The views expressed in this paper/presentation are the views of the author(s) and do not necessarily reflect the

views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented, nor does it make any representation concerning the same.

Poverty Reduction Lessons for Nepal from Peoples Republic of China

By Bishnu Pant and Mukesh Khanal

Institute for Integrated Development Studies (IIDS)

PO Box 2254 Mandikhatar, Kathmandu Nepal Phone: 977 1 4371006, 4378831 Email: info@iids.org.np

December 2011
i

Content
1. INTRODUCTION 1

1.1 1.2

Inclusiveness of economic growth Constraints to economic growth

1 2

1.3 Root causes of constraints 2. POVERTY TO INCLUSIVE GROWTH IN NEPAL: WHAT IS REQUIRED

4 5

3.

2.1 Land Distribution 5 2.2 Access to Public and Social Services 6 2.3 Migration 9 2.4 Urbanization 10 2.5 World Market Integration 11 POVERTY REDUCTION AND INCLUSIVE GROWTH IN PRC 13 3.1 Mao Tse-tungs China: Healthy but Poor (1950-1978) 13 3.2 Deng Xiaopings China: Healthy and Wealthy (1978-2005) 15 3.3 New China: Harmonious Society and Inclusive Growth (2005-today) 16 3.4 Pro-poor Fiscal Reforms and Public Resources Management 16 3.5 The Go West Strategy 17 3.6 Role of World Market Integration in Poverty Reduction 18 3.7 China as a Middle Income Country: The Challenges 19

4.

CHINAS DEVELOPMENT ASSISTANCE TO NEPAL

4.1 Transport Infrastructure 4.2 Industry and Other Infrastructure 4.3 Social Sector 4.4 Agriculture 4.5 Hydroelectricity 4.6 Tourism

21
22 22 23 23 24 24

5.

LESSONS FOR NEPAL FROM THE CHINESE EXPERIENCE

5.1 Agricultural Reforms 5.1.1 Irrigation 5.1.2 Community Land 5.1.3 Large Scale Professional Farming 5.1.4 Storage Facilities for Agricultural Products 5.1.5 Rural Transportation Infrastructure 5.2 Health is Wealth

24
25 25 26 26 27 27 27

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5.3 Inclusive Growth 5.4 Educate the Children, Youth and Women

28 29

6.

CONCLUSION REFERENCES

31 33

List of Table
Table 1.1: 2 Table 1.2: 3 Table 3.1: 15 Table 5.1: 30 Headcount poverty rates in Nepal (1995/96 and 2003/04) Employment trends between 1995/96 and 2003/04 Annual Per Capita Income Gender Related Statistics (2001/02)

List of Figure
Figure 2.1: Fertility Rate of Nepalese Women 6 Figure 2.2: Percentage of Immunized Children Aged 12-23 Months 7 Figure 2.3: Total Expenditure on Health (% of GDP) 7 Figure 2.4: Government Expenditure on Education (% of GDP) 8 Figure 2.5: Number of Nepalese Going to Work Overseas 9 Figure2. 6: Remittance Inflow to Nepal (% of GDP) 10 Figure 2.7: Agricultures Contribution to GDP in percentage 12 Figure 3.1: Chinas Household Final Consumption Expenditure (% of GDP) 20 Figure 5.1: Number of Active (Working) Population 29

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Poverty Reduction Lessons for Nepal from Peoples Republic of China

-Bishnu Pant and Mukesh Khanal1

1. INTRODUCTION Nepals performance in terms of economic development has lagged behind that of other South Asian countries despite important reforms made during 1990s. Nepals per capita GDP has been the lowest in the region since 1990. Despite the lackluster growth performance, poverty incidence declined from about 42 percent in 1995/96 to 31 percent in 2003/04 and again to 25.6 percent in 2009/10. While this is a welcome development, the level of poverty still remains high. In addition, an emerging issue is the rise in inequality over the same periodfrom 0.34 to 0.41in terms of Gini Coefficient. Nepal had three distinct phases of economic growth in terms of GDP: a phase of slow growth during 1961-1980, a phase of relatively high growth during 1981-2000, and again a phase of slow growth during 2001-2010. Although GDP registered an impressive 5.6 percent growth in 2007-08, the surge was largely due to timely rainfall leading to a good harvest of the main agricultural crops as well as due to rise in tourist arrivals. It was not due to major improvements in economic fundamentals. In the 1990s, the Government of Nepal initiated the tasks of liberalizing the economy. It implemented a number of key reforms. These policies and initiatives helped to develop specially the nonagricultural sector to a large extent. An average annual GDP growth rate of about 5 percent was achieved despite political instability, and the lackluster performance in agriculture. Actually, Nepals GDP growth rate during this period compared well with that of other countries in the region. However, despite these reforms, the growth rates of 1990s could not be sustained in the 2000s. The Maoist conflict that started in 1996 in the northwestern region escalated nationwide. Development activities could not reach the grassroots level. A number of industrial enterprises were closed. As a result, the annual GDP growth rate fell to an average of about 2.9 percent during 2001-2006. The economy was, nevertheless, able to register a much higher growth rate in 2007/08 as agriculture and tourism grew significantly. But, erratic growth remains a cause of concern because Nepal went from being one of the better performing economies in the region during the 90s to one of the weakest during 2001-06 periods.

1.1 Inclusiveness of economic growth

An important issue Nepal faces is how to make growth more inclusive. Growth is said to be more inclusive when it allows all members of society to participate in and
1

Authors are associated with the Institute for Integrated Development Studies (IIDS), Kathmandu, Nepal. They would like to acknowledge Ms Ishani Shrestha for her contribution in preparing this report.

contribute to the growth process on an equal basis regardless of their individual circumstances (Ali and Zhuang 2007). This is particularly relevant for Nepal, where exclusion remains an important hurdle to surmount in order to attain the countrys development objectives (World Bank and DFID 2006). As mentioned earlier, even though Nepals incidence of poverty declined from about 42 percent in 1995/96 to about 25 percent in 2009/10, primarily due to increasing remittance inflow, the inequality increased substantially from 1995/96 to 2009/10. These observations suggest limited inclusiveness in Nepals recent economic growth. One way of examining this inclusiveness is to view the trends in poverty measures at a disaggregated level. Nepal is an ethnically diverse country with more than 59 ethnic groups. The deeply embedded caste system adds complication to its social structure. Nepal is also diverse in terms of geography. Table 1.1 shows changes in poverty headcount rates for each of these dimensions. It clearly illustrates the variation in poverty incidence by geography as well as ethnicity. For instance, the poverty incidence declined by more than half in urban areas, but it declined only by 20 percent in rural areas. Table 1.1: Headcount poverty rates in Nepal (1995/96 and 2003/04)
Poverty headcount rate 1995/96 2003/04 21.6 9.6 43.3 34.6 4.3 31.6 55.0 36.1 46.1 37.2 34.1 28.7 57.8 19.3 48.7 53.4 43.7 46.1 41.8 3.3 13.0 37.4 42.9 38.1 24.9 18.4 21.3 45.5 14.0 44.0 35.4 41.3 31.3 30.8 Change -56 -20 -23 -59 -32 19 -17 -33 -46 -26 -21 -28 -10 -34 -6 -32 -26 Proportion of total poor 1995/96 2003/04 3.6 4.7 96.4 95.3 0.3 3.3 32.7 19.4 18.4 25.9 26.7 2.9 10.6 2.5 19.7 10.4 5.7 21.4 100.0 0.6 4.1 23.6 29.4 18.9 23.5 15.7 1.9 10.9 3.4 27.8 9.2 8.7 22.3 100.0 Change 31 -1 100 24 -28 52 3 -9 -41 -34 3 36 41 -12 53 4 -

Urban Rural NLSS Regions Kathmandu Other urban Rural western hill Rural eastern hill Rural western terai Rural eastern terai Ethnicity/caste Brahman-chhetri Terai middle caste Dalit Newar Hill janjati Terai janjati Muslim Other minorities Nepal

NLSS= Nepal Living Standard Survey Source: World Bank et al (2006)

About 35 percent of the rural population was still below the poverty line in 2003/04. Poverty reduction was particularly significant in urban areas other than Kathmandu. In rural areas, rural eastern Terai and rural western hills experienced the greatest reduction ratesabout 33 percent and 32 percent respectively. However, poverty increased in the rural Eastern hills by 19 percent during the eight-year period. Eastern hill population was in poverty in 2003/04, and the region contained the largest share of countrys poor which was about 29 percent. In terms of ethnicity/caste dimension, the Brahmins and Chhetris, considered the privileged groups in Nepal, benefitted most from the economic growth. In contrast, the disadvantaged groups like Dalit, Muslims and Hill Janjatis, excluding Newars, experienced the least poverty decline from 1995/96 to 2003/04. These variations unequivocally indicate the economic exclusion of some groups in Nepal. From the 2

above analysis, it can be concluded that geography and ethnicity/caste have been partly responsible for limited inclusiveness of Nepals recent economic growth.

