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Economic Systems
Mechanism which deals with the production, distribution and
consumption of goods & services in a particular society and
comprising people, institutions and their relationships
Way or organization of society to decide on a) what products or
services should be produced or offered b) how should the products or
services be produced or offered c) for whom should the products or
services be produced
It provides framework within which as economy operates & various
economic units and agents mould themselves to fit into the system
Broadly classified as
A) Market allocation- capitalist form of economic system
B) Command or Central Plan allocation socialist economic system
C) Mixed allocation mixed economy
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Dimensions of Economy
1. Economic dimension: indicates purchasing power, consumption
patterns, balance of payment, exchange rate, while internal
performance includes results in terms of output, prices, employment,
savings, labour cost
2. Socio-economic dimension: managers require data on size &
structure of number of economies and socio-economic factors :
demographic compositions (must be sufficient number of people to
buy product/service)
3. Industrial & Agricultural dimensions: stronger the industrial and
agricultural base greater the potential supply of goods, services &
raw materials to markets, consumers
4. Economic development dimension: economic development plans
which indicate overall socio-economic development policies,
strategies & mechanisms of resource allocation in different sectors
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Basic Social Economic indicators and their
impact
Business depends upon the economic environment
for all needed inputs
It also depend upon the economic environment to
sell the finished goods
Business is one unit of total economy
Mainly economic dimensions are GDP, GNP, Per
Capita Income, Labor cost, Employment
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Gross Domestic Products & Gross National
Product
Gross National Product/Income (GNP/GNI) is
total sum of all goods and services produced in a
year including net property income from abroad
Gross Domestic Product (GDP) is the GNP less
net foreign factor incomes
These values tells size of economy of the country
Business people prefer to view GDP in relations
to population rather than GDP in isolation
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Gross Domestic Products & Gross National Product
00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/1010/11 11/12 12/13 13/14 14/15 15/16
GDP at current
price (in
Billion Rs.) 441.5 459.4 492.2 536.7 589.4 654.1 727.8 815.7 988.3 1,192.77 1,367.0 1,527.3 1,695.0 1,964.50 2,120.47 2,248.7
01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16
GNP/
GNI 458838 491555 535065 73526 82361 100002 120280 137698 120189 137450 153964 229265 199729 215471 229265
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Details of economic growth rate
Growth Rate (%)
Fiscal Year GDP Agriculture Industry Services
2001-02 0.2 3.1 0.7 -1.8
2002-03 3.8 3.3 3.1 3.7
2003-04 4.4 4.7 1.5 6.8
2004-05 3.2 3.5 2.9 3.3
2005-06 3.7 1.9 4.4 5.6
2006-07 2.8 1.0 4.0 4.4
2007-08 5.8 5.8 1.6 7.3
2008-09 3.9 3.0 -0.6 6.0
2009-10 4.3 2.0 4.0 5.8
2010-11 3.9 4.5 4.3 3.4
2011-12 4.6 4.6 3.0 5.0
2012-13 3.8 1.1 2.7 5.7
2013-14 5.7 4.5 7.1 6.2
2014-15 2.32 0.8 1.5 3.6
2015-16 0.77 1.3 -6.3 2.7
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Exchange Rate
Business involved in exports and imports dealing with foreign
currency have to face exchange gain or loss
Tariffs, customs or import duties
Customs, import duties and tariffs are placed by government in
many cases to protect their domestic industries
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Socio Economic Dimensions
Population
growing population indicator of growing market
As per census of 2011: 26,494,504 with growth rate of 1.35%
Terai constitutes about 50.27%, while hill and mountain
constitutes about 43% and 3.73% of population respectively
Population size provide estimation of market size in case of mass
consumed products like biscuits, soft drinks
Regional Distribution and Density
Marketer needs information on urban percentage population in big
cities, shift of population from rural to urban areas (trend is there
seeking more employment, education)
Population with high disposable income in Kathmandu and
distribution of population in Hill, Mountain and Terai
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Socio Economic Dimensions
Age and sex structure
market segmentation is carried out by age, sex in order to target
the products (target market)
age is determinant for estimation of market size
female population is also another determinant for market size
estimation
Labour force & Labour market
Labour force demographics must be considered by business firms
in formulating their human resources strategies
Quality and quantity of people available in different sectors will
have a considerable impact upon the country`s ability to produce
Labour market characterized by very small formal sector & larger
informal sector 20
Socio Economic Dimensions
Employment trends
People giving up their traditional family occupations
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Socio Economic Dimensions
Labour force & Labour market
Quantity depends upon population and quality on training,
experience and education
Out of total 11.8 million employed large portion about 64%
are engaged in subsistence agriculture
