Achieving and maintaining a reasonably high economic growth has been one of the major objectives of most of the countries in the world even in Nepal. Nepal is one of the Least Developed Countries (LDCs) in the world having a small economy with Rs 743 billion Gross Domestic Product (GDP) and $862 per capita income. The country has aims to graduate from LDC into developing by 2022 and graduate in the middle-level income country by 2030.
For the country, Nepal, agricultural sector, hydro-power sector, tourism sector, handicraft, different herbs have been regarding as competitive areas for the economic growth. The country needs to recognize such areas and strengthen them by allocating an adequate amount of budget along with implement effective monitoring mechanism. Moreover, the country needs to explore the sectors that have a significant contribution towards the economic growth of the country and formulate robust policies in order to reap the benefit from them.
In fact, despite agricultural sectors regarded as a mainstay for most of the Nepali, the contribution of such sector on GDP has been in declining trend. Similarly, the contribution of the industrial sector on GDP has been in the same trend for few years. However, the contribution of the service sector on GDP has been an increasing trend. This implies that Nepali economic has been shifting agricultural sector to service one.
In fact, the country has been exporting human capital and in return receiving remittance. Remittance does better to some extent in the short run. However, it cannot be regarded as a base for the sustainable development of the economic growth of the country.
There is no doubt that the country has been highly dependent on other countries like India and China for most of the product from agricultural to petroleum products, due to which the country has been facing widening trade deficit and likely to widening further.
Low production, consumptions habit of Nepali, inadequate utilization of available human capital, lack of sophisticated technology, solely depends upon India for petroleum product are some of the factors that attribute further widening trade deficit.
It is believed that the countries on the transition to industrialization can grow faster than those relying on the agricultural base. To carter those aforementioned problems, the country needs to establish enterprises especially Small and Medium Enterprises (SMEs) since they have a significant impact on the economic growth which revealed by many empirical studies conducted in most of the countries in the world. In fact, employment generation by SMEs is higher than the employment generation by large enterprises.
Generally, SMEs can be established, operated, flourished business activities with a small amount of capital. By the name, they are small but actually not in terms of their contributions towards generating employment opportunities, poverty alleviation, increasing entrepreneurial activities, among others. Moreover, SMEs are the drivers of the vehicle called the economic growth. Economic growth increases with the increment of the economic activities within the country. Industrialization is essential for the increment of the economic activities.
From the worldwide perspective, SMEs has been recognized as the backbone for economic growth and development. Establishment of enterprises is prerequisite for generating employment opportunities. Favorable macroeconomic policies encourage entrepreneurship and entrepreneurial activities thereby creating jobs, ultimately fuelling economic growth.
A high lending rate is one of the major bottlenecks for the growth of most of the SMEs in Nepal. SMEs are currently subject to the lending rate of around 16% whereas interest on auto and home loan is lower. This has hit the owners of SMEs and they are compelled to lay off their employees in order to keep debt servicing and operation cost lower.
For achieving sustainable inclusive economic growth, the country needs to create a favorable environment where enterprises can establish, grow, and flourish their business activities in smooth ways.
The monetary policy should be guided towards increasing credit flow to SMEs by lowering the bank lending rates towards them. The country’s macroeconomic policies should be guided towards sustainable economic development by achieving reasonably rapid economic growth through maximum utilization of available means and resources in order to become a self-reliant country, prosperous Nepal, and ultimately make happy Nepali.