1.2 Constraints to economic growth

Despite the impressive poverty reduction between 1995/96 and 2003/04, the benefits of economic growth were not uniformly distributed throughout the Nepalese society. A number of factors namely lack of productive employment opportunities, unequal access to opportunities, and inadequate social safety nets seem to have acted as barriers to inclusive growth in Nepal. Table 1.2 reveals that limited productive employment opportunities constitute a critical constraint to inclusiveness in Nepal, particularly in rural areas where the majority of the poor reside. The availability of productive employment opportunities is a key to the households ability to improve its livelihood. In Nepal, labor force participation rate is relatively high and unemployment low, possibly because the poor have no social safety nets and must accept whatever work they can find. The table further shows the labor market improved slightly between 1995/96 and 2004/05. The unemployment rate also declined, but the underemployment rate was found to increase. Table 1.2: Employment trends between 1995/96 and 2003/04
Labour force Labor force participation rate All Urban Rural Poorest 40 percent Unemployment rate All Urban Rural Poorest 40 percent Underemployment rate All Urban Rural Poorest 40 percent Source: World Bank et al 2006 Men 1995/96 84.6 76.3 85.4 87.2 5.4 9.5 5.1 5.5 14.2 9.1 14.6 13.3 2003/04 86.9 78.8 88.7 89.7 4.1 7.0 3.6 3.3 15.4 9.3 16.6 16.3 Women 1995/96 71.4 45.9 73.4 74.2 3.8 17.4 3.2 5.0 24.3 22.5 24.3 22.6 2003/04 72.9 52.5 76.9 77.7 3.8 13.5 2.5 2.5 25.7 26.1 25.7 24.1

In Nepal, the problem of underemployment, particularly in rural areas, can be explained, at least partly, by agricultures sluggish performance. Nevertheless, self employment in agriculture remains the countrys most important source of household income (World Bank et al 2006). Agricultures performance is, therefore, a key to ensure inclusive growth. In agriculture, land is the most important productive asset. About 77 percent of Nepals population owned land in 2003/04. Moreover the size of land holding varied significantly across regions, ethnicity/caste, and the average size of holding has declined over the years. Providing more employment opportunities, particularly for people who are engaged in subsistence or near subsistence agriculture including

the people displaced internally by the conflict and civil war, will remain a challenge for Nepal in coming years. During the last decade, both internal and international migration increased significantly. Although Nepal and India are the most common destinations for long term migrants, recent destinations include Malaysia, Qatar, Saudi Arabia and other Middle Eastern countries, with Malaysia receiving highest number of Nepali migrants beyond India. Lokshin, Bontch-Osmolovski and Glinskaya (2007) find that one-fifth of poverty reduction during 1995/96- 2003/04 can be attributed to workrelated migration and remittances sent home. Migration thus offers a new source of employment opportunities for Nepali workers and a potential means to reduce poverty in the short term. However, in the medium to long term, the country must try to create enough employment opportunities within the country so that economically active population does not have to go to other countries for employment. It has now been obvious that there exists an unequal access to economic opportunities in Nepal. The possible causes underlying unequal access to opportunities are weak human capabilities and an uneven playing field. Certain people have weaker human capabilities than others, partly due to education, health and other social services. School enrollment rates have significantly improved in recent years, but access to secondary education and vocational training is still inequitable and a critical constraint to inclusiveness. Access to technical education and vocational training, among others, is critical for ensuring equal access to economic opportunities both within and outside the country. There is an urgent need for cost-effective skill development schemes for wider population, particularly for those who have little access to the existing technical or vocational training opportunities. Unequal access to opportunities may also be caused by inequality in accessing infrastructure and productive assets such as credit and land. For growth to be inclusive, all segments of society must have an equal chance to enjoy opportunities arising from economic growth. In Nepal, access to roads is the key to household welfare. Roads ease households access to basic services such as education and health while improving access to economic opportunities. Moreover, roads can allow migration for work, which may provide new employment opportunities or an additional source of income to smooth the household consumption and cope with risks. Inadequate social safety nets can also constrain inclusive economic growth. The importance of social safety nets cannot be overemphasized in countries with deeprooted traditional exclusion of certain segments of society. Nepals efforts at implementing social inclusion and targeted programs have increased in recent years in response to the recognition of the importance of inclusion in Nepals Poverty Reduction Strategy Paper (PRSP). To eliminate the prevailing regional, ethnicity/caste based, and other inequalities, the current three year interim plan focuses on inclusive and targeted programs to reduce the gap between available opportunities and access. The two types of targeted programs are those aimed at (i) geographical areas, and (ii) groups of people. The programs cover women, dalits,

indigenous people, Madhesis, communities in remote areas, the extremely poor and small scale farmers.

1.3 Root causes of constraints

Ascertaining possible root causes of the constraints can help policy makers formulate effective measures to address them. Nepals geographic, ethnic and linguistic diversity as well as Hindu caste system contributes to exclusion. The three main dimension of exclusion are social (caste, ethnicity, religion and gender), geography, and economy (income poverty). To ensure equal access to opportunities and public services as well as an even playing field for all segments of society, exclusion needs to be properly addressed. Nepals constitution prohibits discrimination on the grounds of religion, race, sex, caste, tribe, ideological conviction or any of these. However, enforcement is lacking, and laws aimed at protecting people from discrimination have been weakly implemented. Poor implementation of the laws is partly attributable to deep rooted values and discriminatory attitudes. Therefore, a key challenge is to change the mindset of the people, and that of formal and informal mechanisms involved in perpetuating discrimination. Excluded groups currently lack fair representation in sociopolitical networks and decision-making institutions in all levels. Thus, their greater representation is needed at all levels of government.

2. POVERTY TO INCLUSIVE GROWTH IN NEPAL: WHAT IS REQUIRED

Some of the major factors that have resulted in the creation of poverty in Nepal, are problems associated with land distribution, access to public and social services, migration, urbanization, and world market integration. Nepal is all set to move to the higher level of development as soon as there is a political stability. Should Nepal aim to be upgraded to the Middle Income Countries group, it will have to start addressing a different set of problems than when it was a poor country. In other words, inclusive growth in Nepal is not possible until these issues mentioned earlier in this paragraph are addressed.

2.1 Land Distribution

Poverty rate in rural Nepal is twice that in urban areas, and has a very direct relationship to entitlements and access to assets (Deraniyagala et. al. 2003). Land distribution in Nepal generally favors large landowners. However, along with the landless and marginal landowners who live under absolute poverty, even the

medium and large landowners have been observed to live below the poverty line. Therefore, to suggest a one-to-one relationship between land ownership and poverty would be a folly in Nepals case. Failure of such one-to-one relationship is due to the failure of medium and large landowners in Nepal, mostly in the hills and mountains, to maximize the value of their land. There are a number of reasons for this failure.

First, lack of proper irrigation facilities means that the landowners have to depend on rainfall if they are to use their land for agriculture. And, rainfall in Nepal has always been erratic, especially in the last few years. Changing climate has affected Nepal as well, because of which the last few years have seen droughts in one season, and floods in another. Therefore, even medium and large landowners find their harvests suffering each year, either by too little or too much rain. Second, even if the landowners were to have a good harvest year after year, there is a distinct lack of transportation infrastructure linking the production areas with the demand markets. As a result, even during good years, these landowners are unable to sell their agricultural products in the final markets. In places where a decent infrastructure does exist, rising costs due to petroleum and labor union related problems increase the transportation costs. As a result, it becomes no longer profitable for them to ship the products to their destination markets.Third, agricultural land in Nepal is highly fragmented. According to the Agricultural census, an average family farm size in 1981 was 1.13 hectares. In 1991, it was 0.96 hectares (Deraniyagala et. al. 2003). Since most farming in Nepal is still done on a subsistence basis, fragmentation of land poses additional problems. Increased fragmented landholdings means there are now numerous subsistence farmers than before. Subsistence farmers in Nepal do not possess the capital to buy or borrow heavy agricultural machinery and equipment. This means that they still rely on traditional methods of farming that are inefficient and have lower productivity.

Given such persistent problems, there are a few things that could be done to alleviate poverty that arises out of land distribution and land holding problems in Nepal. There are swaths of government owned land in remote hills and mountains of Nepal. Those very places have a large number of people with no land holdings or marginal land holdings. The government owned land has not been put to proper use. In these instances, the government should distribute the land to those with no land holdings or marginal land holdings. If free distribution of land is not desirable to the government, it should set up community groups and vest the control of the land to these groups. Since community forestry has been a success in Nepal, there is no reason to believe that community land holding will not be. This will provide poor farmers, for instance, in Mugu an opportunity to grow apples, or in upper Solukhumbu to grow barley, or in lower Solukhumbu to grow mangoes. However, simply setting up community groups and handing them land is not enough. The government should purchase and hand over agricultural machinery, tools and equipments to community groups. The groups can lease the equipments in a needbasis to both small and large scale farmers. Such support from the government will unburden the poor farmers from having to buy their own equipments and tools, and will help save time and money.