Lack of education and skills, the bulk of the economically
active population is engaged in manual and unskilled type of
work
Major issue of labour market is rigidity of labour law 2002
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Socio Economic Dimensions
Labour force & Labour market
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Remittances
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Industry & Agriculture Dimension:
Industrialization in Nepal began after country opened its border to
outside world in 1951
At first rudimentary (basic) industries were established
In 60s construction materials and production of import substitution
industries
In 70s & 80s export oriented like carpet, garments were developed
In 90s growth of industries like electronics and electrical
equipments, construction, food processing etc,
Service sector (hotel, tourism, banking and financial services) are
significant and growing sector and major contributor to GDP
Agriculture a largest sector and backbone of Nepalese economy
India is most important partner in agriculture trade accounting 80%
of Nepal`s exports 27
Industry & Agriculture Dimension:
Nepal suffers from deficit in agriculture trade (apart from formal
informal trade imports from India dominate trade)
In spite of huge investments in agriculture sector over the past
decades growth rate in agriculture productivity has been negligible
Processing costs of agriculture products is high in Nepal compared
to India
Production of fruits, vegetables, milk & milk products, poultry, tea,
fish & cash crops has gradually been increasing over the years
Nepal's agriculture sector has lost competitive edge owing to dearth
of fertilizers, seeds, irrigation and other facilities necessary for
raising productivity
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Economic Development Dimension:
National development plans are also the sources of information for
analyzing economic environment
Role of state on developing country has been conceived as planner
and government assumes responsibility of fulfilling basic needs of
people
Government set goals, targets (national level, regional level) to
achieve for development and plans are devised accordingly to
achieve these goals
Business are highly affected by national development plans of
government
Pattern of economic development in Nepal is very significantly
affected by system of national planning
All development plans gave emphasis in increasing standard of
;living of people by increasing per capita income 29
Development plans
Five year development plans were formulated and implements from 1956
onwards and till 2007 it was five year plans . After Tenth Plan (2002-2007)
Three Year Plans are formulated and is being implemented cause of
ongoing political instability
National Development Plans are sources of economic data
In developing country state play a role of planner and government
assumes the responsibility to fulfill basic need of people with upliftment of
living standards
Sets goals, targets and develops and adopts policies to mobilize resources
to meet these goals and strategies
Business firms are affected by national planning exercise as it provides
policy framework set for development of the sectors
Business firms can also exploit the opportunity available within the
economy created by national development plans
Pattern of economic development in Nepal is greatly affected by system of
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national planning
14th Three Year Plan 2016/17-2018/19
Long Term Vision
Independent, progressive and socialism oriented national economy and
prosperous Nepal
Target
Transform Nepal into middle income level country by developing it to
public welfare state with social justice
Objective
Social and economic transformation by rapid reduction in poverty rate
with high level of economic growth characterized by production
oriented employment and equitable distribution
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13th Three Year Plan 2013/14-2015/16
Target of
Particulars Thirteenth Plan
(FY 2013/14 Achievement of
-2015/16) 13th Plan
Average economic growth rate (%) 6.0 2.94
Agriculture Sector (%) 4.5 2.23
Non- Agriculture Sector (%) 6.7 3.37
Inflation (%) 7 8.7
Annual average growth in employment (%) 3.2 2.9
Population below poverty line (%) 18 21.6
Life expectancy (years) 71 69
Maternal mortality rate (in lakhs) 213 258
Population with drinking water access (%) 95 83.6
Population with access of sanitation (%) 90.5 81
Net enrollment rate in primary school (%) 100 96.6
Literacy rate (15-24 years) 95 88.6
District headquarters with raod connectivity (nos) 75 73
Tele density including mobile (per 100) 100 103.4
Power Generation (MW) 1426 851
Population with internet access (%) 46.4 65
Population with eletricity access (%) 87 74
Irrigation (in hectare lakhs) 14.87 13.92
Area covered with forest (%) 40 44.46
Total length of road (km) 32
27,965 29,031
14th Three Year Plan 2016/17-2018/19
Long Term Vision
Independent, progressive and socialism oriented national economy and
prosperous Nepal
Target
Transform Nepal into middle income level country by developing it to
public welfare state with social justice
Objective
Social and economic transformation by rapid reduction in poverty rate
with high level of economic growth characterized by production
oriented employment and equitable distribution
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Targets of 14th Three Year Plan 2016/17-2018/19
Target of 14th
Particulars Situation as plan (2016/17-
of FY 2015/16 2018/19)