piped water Hand pump/ Tube well Piped water Hand pump/ Tube well
49.6% 38% 47.8% 35.0%
Source: Annual Household Survey, Nepal 2016/17
As per the Economic Survey of 2018/19, a total of 88 percent of the population have
access to potable drinking water.
Keynote • Nepal is the second richest country in the world next only to Brazil in
inland water resources
• Nepal has a theoretical hydropowerpotentialof 83000 MW
• Nepal has over 6000 rivers and rivulets with a total length of 45000 Km
PROBLEMS OF WATER RESOURCES DEVELOPMENT IN NEPAL
There are many problems for the development of water resources in Nepal. They are as
follows:
1. Lack of Adequate Capital: Nepal lacks adequate capital to launch new hydropower
projects, drinking water projects and irrigation projects. With domestic capital
inadequate, the only way to get finance for big projects is through foreign aid and
loan, which is conditional and is not generally available as and when needed. This has
hampered the development of water resources in Nepal.
2. Lack of Skilled Manpower: The development of water resource needs skilled
manpower and technicians. Nepal still lacks right kind of human resources to plan and
implement big projects. There is lack of technical experts and expertise. Therefore,
Nepal is compelled to hire expensive technicians from abroad to operate the project of
hydroelectricity, irrigation, and even for drinking water.
Vedanta High School Economics - Book 9 142
3. Problems of Transportation: Due to the geographical structure of Nepal, it is very difficult
to construct hydroelectricity project. Most of the hydroelectricity projects lie in the hilly
region. But construction of the road is difficult as well as costly. As a result, essential
materials cannot be delivered in time to construct these projects.
4. Limited Market: The internal market is limited due to small size of the country as
well as poor economic status of the people. The geographical barriers in the form of
Himalayas make it difficult to export electricity to China; while the electricity tariff is
much less in India than in Nepal.
5. Political Instability: Due to frequent change in government, the policy of one government
doesn’t get continuance by successive government. The poor have not experienced any
change in their livelihood. Drinking water, electricity and irrigation projects never
became available in remote and backward areas despite huge expenditure.
6. Lack of Repair and Maintenance: Due to the lack of capital, scientific machines, tools
and equipment, the available hydroelectricity projects have not got proper repair
and maintenance. Due to this problem the projects are being closed. This causes
underutilization of the installed capacity and hence the problem of shortage of
electricity.
7. Lack of Infrastructure: There is lack of infrastructural development. Transportation
and communication facilities are required for development of hydroelectricity. Due
to Nepal’s topography, it is very difficult to construct infrastructures in the hilly areas
where most hydro projects are located. As a result, per unit cost of production of
hydroelectricity is very high in Nepal.
8. Defective Government Policy: There is lack of suitable water resource policy of the
government. Even the existing government policies are not implemented effectively.
The government has not adopted liberal policies to attract foreign investment in water
resources. As a result, the private investors are not motivated to invest in water resource
development.
CHECKPOINT 1. Explain the role of water resourcesin the economic development of Nepal
2.
3. Explain thepotential and current situation of water resources in Nepal
4.
Nepal’s water resources potential and its utilization reflects “Poverty in the midst of plent” Explain
What are the problems of water resources development in Nepal?
EYE ON THE PAST
Hari Man Shrestha - A pioneer of hydropower
Hari Man Shrestha, a water resource expert, was born in 1934 in
Kathmandu. He completed PhD in Technical Science from Moscow
Power Institute in 1966 AD. In 1966, Dr. Hari Man Shrestha assessed
the total hydropower potential in Nepal as 83,000 MW. He did so
during the research work for his Ph.D. Since then, no further study has,
so far, been done in this field. And, that finding seems to have been
accepted as full and final to date. The figure still stands as the ‘Mantra’
on Nepal’s hydropower potential.”
143 Vedanta High School Economics - Book 9
6.4 HUMAN RESOURCES
In the general sense, human resource can be defined ‘as the population of a country
living in a particular time period. But in economics, it is defined as the active man
power or labour force possessing high degree of skill, knowledge, experience, healthy
physical and mental condition. It refers to the skill, knowledge, efficiency, physical
and mental capability inherent in the population of a country.
According to the National Planning Commission, Human resources consists
“Human resource is the knowledge, skill, efficiency KEY of active population only
IDEA
and physical and mental capacity to do work inherent not the entire population
in the people of the country”.
IMPORTANCE OF HUMAN RESOURCES
It is well-established fact that one of the pre-requisites of economic development is the
development of human resources. Human resources help in the development of the
economy in the following ways:
1. Development of Physical Capital: The development of physical capital like road,
highway, bridge, dam, irrigation networks, hospital, school depends on availability of
technicians, labourers, administrators and engineers. So it is said that investment in
education and health bring more return than investment in roads and other physical
capital. The development of physical capital is possible only with the development of
human capital.