2.2 Access to Public and Social Services

In the beginning of 1800, a Nepali woman was giving birth to 6.2 children on average. While countries all over the world kept improving, and were successfully lowering the fertility rate per woman, Nepal showed no improvement. Until late 1970s, a Nepali woman was still giving birth to 6.2 children on average (Gapminder 2011). But, improved economic policies coupled with pouring in of foreign-aid started having an impact in the 1970s. More girls enrolled in schools; hospitals and health facilities became better; health education and family planning were promoted. All these efforts, resulted in empowerment of girls and women, and taught them the benefits of having small families (Khanal 2010). As a result, Nepal experienced a significant drop in fertility rate since 1970. A Nepali woman today gives birth to 2.9 children on average (Fig2.1). This is something that the country should, really, be proud of. Figure 2.1: Fertility Rate of Nepalese Women

Source: Gapminder (www.gapminder.org)

However, the country, especially in the rural areas, is still very conservative. As a result, public health options like family planning and abortions in Nepal are still very difficult for women to seek. The hills and mountains suffer from lack of enough schools, hospitals and other public services. While it is true that the government and non-governmental organizations in Nepal have been doing their best and expanding their services to cover more areas, such efforts have been very slow and lacking in intensity and effectiveness. Even in cases where delivery of public services has improved, new problems have risen. In order to tackle the growing problem of unwanted pregnancies and maternal deaths associated with illegal abortions, the Nepalese government legalized abortion. As a result, abortion providing clinics, such as Marie Stopes, grew in Nepal. These clinics provide a vital public service for Nepalese women. However, rising number of abortions, especially teenage abortions, have created criticisms in recent years.

Also, despite the success in lowering the fertility rates, Nepalese are still failing to save their infants and children from various diseases. Diseases that have been cured and eradicated in the western world are still killing Nepalese newborns and children. In an effort to save the children, Nepal government started vaccinating them in the 1970s, and less than 10 percent of infants were vaccinated by 1980. By 2008, almost 80 percent of infants in Nepal have received DPT and Measles vaccines. This tremendous rise in vaccination rates has ensured that newborns and infants will survive. This survival ensures that these infants will grow up to be the youths that are shaping the economic and social future of the country. However, malaria is still a problem. Hundreds die each year from diarrhea and tuberculosis. Even today, 46 infants out of 1000 do not see their second birthday in Nepal.

Figure 2.2: Percentage of Immunized Children Aged 12-23 Months

Source: Ministry of Finance 2009

Total spending on health as a percentage of GDP nevertheless has remained flat, at around 6 percent, since 1995. Even out of that total spending, the governments share is only 30 percent, with the rest being incurred by private sector and foreignaid. That share has increased by less than 1% since 1990. This lack of significant spending on health means that millions in Nepal cannot afford basic healthcare. Many, mostly in rural areas, do not have access to a doctor. Disease prevention and health education programs lack funding. All these shortcomings will not help the people escape poverty anytime soon.

Figure 2.3: Total Expenditure on Health (% of GDP)

Source: Gapminder (www.gapminder.org)

Education, another essential public good that the government provides, paints a similar picture. Decades of work by the government and various organizations in Nepalese public education system have yielded some favorable results. Gender gap between boys and girls in education has shrunk over the years. Literacy rate has improved throughout the country. But, access to education still remains out of reach of thousands in the remote areas. Dalits are still discriminated against. Access and quality of education in urban areas is far better than in rural areas. Also, an analysis of public expenditure on education shows that there has been very little increase since the 1990s.

Figure 2.4: Government Expenditure on Education (% of GDP)

Source: Ministry of Finance 2009

Another public service that is lacking in Nepal is the transportation infrastructure. Transportation and communication networks are the backbone for the development of any country. Nepal is a fragile mountainous country. Only 23% of total area is plain and rest is hill and mountains, which makes development of transport infrastructure very difficult. Nepals total road network density is very low. Only 43 percent of the population has access to all weather roads. Road transport is the major mode of transport in the country which accounts for about 90 percent of total passenger and freight transport. The existing roads are very narrow for present traffic. Comparative infrastructure indicators suggest that Nepal has the lowest coverage of infrastructure in South Asia. Analysis of the transport infrastructure system suggests that there is a huge need of investment. Given the perpetual lack public funding, alternative ways for financing a land infra-structure and the maintenance of existing infrastructure have to be explored.

Investments in all kinds of public services in Nepal are lacking. Transport infrastructure, Health and education services need more expenditures as percentage of GDP. The fact that these expenditures have remained stagnant over the last few decades does not bode well for Nepal's fight against poverty. The government has to build enough roads leading to various places so that, and local agricultural products are provided easy access to market and the local entrepreneurs can create business and job opportunities.

2.3 Migration
The people of Nepal have been going overseas for work ever since the British recruited them after the Anglo-Nepal war of 1814-1816. First, they were recruited in the British Army in India, then in the Indian Army after the British left India in 1947. However, the floodgates really opened after the democracy in 1990. The democracy, and the subsequent opening up of the Nepalese economy and labor market, has meant that the Nepalese have been going overseas, in droves every year, either for work or studies or both. Figure 2.5: Number of Nepalese Going to Work Overseas

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Source: Ministry of Finance 2009

The trend of last few years shows that around 65 percent of those going overseas are between the ages of 15 and 29, and the rest are between the ages of 30 and 44. Those who have left the country have left behind a void in the labor market. However, going overseas for work is not easy. The poor cannot afford to apply and go to lucrative destinations. Instead, they settle for jobs in India because it requires no visa and cost of reaching there is low. For them, even the acquisition of official emigration documents, such as a passport, is sometimes an insurmountable hurdle. Therefore, those who go to lucrative areas are already in the lower- to upper-middle class. Given this context, it is difficult to digest the claims of Nepalese policymakers who are in praise of the remittance economy because they feel it reduces poverty. Workers from India send much less in remittance on average when compared to those in the Middle East and other countries. Most of the migrant workers are uneducated (or undereducated), illiterate, and low-skilled (or un-skilled). They have a difficult time finding well-paying jobs in Nepal as well because of these shortcomings. Unless the shortcomings are addressed through education and training, they will always go overseas for labor intensive jobs. This is not a desirable outcome for the people and the Nepalese government. One of the side effect of overseas migration for work, is the spoil effect. It means that easy availability of remittance money sent from abroad creates distortion in the work efficiency and working mentality of the recipient members. A study in Kosovo showed that remittance made the youths reluctant towards seeking higher education and reduced their incentives to work (Bislimi 2008). Similar results have been observed in remittance heavy economies like the Philippines, Egypt and Somalia (Khanal and Satyal 2011). Are such spoil effects present in Nepalese society? Does Nepal risk losing its youths to poor education and poor skills? Remittance inflow to Nepal has been growing exponentially over the years. Remittance income is now almost 25 percentage of Nepalese GDP. If unofficial remittance income coming into Nepal is added to the official figure, remittance can be expected to be around 30 percentage of GDP. Although remittance income helps many Nepalese families fulfill their immediate consumption and other needs, it is not a viable option for the long run stability of the national economy. Most of the people who migrate for work are very young. The government cannot afford to lose its laborers in their prime and productive years to some other country. Sending its laborers to other countries because they lack skills, training, education is not a

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healthy option in the long run. The government should be responsible for the health, education and training of its citizens. Such issues need to be addressed quickly, and solutions need to be found. The best way forward is to educate and train the labor force, and create jobs at home. Figure2. 6: Remittance Inflow to Nepal (% of GDP)

Source: Ministry of Finance 2009

When it comes to inclusive growth, the focus should be on retaining the youth labor force. Education and training will equip the youths with essential skills, but such skills are of no good if there are no jobs in the country. The good news in this regard is that the NPC has been drafting an Act that would ensure that at least one member of families living below the poverty line will enjoy a job, fetching income equivalent to minimum wage fixed by the government (Thapa 2011). The Act promises at least 100 days of jobs to such family member. The aim of the Act is to contribute to socio-economic security, and thereby contributing to inclusive growth where poor and rural farmers as well as urban underemployed and unemployed citizens can earn a living.

2.4 Urbanization
The Maoist rebellion in Nepal started in 1996 and lasted until 2006. The decade-long rebellion resulted in thousands of lives lost, and halt to economic progress. As the rebellion gained momentum, mostly in remote rural hills and mountains, people started moving away from those places. Destruction of lives and property by both the Maoists and the Army caused an internal migration of the Nepalese from the conflict heavy areas to relatively peaceful and unaffected areas, mostly urban centres. One of the major problems that arose out of this internal displacement of people was the classic urban giantism problem in the Kathmandu Valley. Unlike cities in China or India, the urban giantism problem of Kathmandu and a few other cities was not solely a result of more job and business opportunities in the cities. The cities also provided safety and security of peoples lives and properties. However, rural poverty and the governments inability to deliver public services to people in rural and remote hills and mountains are big push factors when it comes 12

to rural-urban migration within Nepal. It is unclear if economic development is due to rapid urbanization, or rapid urbanization is due to economic development in Nepal. Whatever may be the case, there is, however, very little doubt that rapid urbanization has occurred in many cities all over Nepal. A major question that such rapid urbanization poses in a Least Developed Country (LDC) like Nepal is: how will the cities cope economically, environmentally, and politicallywith such acute concentrations of people (Todaro and Smith 2011). Being a (under)developing country, Nepal has cities that lack public services like 24hour electricity and running water. Any gain made by the sheer size of population in terms of economies of scale due to agglomeration economy, and economies of location due to proximity to basic amenities is canceled out by the social costs arising out of increased crime, pollution and congestion. In addition, the weak economy implies that the poor and the hungry that arrive in todays urban centers and cities remain poor and hungry. Jobs are difficult to come by. Like many other LDCs, urban centers of Nepal receive disproportionately larger budget in terms of development than rural areas. Urban centers have more hospitals and schools. As a result, this urban bias has resulted in the creation of slums and makeshift communities in Kathmandu and other municipalities in Nepal. This urban bias in Nepal makes the poverty situation worse. Even worse, theres a first city bias in Nepal with Kathmandu, the largest city in the country, receiving disproportionately large share of public investment and incentives for private investments in relation to other cities around the country. The urbanization problem, urban bias and first city bias will always hinder Nepals fight against poverty and for economic growth. Because of such biases, rural poverty rates in Nepal have always remained higher than urban poverty rates. Therefore, any plan and policy to fight poverty in Nepal should tackle these biases first. Unless the government provides public service to the rural areas, and create job opportunities there, haphazard urbanization in Nepal will always be a thorn in Nepals economic and social progress. An inclusive growth approach would mean that focus would be on both urban and rural areas. Urbanization is happening and unavoidable. But, proper mechanisms can be put in place through anticipation or progressive efforts. Basic amenities and services should be provided all over the country so that people do not flock to urban centers to receive such services and amenities. Similarly, rural areas lack enough schools and hospitals. There arent enough roads connecting different places in Nepal. Rural areas need such roads to stay connected with the rest of the country. Unless such inclusive approach is taken, Nepalese cities will keep experiencing rapid urbanization and crowding.

2.5 World Market Integration

Nepal joined the World Trade Organization (WTO) on 23 April 2004. Like other members of the WTO, Nepal joined the organization with hopes that liberalizing its markets and taking away the barriers against trade would help usher globalization into Nepal along with the benefits touted by globalization experts. However, joining the WTO and embracing globalization has not done wonders for Nepal. Likewise

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Nepal also is a signatory of the South Asia Preferential Trade Agreement (SAPTA) and South Asia free Trade Area (SSAFTA). However, Nepal has not been able to significantly benefit from both those agreements as well. Export of Nepal to the South Asian countries have not increased significantly. In fact, statistics shows that the textiles and primary commodities export of Nepal has suffered in recent years. Cheaper competition from countries like India and China has all but destroyed Nepalese manufacturing industries, although lack of electricity is also one of the reasons. Also, in 1975, agriculture contributed 72 percent to the GDP. Today, the contribution is around 34 percent. Agriculture in Nepal cannot compete with highly subsidized and large producers like China and India. Because of this, the Nepalese labor force is starting to move away from agriculture. Decline of agriculture has hurt the most because more than two thirds of the labor force is still engaged in agriculture. Since most of the agricultural labor force lives in the rural area, liberalization and free trade has hurt them the most. In other words, Nepals liberalization policies and free trade agreements have the potential to push a large chunk of the agricultural labor force into poverty. There is no doubt that globalization benefits the world, the fact remains that underdeveloped and developing countries, like Nepal, have been unable to use globalization to their benefit. Lack of infrastructure to transport goods to the market and vulnerability to risks posed by liberalization make it harder for these countries to benefit from globalization compared to countries that are already developed. Figure 2.7: Agricultures Contribution to GDP in percentage

Source: Gapminder (www.gapminder.org)

3. POVERTY REDUCTION AND INCLUSIVE GROWTH IN THE PEOPLES REPUBLIC OF CHINA (PRC)
There is very little doubt that poverty reduction in China succeeded due to the reforms during the agricultural revolution that Mao Tse-tung started and due to the reforms during the industrial revolution that Deng Xiaoping pursued after taking

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over the reign. However, this does not mean that nothing was done before 1949. The foundations for the future successes were being led even before 1949. The Chinese Communist Party during the 1920s and 1930s did not have one individual leader leading the party. There were many leaders with different viewpoints and ideas on how the political and economic revolution in China should happen. There were those who suggested that the nationwide revolution should be led in the cities. Others, like Mao, who were inspired by the revolutions in the Soviet Union, suggested that the revolutions should be launched from the countryside by relying on the indigenous Chinese and the farmers. Despite widespread corruption of power, during the 1930s, the leaders did try to modernize China. In addition, the people themselves played significant roles in modernizing rural China. The Chinese government had built railroads, highways, and wireless telegraphy linking many places within China. In the rural areas, farmer associations and guilds came together in upper Manchuria to build hundreds of modern schools. Migrant workers returning back to their villages along the coast at Fu-chien, after decades of working overseas, built modern houses, modern roads, and schools for their children (Phillips 2009). Such evidences suggest that despite our present understanding of Chinese economic growth and development, there is much we still are unaware of. The evidences clearly show that development and poverty reduction efforts in China occurred even before Mao popularized such efforts after 1949.

3.1 Economic Growth and Development During 1950-1978

Mao Tse- Tung was Chinas most influential leader from 1950s to 1970s. He led China under Marxist-Leninist socialist doctrines with the aim of poverty reduction and economic growth. Instead of working on their personal lands, farmers worked in a commune, and shared the income generated as a group. The nationalization of banks, major companies and even foreign trade gave the state significant control over the economy. This new supply driven economy did better than in the pre-Mao period. Average annual growth rate of GDP during 1952-75 was around 6.7 percent (Dernberger 1999). During the same period, agriculture grew by 3 percent a year. By 1970, China was able to adequately feed its own people. On Chinas ability to feed its people, Nobel Prize winner Agricultural Economist Norman Borlaugh once said, China is the one country which has solved its food problems (Suyin 1976). Integrated economic planning, grassroots mobilization, flood control, investments in rural infrastructure, equitable distribution of foods to peasants, and rationing of essential goods ensured that the Chinese population had the minimal essentials to survive (Harding 1987). However, simply surviving was not what the Chinese deserved after centuries of doing the same. Maos policies had gone wrong somewhere. His people were healthy, but still poor. The main reason why Maos people were still poor was due to his emphasis on import substitution2. He emphasized economic independence and self sufficiency to
2

According to Todaro and Smith (2011), import substitution is a deliberate effort to replace major consumer imports by promoting the emergence and expansion of domestic industries.

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such an extent that China did not engage in international trade as much as other developing countries were at that time. So, whatever economic growth and progress China made during Maos regime was on the backs of the Chinese people and the Chinese market. The progress would have been much better had Mao engaged China in international trade. Despite contributing much to the Chinese society, Mao Tse-tungs poor international economic policies pushed China many decades behind in achieving truly astounding economic growth, and lifting millions out of poverty.

3.2 Economic Liberalization Policy of China During 1978-2005

When Deng Xiaoping emerged as Chinas supreme leader after Maos death, he was concerned about reducing poverty, especially in the rural areas. In 1978, the annual per capita income of the rural Chinese was only 220 Yuan, and 250 million i.e. 33 percent of those living in rural China were below the poverty line (Table 3.1). They did not have sufficient access to food and income to have a decent living (Fan et. al. 2004). Therefore, Dengs very first agenda was to reform Chinese agriculture. Table 3.1: Annual Per Capita Income
year 1978 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 yuan per person (1990 prices) 220 306 349 414 467 522 593 612 644 685 674 686 700 741 765 803 846 922 964 1122 1147 1169

Source: Fan et. al. 2004

Departing from Maoist policies, he encouraged the household production responsibility system that enabled farmers to work less for the commune and more for themselves. When agricultural goods started to be traded in relatively free markets, grain outputs increased, and per capita income more than doubled. The State-Owned Enterprises (SOEs) improved their performance after Deng implemented a wage system that linked efforts with rewards. He encouraged the sale of SOE products via markets instead of state allocations. Under Maos rule, the service sector had been greatly neglected and decision making was highly centralized. That changed under Dengs regime. In the rural areas, nonfarm enterprises developed as significant contributors to increasing employment and rural per capita income. Maos ideas today, in hindsight, have been termed revolutionary excess that resulted in decades of suffering for the Chinese people (Spence 2006). When Deng was called back to power in 1977 at the age of 73, he had, by then, realized that China would have to move away from the traditional Maoist doctrine. For decades, the Maoist doctrine and the Maoist way of doing things had inhibited the entrepreneurial spirit of the Chinese populace. The most radical view that Deng expressed after being handed the power was that capitalism wasnt all bad, and that China had to embrace it to some extent if it wished to develop and reduce poverty. This embrace of capitalism distinguished Deng as a pragmatist, and led China to a path of economic development unprecedented in its history.
It requires the imposition of protective tariffs and quotas to get the new industries started.