2. Development of Natural Resources: The natural resources are necessary but not a
sufficient condition for economic development of a country. Given the similar natural
resources, a country having an optimum level of skilled, acquisitive and entrepreneurial
human resources will have a better chance of having a higher standard of living than any
other country where the condition of human resources is not equally favourable.
3. Compensate the Deficiency of Natural Resources: The Key Terms
utilization of human resource compensates the deficiency Acquisitive: possessive
of natural resources. Many countries like Japan, Singapore, Optimum: best, perfect,ideal
Hong Kong etc. are poor in natural resources but they are Pre- requisite: requirement
able to achieve high economic growth by properly utilizing beforehand
human resources.
4. Development of Transportation and Communication: Human resources are needed to
develop transportation and communication. Human resources work in transportation and
communication sectors like construction of roads, expansion of communication networks
etc. and innovate new technology for the development of these sectors.
5. Agricultural and Industrial Development: For agricultural and industrial development
human resources is essential. Agriculture needs unskilled, semi-skilled, skilled human
resources. The existence of different skilled manpower like mechanical engineer, chemical
engineer is a pre-requisite for the development of industry.
6. Technological development: Human resources can play a vital role in the improvement
of technology. Better and newer technology can be developed through research by skilled
and qualified manpower. Advanced technology is necessary to bring development in the
Vedanta High School Economics - Book 9 144
country. Thus, technological development is a pre-requisite for rapid and sustainable
development of a country. Skilled manpower mean
higher efficiency and
7. Increase in the Productive Capacity: Human resource is
solely responsible in increasing the productive capacity of thus helps to increase
the economy. Transference of skill, art, education from one to the productive capacity
other is carried out by human resource.
8. Development of Managerial Capacity: As human resource is the most sensitive and
active factors of production it helps to develop managerial capacity, skill and knowledge
for the betterment of the managerial system. It leads one towards innovation of new
techniques in production, marketing strategy in distribution and efficient methods in
exchange of goods and services in internal and international market.
9. Removes Economic Backwardness: Developing countries are characterized by
economic backwardness. Low labour efficiency limits specialization in occupation and
trade. Similarly, deficiency in supply of entrepreneurship is responsible for economic
backwardness. Skilled, educated, experienced and healthy manpower helps to overcome
economic backwardness of the country.
10. Improve Traditional Skill and Culture: Some of the traditional belief, culture and
values are not healthy and conducive for economic development. The conservative and
superstitious beliefs and practices are not good for economic development and human
progress. The development of education, science and technology and other social reforms
help to overcome these problems in the society.
• High level of economic development in Japan can be attributed to theKeynote
high quality of its human resources
• Human resources can compensate lack of natural resources
• Human resource refers to only the active population
INDICATORS OF HUMAN DEVELOPMENT
The factors which are used to measure the level of human development in a country
are known as human development indicators. Some major indicators of human
development are as follows:
1. Economic Indicators: The level of human development is determined on the basis of
economic indicators. The most important economic indicator is the per capita income.
A high per capita income would mean a higher level of human development. Besides,
Human Development Index, Human Poverty Index, Physical Quality of Life Index,
Purchasing power etc. are some of the other economic indicators used to measure the
level of human development.
2. Life Expectancy: The level of human development can also be measured on the basis
of the life expectancy of the people. Life expectancy is determined by the availability
of nutritional diet, level of health facility, living standard etc. Higher level of life
expectancy indicates higher level of human development and vice-versa.
3. Educational Attainment: There is direct relationship Key Terms
between the level of education and living standard of Human development: a
people. If the literacy rate, school enrolment rate and measure of improvement in
average time of schooling are high, the level of human the quality of life
development will be high and vice-versa.
145 Vedanta High School Economics - Book 9
4. Basic Needs Indicator: Fooding, housing, clothing, education and health services are
the basic needs of the people. The higher level of their availability shows the higher
level of human development and vice-versa. Holis Chenery pioneered the basic needs
approach. According to this criteria, the development is evaluated on the basis of the
fulfillment of the basic needs of the people in terms of health, education, water, food,
clothing, shelter, work etc. The fulfillment of these basic needs on a satisfactory note
implies a satisfactory level of economic development and vice versa.
5. Level of Human Rights: At present, the level of human rights is also considered as
an indicator of human development. If the level of human rights is high, the level
of human development will be high and vice-versa. Amartya Sen, the 1998 Nobel
Laureate in economics held human rights in high esteem as a measure of development.
According to him, at least three basic components or core values serve as a conceptual
basis and practical guideline for understanding the inner meaning of development.
These core values are - sustenance, self-esteem, and freedom from servitude. They relate
to fundamental human needs that find their expression in human rights.