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As part of this embrace of capitalism, Deng opened the Chinese economy to foreign trade. As a result, the SOEs now had to compete with foreign producers. The government relaxed all kinds of trade restrictions and economic controls. In order to show and prove that China was serious about its capitalist ambitions, four Special Economic Zones (SEZs) were created along the coast (Morrison 2006). As a result, China started attracting foreign investments. Industries and manufacturing flourished. Millions of Chinese now had proper individual jobs with individual rewards instead of toiling away for cheap in the communal fields. More jobs meant more prosperity. Mao Tse-tung had brought the Chinese people together with his populist rhetoric during his regime. But, Deng Xiaoping led those people out of the popular rhetoric, and towards unprecedented prosperity and modernity. Dengs economic policies helped millions in China escape poverty. Dengs extensive reform policies included monetary and fiscal reforms, too. More commercial banks and non state enterprises were allowed to enter the market. In order to ensure the central government had enough revenue, he imposed higher direct taxes to individuals, uniform taxes for all kinds of enterprises, and a value added tax on all transactions (Yao 2000). Also, other than key national projects and infrastructure development, most investments were not financed by the state but by private banks and financial institutions. During Dengs regime, between 1978 and 1998, the per capita GDP in China quadrupled with a 9.3 percent GDP growth rate during that twenty year period. Real per capita disposable income in the cities tripled, and that in rural areas quadrupled during that period (Yao 2000). The success of Dengs policies is evident in the numbers. In 1978, China was the tenth largest economy in the world with a GDP of $150 billion, which was only 6 percent of the GDP of the United States that year. In 2005, China was the fourth largest economy in the world with a GDP of $2.2 trillion, which was 17.6 percent of the GDP of the United States that year (Jefferson et. al. 2006). China has emerged as the world leader in manufacturing, and exports all types of goods. The incredible growth in manufacturing exports has resulted in, and has been a result of, an increase in foreign direct investments (FDIs) in China since it liberalized its economy since 1979 (Prasad 2004). However, any claims of poverty reduction due to increasing FDI inflow, which have resulted in flourishing manufacturing sector, is also dismissed with an assertion that the bulk of poverty reduction in China had already occurred due to agricultural reforms, much before any surge in FDI inflow (Ravallion 2008).

3.3 Pro-poor Fiscal Reforms and Public Resources Management

Until 2005, the per capita income in rural areas was much less compared to that in the urban areas. The poor farmers in the villages were paying more in taxes than what they obtained in transfers while the rich in the cities enjoyed net subsidies. In addition, less developed western regions were being subjected to the same tax rates as the eastern regions despite making lower income. The burden of revenue and expenditures were not fair among the different regions. Such problems were not limited to rural areas. Even in urban areas, the ever increasing population and unemployment needed better unemployment insurance and pension system, but the funds were inadequate and the management was poor (Bouche and Riskin 2004). These and other problems persist, even today. As a result, there are still

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many left under poverty to suffer. The real danger, however, is the probability that millions of Chinese who are just on or over the poverty line could be pushed back under poverty if due measures are not taken soon. China has recognized the importance of pro-poor fiscal reforms, and efficient public resources management. With the help of international organizations, China has made changes in its tax policies to reduce the fiscal burden on the poor, especially the farmers in rural areas. With improved tax administration, the country hopes to achieve regional equity, and lessen the gap between the rich and the poor. It has also taken steps to improve budget planning, maintain transparent and efficient public expenditure management, and mobilize resources for reducing poverty and inequality (UNDP 2004). Organizations like the UNDP have been pressing China to embrace demand driven reforms instead of supply driven ones. The belief is that demand driven reforms will more acutely and properly address the issues of poverty and inequality. The eastern coastal region has developed at a much faster rate than the central or western regions in China. Most of the developmental activity including investments and reforms have been carried out in the eastern regions while the central and western regions have seen very little of those. However, the government has made attempts to lift the western and central regions in recent years. These regions have a small tax base compared to the eastern regions. Since China has a decentralized fiscal system, fiscal transfers from the eastern region to the central and western regions were necessary to reduce regional inequality. The highest returns to investments in agriculture, education and infrastructure targeted to reduce poverty have been observed in the western regions (Fan et. al. 2004). Although, more work is needed in the central and western regions, there is, however, no doubt that Chinas efforts have been paying off. However, despite years of reforms and progress, the fact still remains that Chinese government is reluctant to let go of its tight grip on everything from the economy to rural finance. Even after decades of reforms that started in 1979, organizations and policy makers still criticize China on its rural reform policies. Chinas laws hinder the establishment of competitive financial markets in rural areas because of which, even today, rural agriculture and businesses cannot play a significant role in the domestic Chinese economy (ADB 2011). Therefore, the rural financial system needs reforms if it is to meet the rural need for credit through microcredit institutions and financial cooperatives. Easy access to credit is one of the fundamental factors in reducing rural poverty and inequality.

3.4 The Go West Strategy

Although China has been embracing the economic strategies of the western countries since Deng Xiaopings economic reforms, it has much, yet, to do. The rapid economic development attributed to Deng Xiaopings rule has benefitted the coastal eastern regions greatly. However, the interior western provinces remain far behind and neglected. As a result, poverty continues in the western inner provinces, and inequality between the western and eastern provinces has remained high. China emulated significant reforms in the western sense when it reduced price controls, freed internal trade, and accepted further foreign direct investments. Much 18

of such reforms have been carried out through structural changes, catching up, and factor price equalization (Holz 2005). The most significant structural change has been the emulation of western developed countries in moving away from agriculture to transform itself into worlds industrial and manufacturing center. As a result of this, today, China is the worlds leading exporter of manufactured products. The catching up process has been mainly through acquiring and embracing of western technology in order to boost production and labor productivity. Factor price equalization has been viewed through the lens of wage increases. As China hires more and more labor, the resulting experience and the education of its labor force will drive the wages upwards. Yes, the Chinese labor is still very cheap, but the upwards movement of wages means that Chinese wages will someday equal that in western countries. It may take a few more decades, but the growing standard of living and per capita income in China will bring forth that result, eventually. Amidst all these changes that have been happening over the years, China also adopted the Great Western Development Strategy in 2000 to lessen the inequality between the eastern and the western regions. This is not to say that there were no reforms before 2000. The Great Western Development Strategy is one of many reforms that Chinese government has pursued over the years. The result of all those reforms to westernize the economic system has been that previously neglected regions and provinces in China have experienced significant growth in investments. In the 1980s, out of the total FDI inflows in China, 90 percent went to the eastern region, 5.3 percent went to the central region, and only 4.7 percent went to the western region. In the 1990s, the central region received 9.2 percent of total FDI inflows, the western region received 3 percent, and the share of the eastern region decreased slightly (Bouche and Riskin 2004). Policies to attract investments, encourage environmental protection, develop infrastructure and improve educational facilities have also been implemented in the western regions. In fact, the richer coastal regions of the east have helped the central and western regions in improving administration, and have participated in enterprise exchange. In 2000, Shanghai spent 7.61 million Yuan to help schools in southwest Chinas Yunnan Province. Shanghai also helped establish 13 new primary schools, reconstructed 34 middle and primary schools, and trained over 10,000 school teachers in the Yunnan Province (CERN 2001). Such efforts, wherein the richer regions contribute to uplifting those in the poorer regions, are necessary to reduce poverty and inequality in China. The basic model for this type of assistance is one of the lessons China seems to have learnt from the western developed countries. However, despite various degrees of success, it is still debatable whether the Go West strategy in China has truly worked. In 1978, 250 million i.e 33 percent of rural Chinese were below the poverty line (Fan et. al. 2004). In 2002, around 22 percent of the rural Chinese were still living below the $1 a day poverty line while that figure was less than 1 percent for urban Chinese (Ravallion 2008). After decades of reforms that have been touted by the Chinese government, as well as others, the reality is that much still remains to be done. Yes, the Go West strategy has changed

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the face of urban and industrial China, but millions of rural Chinese are still left behind.