5. Demographic Indicators: Demographic indices The UNDP adopted HDI
like the Total Fertility Rate, Crude Birth Rate, developed by Amartya Sen
Mortality Rate, Population Growth Rate are also and Mahbub ul Haq in its
used as indicators of human development. A report in 1990
country with low rate of fertility, birth and child
mortality is considered to have achieved a high level of human development.
6. Human Development Index: The HDI was created by an Indian economist Amartya
Sen and a Pakistani economist Mahbub ul Haq in 1990. United Nations Development
Programme put forward Human Development Index in its annual Human Development
Report 1990. The HDI is based on three aspects of human development. They are
income for a decent living life expectancy at birth and education index which is the
average of years of schooling for adults aged 25 years and expected years of schooling
for children of school entering age. HDI ranks each country on a scale of 0 to 1.
The HDI classifies the countries into three groups by using three criteria of development
a. Low human development from 0.0 to 0.50. Pause for Thought
b. Medium human development from 0.51 to 0.79. “HDI is the most widely used in-
dicator of economic development”
c. High human development from 0.80 to 1.0.
• What are the components of HDI?
The HDI does not reflect inequalities, poverty, human • How is it measured?
security, empowerment, etc. So, new measures like • Find out the latest indices which
Human Poverty Index (HPI) and Multidimensional are used to supplement HDI
Poverty Index (MPI) were introduced recently by UNDP to supplement HDI. As per the
UNDP Human Development Report of 2019, Nepal ranks 147 out of 189 with a HDI
index of 0.579.
KEY CONCEPTS
Afforestation Ecological balance Logging contract
Global warming Watershed Irrigation
Human resources Physical capital Life expectancy
Human Develpment Index Human rights Human Poverty Index
Vedanta High School Economics - Book 9 146
UNIT AT A GLANCE
Natural resources are free gifts of Nature to Importance of water resources
mankind. The atmosphere, water, soil, forest, 1 . Hydroelectricity generation
wildlife, land, minerals are all natural resources. 2. Drinking water
Forest resources 3. Irrigation
All kinds of plants, which grow in natural habitat, 4. Industrial development
are known as natural vegetation or forest. 5. Development of transport
Importance of forest resources 6. Protection of forest resources
1. Fuelwood Problems of water resources development
2. Fodder for livestock 1. Lack of capital
3. Manure 2. Lack of technicians
4. Medicinal herbs 3. Lack of transport facilities
5. Raw materials for forest based industries 4. Limited market
6. Residential construction 5. Political instability
7. Export 6. Lack of repair and maintenance
8. Employment generation Importance of mineral resources
9. Prevention of landslides and soil erosion 1. Development of Industries
10. Support to agriculture 2. Source of Employment
Deforestation 3. Source of Energy
It is the act of clearing up of forest for commercial 4. Source of Government Revenue
activities, settlement, cultivation etc. 5. Development of Transport Sector
Causes of deforestation 6. Supply of Construction Materials
1. Population growth
2. Migration Problems of Mineral Resource Development
3. Illegal trade 1. Lack of Capital
4. Major source of fuel 2. Lack of Modern Machinery
5. Logging contract system 3. Insufficient Infrastructures
6. Demand for raw materials 4. Lack of Technical Manpower
Consequences of deforestation 5. Lack of Appropriate Government Policy
1. Ecological imbalance 6. Inadequate Research
2. Increase in global warming Human resources
3. Soil erosion and landslide It refers to the skill, knowledge, efficiency, physical
4. Decline in underground water and mental capability inherent in the population of
5. Effects on tourism a country.
6. Shortage of firewood
Importance of human resources
Forest conservation measures 1. Development of physical capital
1. Fixing forest boundaries 2. Development of natural resources
2. Afforestation 3. Compensate the deficiency of natural resources
3. Watershed conservation 4. Development of transport and communication
4. Public awareness 5. Agricultural and industrial development
5. Training to forest technicians 6. Technological development
6. Use of alternative source of energy
Indicators of Human Development
Water resources 1. Economic Indicators
Water resource is the most prominent natural 2. Life expectancy
resources of Nepal. Nepal has about 6,000 rivers 3. Educational attainment
including rivulets and tributaries totaling about 4. Basic needs indicator
45,000 KM in length, 5. Level of human rights
147 Vedanta High School Economics - Book 9
REVIEW QUESTIONS
Very Short Answer Type Questions
1. What is the most prominent natural resources of Nepal?
2. What percent of the total land area of Nepal is covered by forest?
3. What is the main cause of deforestation in Nepal?
4. Which is the first hydropower plant in Nepal?
5. What is the theoretical hydropower potential of Nepal?
6. What is the techno economic hydropower potential of Nepal?
7. What is meant by human resources?
8. What do you mean by indicators of human development?
9. What is meant by deforestiton?
10. What are the omponents of HDI?
Short Answer Type Questions
1. Explain the importance of forest resources in Nepal.
2. Write the importance of mineral resources in the economic development of Nepal.
3. What are the problems of mineral resources development in Nepal.
4. Write about potentiality of hydroelectricity in Nepal.
5. What are the problems of hydropower generation in Nepal?
6. Explain the role of water resources in the economic development of Nepal?
7. Explain the major indicator of human development.
8. What are the causes of deforestation in Nepal?
9. What are the consequences of deforestation in Nepal?
10. Describe the role of human resources in the economic development of Nepal.
Vedanta High School Economics - Book 9 148
7UNIT AGRICULTURE, COOPERATIVES AND
INDUSTRY
Learning Objectives Weight: 29 Lecture Hours
On Completion of this unit the student will be
able to:
• Explain the importance of agriculture in
Nepal
• Understand the problems of Nepalese
agriculture and suggest remedies
• Understand agricultural marketing and
agricultural finance
• Understand the situation, development and
Before you begin•
importance of cooperatives in Nepal Nepal is an agricultural country with 62.2
Explain the importance of cottage and small percent people directly engaged in farming.
scale industry Farming is subsistent in nature and farming
• Explain the importance of medium and large is mostly integrated with livestock. Most
scale industry Nepalese farmers grow diversified crops in
• Explain the importance of tourism industry order to hedge against erratic and uncer-
tain weather and other unfavourable agro-
• Explain the problems of tourism industry in nomic conditions.
Nepal and suggest remedial measures
Very Short Type Short Type Long Answer Type Total Marks
2 1 1 18
149 Vedanta High School Economics - Book 9
7.0 INTRODUCTION TO AGRICULTURE
Nepal is an agricultural country. Agriculture is the backbone of the Nepalese
economy and is the main occupation of the Nepalese people. As per the Third
Nepal Labour Survey of 2017/18 about 73.9 percent of the population in Nepal is
dependent on agriculture and 62.2 percent of the active population engaged in it. The
Contribution of agriculture sector to GDP was 27.59 percent in the fiscal year 2017/18
which was 28.8 percent in 2016/17. (Economic Survey 2018/19).
CHARACTERISTICS OF NEPALESE AGRICULTURE
Nepal is predominantly an agricultural country with about 62.62 percent of the active
population being engaged in it and about 73.9 percent of the population being dependent
on agriculture. The main characteristics of Nepalese agriculture are as follows:
1. Subsistence Farming: Nepalese people are engaged in Key Terms
agricultural operations for their livelihood. There is lack Subsistence farming: farming
of commercialization in agriculture. Agricultural products done for self consumption
are produced for consumption only not for sale. Farming Monsoon: rainy season
has not been taken from the commercial point of view. It is
still subsistence oriented and lacks modernization.
2. Dependence on Monsoon: Irrigation plays a very important role in agriculture. Despite
Nepal being rich in water resource its agriculture is dependent upon monsoon. As per
the Economic Survey of 2018/19, only 33.0 percent areas of arable land has irrigation
facility throughout the year. Rest of the land is dependent upon monsoon rain. Due to
high dependency in monsoon, agriculture production fluctuates every year.
3. Low Productivity: Agricultural productivity and production is low. Per hectare output
of the main food crop paddy is 3.5 metric tons. The low productivity in Nepalese
agriculture is due to low level of investment, use of inferior seeds and poor techniques
of production.
4. Dual Ownership of Land: Dual ownership of land is also a characteristic of Nepalese
agriculture. Dual ownership means two groups having ownership over the same land.
The owners are the landlords and the tenants. The land is owned by the landlords and
cultivated by the tenants. This creates problem in agriculture development.
5. Predominance of Cereal Crops: There is predomonance of cereal crops in overall
composition of crop area. The cereal crop area is increasing and that of other crop
is declining. The main food crop paddy occupies more than 80.0 percent of the total
cultivated land,
6. Geographical Variations: Geographically, Dual ownership of land
Nepal is divided into Mountain, Hills and
Terai regions. In different geographical regions, refers to the land being owned
agricultural practices and cropping pattern are KEY
IDEA by landlord and cultivated by
tenant
different.
7. Traditional Farming Practice: Nepalese farming practices are still primitive as
compare to similar other countries. They still use same tools and methods used by
their forefathers. Modern tools, improved seeds, fertilizers, etc. are not commonly used
by the majority of farmers in the country.
8. High Population Pressure on Agriculture: The population pressure on the agricultural
sector is very high due to the slow development of other non-agriculture sectors.
Vedanta High School Economics - Book 9 150
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