3.5 Chinas Emergence as a Middle Income Country and Challenges

As an upper middle income country with a per capita gross national income of about US$4,260 in 2010 (CIA 2011), China is now at a point where it could be susceptible to the middle income trap if it fails to adopt the right policies. China is intent on maintaining its competitive edge in the global market and investing in technology. But the challenges lie beyond simply economic growth, in that the country needs to develop affordable and relevant social protection for all, tackle labor and migration problems associated with an increasing and aging population, address climate change issues and ensure inclusive growth. China has undergone rapid structural changes in the past, and the trend is likely to continue as it tries to avoid the middle income trap. Rural-urban migration and rapid urbanization is likely to displace many people throughout the country. So, it is important for the government to amend its social insurance policies and safety nets. Experts have been suggesting, over the years, that problems prevalent in middle income countries could trap China any day now. The potential for social unrest due to ever more indebted state-owned enterprises, the extent of non-performing loans, and a decline in government revenue could pose problems (Lardy 1998). Some of the major problems that persist in China today are bad loans in the banking system, under-funded pension insurance scheme, lack of rural health care system, bankrupt local governments, and environmental degradation (Holz 2005). China should implement comprehensive social protection for everyone, including those in the informal sectors. In addition to designating more funds for social protection, the country also needs improved administration at every level. Employment policies that support small and mid-level enterprises can have a significant impact in helping the poor. The governments stake in the state owned enterprises (SOEs) makes it difficult for the government to truly reduce all the trade barriers. The SOEs have been criticized for their inefficiency, and they divert valuable resources away from being put to efficient use by other private enterprises. Similarly, the banking system suffers because it provides support to the SOEs. The government has used the banking system to keep afloat money-losing SOEs by pressuring state banks to provide low interest loans, without which a large number of the SOEs would likely go bankrupt (Morrison 2006). Such a system not only encourages inefficiency among SOEs, but invites corruption, as well. Not being able to unshackle the grip by the government on business and commerce is a very typical problem faced by middle income countries, including China. Massive rural-urban migration has been blamed for rising unemployment in cities and towns. Neglect of rural population when it comes to creating jobs and employment opportunities in rural areas has meant that rural-urban migration has

20

increased each year. Large cities in China, like Shanghai, suffer from urban giantism3 and first city bias4 problems (Todaro and Smith 2011). China should administer a sustainable and comprehensive social security system so that the urban as well as rural labor markets are equally inclusive in the countrys growth. Increased access to non-farm employment to rural workers can help reduce poverty. Since poverty has a noted gender bias, efforts should be made to uplift women from poverty. Women are less likely to find employment after migrating, are discriminated against in urban work environments, and are less likely to be re-hired once they have been laid off. More educational and employment opportunities need to be created for women while at the same time taking additional measures to fight gender discrimination in the workplace. Figure 3.1: Chinas Household Final Consumption Expenditure (% of GDP)

Source: http://www.thedailycommodities.com/2011/02/china-risks-opportunities/

Another significant problem that middle income countries face is in stimulating domestic consumption. China experienced increase in domestic consumption during the years of economic reforms. But, domestic consumption has decreased since 2000 (Lardy 2007). Today, Chinas domestic consumption is less than 35 percent of GDP. This is much less compared to countries like the United States, Japan and even India where domestic consumption as a share of GDP is well above 50 percent. This shows that Chinas economy has an over-reliance on exports. This becomes especially problematic during times of crisis, like in 2008, when exports suddenly fall and the economy suffers. Although, China was the first country to recover from
3

Often, in developing countries, the huge capitals are concentrated and congested in the capital city or other urban cities. Mid-sized cities are not available as alternatives to provide locations for growth. Because of this, firms and individuals concentrate in the cities to make use of the huge capital and other opportunities. This results in those cities becoming urban giants. 4 First city bias results when a countrys largest city or first city receives disproportionately large share of public and private investments, as well as incentives for investments when compared to the countrys second largest or other large cities. This results in further influx of people into the first city which increases the size of the city. For example: Bangkok is 20 times larger than the second city of Thailand. Buenos Aires is 10 times larger than the second city in Argentina. Santiago is 14 times larger than the second city in Chile. Lima is 11 times larger than the second city in Peru.

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the 2008 crisis, the crisis, nonetheless, showed that Chinas poor domestic consumption has the potential to slow the economic growth during crises. China must also make efforts to cut down its carbon emissions, and reduce its environmental problems. Its heavy dependence on coal, rapidly rising demand for energy, pollution, and desertification pose significant threats to sustainable growth. The environmental watchdogs of the country have proved weak in fulfilling their responsibilities. China has become the worlds largest manufacturer of wind turbines and solar panels. But, its stance on renewable energy is very fuzzy, and Chinese environmental watchdogs have been weak in enforcing existing laws and making new ones. Although the government has set up subsidies, tax credits and low custom duties for renewable energy technologies, it has been done with the purpose of creating thousands of additional jobs each year. The Chinese government does not look serious, yet, on tackling environmental issues as evident by its lack of actions on pollution and carbon emissions. In summary, some major challenges that China faces today as a middle income country are: reducing its high domestic savings rate and correspondingly low domestic demand; sustaining adequate job growth for tens of millions of migrants and new entrants to the work force; reducing corruption and other economic crimes; and containing environmental damage and social strife related to the economy's rapid transformation. Also, 200 million rural laborers and their dependents have relocated to urban areas to find work. Economic development has progressed further in coastal provinces than in the interior. Besides numerous environmental problems, China continues to lose arable land because of erosion and economic development. And, the one child policy has made China one of the most rapidly aging countries in the world today (CIA 2011).

4. CHINAS DEVELOPMENT ASSISTANCE TO NEPAL

The Peoples Republic of China has been assisting Nepal in her efforts for socioeconomic development since establishment of diplomatic relations between two nations in 1949. The first Agreement between China and Nepal on Economic Aid was signed in October 1956. Ever since, China has been providing significant financial and technical assistance, which has greatly contributed to the economic development of Nepal, especially in infrastructure building, establishment of industries, human resource development, health and sports. The total volume of Chinas assistance in 2009 was about 150 million RMB, including 10 million RMB allocated for the human resources training projects agreed upon by the two governments. In the initial years, Chinese assistance was concentrated in the development of infrastructure, in particular for the construction of roads in various parts of Nepal. However, over the years, Chinas economic and technical cooperation has expanded to a number of areas ranging from transportation infrastructure to industry, agriculture, tourism and social sectors. In recent years, the Government of China has started encouraging its investors and business people to invest in Nepal as well as provide soft loans to finance the development activities in Nepal.

4.1 Transport Infrastructure

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China has been supporting the construction of Nepalese infrastructures since October 1961 when it provided US$ 9.8 million to construct the Arniko highway. In 1969, it undertook the construction of the 13 kilometer road between Kathmandu and Bhaktapur, which would connect these cities to the Kodari highway. In November 1972, it gave Rs 300 million loan to Nepal to construct Naraynghat Gorkha road, trolley bus service between Kathmandu and Bhaktapur. In 1984, China committed to provide assistance for constructing the PokharaBaglung highway. China provided a grant of Rs 780 million in 2002 to construct the 18 kilometer long RasuwaSyafrubesi road linking Timure Post and the Tibetan border, and to carry out development projects in that corridor. Most recently, in February of 2011, the Chinese government agreed on a grant for widening Kathmandus Ring Road (Shrestha 2011). Chinese aid in Nepalese transport sector shows that it has assisted in both urban and rural transportation projects. Construction of roads, linking the cities within the valley with outside areas, has helped facilitate business and trade within the national context. Also, widening of the ring road in Kathmandu has helped in easing the congestion and traffic flow in the Kathmandu valley. The rural roads connecting the central and western regions have facilitated in increasing the trade between these regions. Chinese assistance in constructing the highways in the western region has helped uplift many people out of poverty by providing them with opportunities for trade, movement, and access to markets.

4.2 Industry and Other Infrastructure

In 1972, China provided loan for a textile mill and expansion of Harisiddhi Brick and Tile Factory. In 1973, China established the Hetauda Cotton Mill, and in June 1976 it committed to establishing the Hetauda Textile mill. In 1980, China agreed to construct the Lumbini Sugar Mill and Bhrikuti Paper Mill. China also aided the construction of Bansbari Leather and Shoe Factory. The commitment to fund the construction of the International Convention Hall at New Baneshwor was signed in 1987. It has also assisted in the construction of the Dashrath Stadium, and National Convention Hall. In 1997, China provided a grant of Rs 400 million to construct the SAF Hall and other sports infrastructures for the SAF games. The following year, it provided another grant of Rs 570 million for the SAF games. In 2002, China provided a grant of Rs 260 million to expand the capacity of Nepal Television, the state broadcaster (Sigdel 2003). Assistance in industries and other infrastructures have helped Nepalese industries grow and expand. Chinas growing assistance has helped Hetauda become a major industrial hub in the country. Assistance in other infrastructures has focused towards building and fostering culture and sports in the country. As a result of grants and assistance, especially from China, Nepalese sports continue to grow and expand, with the most significant growth seen in the development of A and B league football clubs. The growing sporting culture provides jobs to thousands throughout Nepal. However, despite massive support from China in building the industrial infrastructure, Nepalese industries are struggling to survive due to a host of

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reasons. Some fail to compete in the price wars of the globalized market while others fall prey to increased union-related disputes in Nepal. The assistance that China gave to Nepal in the past decades helped Nepal prop up the domestic industries, but no longer. In todays cutthroat worldwide competition and local disturbances have all but killed Nepalese domestic industries.

4.3 Social Sector

Chinese assistance in social sector ,however, is very limited compared to its assistance for building infrastructures. . In 1996, China provided grant worth Rs 8.1 million to B. P. Koirala Cancer Hospital. It gave an additional Rs 20 million in 1997, and Rs 10.1 million in 1998 to the hospital. In 2006, the Chinese government provided grant of Rs 10 million for the Melamchi drinking water project (MoF 2010). These projects have provided jobs to many, and helped improve the lives of many others. Very little has been spent on social initiatives like health and education. Some of this could be due to heavy presence of other donor countries like Japan, the US, and the Scandinavian countries. Also, countries like India along with international organizations like the ADB, World Bank and UNICEF are already involved in providing significant contribution to education sector. It is, however, true that Chinese assistance to Nepal in the social sector is severely lacking when compared to other sectors. The remarkable rise of the current China has its beginnings in Maos China where rural population was the center of attention. Even Dengs China had a special focus on the rural population and was successful in providing healthcare, jobs and decent living standards for the millions of rural Chinese. Nepal, today, is in the same situation that China was fifty years ago. Rural Nepalese need more support for healthcare, education, jobs and a decent standard of life.

4.4 Agriculture
In July 1976, China provided US$ 4 million grant to construct a dam in the Seti River in Pokhara. Recently, in 2006, it provided grants worth Rs 3 million to Agricultural Research and Development Fund, Rs 6 million to Horticulture Department, Rs 6 million for seed promotion, and Rs 20 million for development of agriculture in the Karnali region. The same year it provided an additional Rs 40 million for agricultural extension, and Rs 60 million for development of livestock (MoF 2010). Despite such supports, it is very noticeable that Nepal has not been able to learn and implement the agricultural practices that helped China uplift their rural and poor farmers out of poverty. While grants and assistance are vital, what Nepal currently needs is to replicate the programs and projects that China implemented to improve their agriculture, raise the rural standard of living, provide jobs to rural poor, and reduce poverty in rural China. Nepal needs more logistic and technical support from China to improve Nepalese agriculture and productivity of its farmers. However, such support from China has been lacking.

4.5 Hydroelectricity

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In 2008, the Chinese government gave a loan of Rs 2 billion for Trishuli A hydropower project. It gave an additional 1.5 billion for the same project in 2009. Also, in February of 2011, the Chinese government agreed on a soft loan for Upper Trishuli 3A hydropower project (Shrestha 2011). This agreement was very significant not because of the amount of assistance but due to the fact that this is the first instance of China providing loans to Nepal for major infrastructure projects. In addition, the Chinese government has also provided loans and grants for Sunkoshi Hydroelectricity Plant, Sunkoshi Vicinity Electricity Transmission Project, and SunkoshiKathmandu Electricity Line Transmission Project (Sigdel 2003). One of the reasons why Nepalese industrial sector has not done well is due to irregular supply of power to run the factories and the mills. More investments in ensuring a continuous and cheap supply of electricity would help the Nepalese industries get back to their feet. However, as with assistance in agriculture, Chinas assistance in Nepalese hydropower has, so far, been limited to cash assistance. But, given Chinas successes in building massive dams and hydropower projects that can generate huge amounts of electricity, Nepal needs more technical and logistic support.

4.6 Tourism
The Chinese government has been encouraging its internal tourists who visit Tibet to also visit Nepal. Tibet region receives around 3.5 million internal Chinese tourists. Around 10 percent of these Chinese tourists are expected to visit Nepal in the next few years as a result of the increased efforts by the Chinese government to promote Nepal to these tourists (Koirala 2011). In addition to promoting Nepal as a tourist destination, the Chinese government has also pledged increased assistance to Nepalese social sectors like education, health, and drinking water. Any increase in tourist numbers will assist the rural hilly and mountainous people in increasing their earnings and raising their standards of living.

5. POVERTY REDUCTION LESSONS FOR NEPAL FROM THE CHINESE EXPERIENCE

Todays Nepal is very similar to the China in 1978 in terms of economic and social characteristics. Poverty is a persistent problem in Nepal today with most of the poor living in the rural areas. Similar to the Chinese experience earlier, all the economic development efforts in todays Nepal have focused largely on urban development and growth. Rural areas have been neglected in development plans and policies. Unemployment is rampant in both rural and urban areas. However, rural people have very little hope of getting jobs as such opportunities are absent in rural areas. Search for jobs, and hopes of a decent life have led an exodus of rural population towards the urban centers, especially the Kathmandu Valley. Therefore, this ruralurban migration has resulted in rapid urbanization of Nepalese cities. Kathmandu has become an urban giant primarily due to the first city bias. Similar to the Chinese experience where economic development and growth had a regional characteristic, the eastern and central development regions of Nepal are decades ahead in terms of development when compared to other regions. The farwest of Nepal has been neglected with no decent roads and highways linking it with 25

the rest of Nepal. Rural people in the remote hills and mountains have no easy access to a doctor or a hospital. Illiteracy is high in the rural areas, and per capita income is very low. Most of the rural population still lives under poverty with no immediate solutions in sight.

5.1 Agricultural Reforms

Agriculture in Nepal still relies on animal and human labor while other countries use technology in farming and irrigation. Agriculture in Nepal cannot compete with advanced agricultural practices in countries like US, Australia and China. Nepalese crops and grains are never going to fetch profitable prices in the market due to heavy competition. Declining sales and productivity in agriculture have resulted in falling agricultural contribution to GDP, and high unemployment among the agricultural labor force. Although the contribution of agriculture to Nepalese GDP is only around 34 percent, almost 75 percent of the labor force is still engaged in agriculture. This is not going to change soon because this labor force does not have the skills and education to get hired by other sectors. The agricultural labor force is mostly uneducated and unskilled. Most of this labor force lives in rural areas, and therefore, lacks basic education, training and healthcare. Public spending on education and health has not increased since 1990. As a result, this labor force continues to have low education, low skill and poor health. There is no doubt that agriculture can no longer remain Nepals leading economic sector. Sooner or later, as in all other nations that have developed before, other sectors are bound to surpass agriculture as Nepals leading contributor to its GDP. However, this does not mean the Nepalese should give up on agriculture right away. It still employs the largest share of the Nepalese labor force. Instead, Nepal should follow Chinas lead, and reform agriculture. It should provide technical support to farmers; provide healthcare to rural population; improve irrigation facilities; introduce scientific farming techniques, for example, drip irrigation; and provide storage facilities to farmers. Agriculture in Nepal cannot sustain itself without government intervention and reforms. The industry is too huge to sustain itself via individual efforts from farmers.

5.1.1 Irrigation
Nepal relies very heavily on rainfall for irrigation. The solution to Nepals irrigation problem is, first, to increase the government expenditure on irrigation facilities, and, second, proper introduction of scientific irrigation. Most often than not, water is wasted during irrigation processes in Nepal. Irrigation development should not simply mean providing irrigation support to more farmers. It should also incorporate better and more efficient techniques and technologies. Why are Nepalese farmers still pumping water into their fields from hand pumps and canals? However, introduction of any new technology and technique should be done with caution. It is wrong to preconceive the notion that if something works in the US or Chinese farm, it should also work in the Nepalese farm. Techniques and technologies need to be adapted to suit and serve the local climate and conditions.

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Additionally, any new technology should augment the local traditional knowledge and not completely replace it. Farmers should be encouraged to move towards smart irrigation. If the government cannot provide the tools, equipments and machineries, the least it can do is provide subsidies to farmers for the purchase of machineries, equipments, and tools that utilize smart irrigation. One of the best and cheapest smart irrigation techniques today is drip irrigation. Drip irrigation saves water and fertilizers (which wash away and go to waste during todays regular irrigation that uses too much water). The major advantage of drip irrigation technique is that the contraption can be designed and produced for cheap. Drip technology is especially useful in places like the Kathmandu Valley, where the land has a high concentration of sand in it. Applying regular irrigation technique means the sand will simply soak all that water. Instead, drip irrigation should be the approachapplying the irrigation water very slowly and directly to the base of the plant/tree. Nepal can learn a lot from the Chinese experiences in improving the irrigation system.

5.1.2 Community Land

No matter where it is, every place in Nepal has some local agricultural products that people cultivate in order to sustain themselves. Therefore, in places where the government land has remained unused and lots of people are poor, the government should consider distributing such lands to the landless needy people. If such distribution is not desirable, the government may consider setting up local community groups who take control over the unused land. The government should hand over machinery, equipments and tools to the groups. This will save the capital that individual farmer would otherwise have to spend on such investments. This practice would be similar to the communal agriculture system practiced in China during Maos regime. Poor farmers with no land of their own will then be able to make a living. This community land scheme is similar to the community forestry scheme practiced in Nepal currently. The community forestry scheme in Nepal has been lauded all over the world for its success in generating income for the rural poor, and for its role in rejuvenating and protecting the forests in Nepal. There is no reason to believe that community land will not have similar results.

5.1.3 Large Scale Professional Farming

Fragmentation of land when it passes from one generation to the next is a problem in Nepal. Operation of such farms costs a lot in terms of capital and other resources. Lack of capital, even today, causes farmers to farm their land with human or animal labor. This consumes lots of time and effort. As a result of lower returns from agriculture because of various reasonserratic rainfall, no rain during rainy season, excessive rain during off season, lack of irrigation water, dwindling prices for crops, expensive inputs for productionhave resulted in the migration of agricultural labor. There are villages in the hills and mountains of Nepal entirely devoid of youths. The youths have left for industry, service, manufacturing or overseas jobs. Thus, the farmland all over Nepalese hills and mountains are going barren due to neglect and disuse.

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To make use of such farmland, the Nepalese government should set up a system where large-scale farmers and investors can lease the unused land in such areas. The lease for large scale farming would provide the landowners with a decent income in rent. Further, it will help increase Nepals agricultural productivity and efficiency due to economies of scale.

5.1.4 Storage Facilities for Agricultural Products

Nepal depends on rainfall as a major source of irrigation water, be it during monsoon or at other times. So, there are bound to be good years and bad years. An average Nepali farmer has no insurance against the bad years. Also, just like any other commodity that trades in the global marketplace, the prices of agricultural production go through their own ups and downs in the marketplace. However, unlike other businessmen, the Nepalese farmers do not have the choice of withholding their products from selling in the market if they do not fetch good prices. The main reason for this inability is the lack of storage facilities. Lack of proper storage facilities and large scale cold storages have had detrimental effect on the Nepalese farmers. Due to lack of such infrastructure, Nepalese farmers cannot wait for a good time in the global marketplace because if they wait to get better prices for their crop, their crops might get damaged. Also, when there are good or exceptional years with surplus crops, they cannot store those in order to utilize the surplus during lean years or famine. The countries in the West as well as in China have such storage facilities provided to the farmers by government and private enterprises. Nepal desperately needs not just one but many such facilities throughout the country, and it can learn from the Chinese experiences.

5.1.5 Rural Transportation Infrastructure

Although Nepal has severe urban as well as rural transportation infrastructure problems, the absence of good rural roads and highways has hurt the rural population. Absence of all-season roads in most parts of hilly and mountainous regions of Nepal has meant that agricultural production in those areas, often, rot due to inaccessible markets. Since the final market for any and all agricultural product is the area where most of the buyers live i.e. urban centers, the Nepalese government has to connect the supply and demand markets. The best way to this is through construction of rural roads and highways. China understood the need of such roads, and had constructed them beginning in the 1930s. As a result, the connectivity of the rural supply with the urban demand has ensured that Chinese farmers are more productive and richer today than they were during the early twenty-first century. China today is not only self-sufficient in terms of food, but has become one of the largest exporter of food and other agricultural products. While Nepal will not be able to become an agricultural exporter in the same level as China, the Nepalese government should at least aim to be self-sufficient in its food production.

5.2 Health is Wealth

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While Nepal does have its own population problem despite lowering fertility rates, a policy like the one child policy in China is very difficult to implement in Nepal. It is impossible to implement such a policy in Nepal due to the society being democratic, unlike China. Therefore, any efforts to slow the population growth will have to come through well-laid out plans and policies. Nepal has made tremendous progress in this front with various successful family planning programs and abortion clinics. However, these are not readily available to rural men and women. Rural health posts and hospitals do not have enough doctors, nurses and medicines. The Nepalese government has to spend more on these. Also, educating more rural people as barefoot doctors would be a good policy practice to emulate from the Chinese experience. In 1980, the immunization rate among Nepalese children between 12 and 23 months oldwas around 2 percent for Measles and 8 percent for DPT (Diphtheria, Polio and Tetanus). Decades of tireless work and effort by numerous agencies and donors has brought those numbers to over 80 percent for both Measles and DPT. Soon, all newborns in Nepal will be vaccinated against Measles and DPT. Although many children still die from a variety of treatable diseases, there is no doubt that foreign aid in health, and availability of vaccines, have saved lots of children. Once the women in the 1980s noticed that vaccines were saving their kids, they also started having fewer kids. The worrying fact, however, is that out of total spending on health, governments share has always stayed below 30 percent for the last three decades. The remaining 70 percent has been covered by foreign donors and private investments. This just goes to show that whatever progress Nepal has made in female health and education have been through foreign aid and private investments. The Government needs to emulate Chinese policies and increase its social expenditures. Without increased spending on health and education of women and children, who are the most vulnerable to poverty, poverty in Nepal will persist. The Chinese experience clearly shows that the gains made in health and education during Maos regime enabled and contributed to the gains made in wealth during Deng Xiaopings regime. It is evident that a healthy society, eventually, with excellent policies, can turn wealthy.

5.3 Inclusive Growth

Lack of jobs in rural areas, and high unemployment in urban areas, have meant that many Nepalese migrate overseas for jobs each year. So, continued vitality of the world economy, especially in the Middle East and South East Asia, is necessary for the Nepalese youths seeking jobs overseas. However, the remittance economy is not a viable outcome in the long term. Businesses should be given incentives, such as tax breaks and subsidies, to relocate to the poorer regions where job opportunities are difficult to come by. Despite what is seen in Kathmandu, where people from all over the country are flowing in for jobs, most of Nepals labor force is uncomfortable when it comes to moving and relocating for jobs. In addition to encouraging the businesses, the government, via designed programs, should encourage the jobless to relocate to where the jobs are.

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The internal migration that occurred due to the Maoist conflict from 1996 to 2006, and the increasing rural-urban migration that has been occurring for the last few decades, have posed problems. Urban cities are getting larger each year with Kathmandu showing signs of first city bias as well as urban giantism. As a result, public service delivery in urban areas has been pushed to its limits. Urban centers are getting more polluted and congested. Urban crimes are increasing and urban poverty has not been reduced. These problems will not be solved unless inclusive growth approach is embraced by the Nepalese government. Focus should be on reforming agriculture, and educating the rural Nepalese. Proper health care and job opportunities should be provided in the rural areas.

5.4 Educate the Children, Youth and Women

Figure 5.1: Number of Active (Working) Population

Source: National Labor Force Survey 2008

When Nepal got democracy in 1990, there were very high hopes from the new government. People expected the decades of health and education reforms to not only continue, but expand. However, the progress made since 1970 in improving the health and living standards of the Nepalese suffered since 1990. The latest labor force survey of Nepal, in 2008, showed that 1 million boys and 1 million girls between 5 and 9 years of age were working. Another 1.2 million boys and 1.1 million girls between 10 and 14 years of age are also active in the labor force i.e. they work. Why are these 4.3 million kids working? These children have to be the topmost priority of the Nepalese government if it wishes to reduce the poverty levels in Nepal. If these kids are not helped, they will grow up to become youths with low

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skills and little to no education. And, that means a rise in poverty. Also, about 60 percent of Nepals population is below 25 years of age. So, it is an increasingly younger society. Youths in urban areas are becoming more literate each year. Education and increasing literacy among the young population has also shrunk the gender gap in urban areas. As the youths become more literate, they gain invaluable knowledge on topics like sex and family planning. However, youths in rural areas have not had the same opportunities as their urban counterparts. Rural youths lag behind in literacy rates and overall quality of education. Most of them are uneducated (or undereducated), illiterate, and low-skilled (or un-skilled). They have a difficult time finding well-paying jobs in Nepal because of these shortcomings. Until these shortcomings are addressed via regular and vocational education and training, they will always have to search for labor intensive jobs overseas. The post-democracy environment was supposed to enhance, educate and liberate the entire country out of illiteracy and poverty through increased spending in health and educational infrastructures and programs. But, that environment has been a myth propagated by various politicians, governments and foreign donors. Also, petty squabbling amongst the political parties has resulted in no concrete education or health policies. Government expenditure on education today is a meager 3.5 percent of GDP compared to 2.8 percent of GDP in 1996. Like Maos educational efforts to improve the education system and educate the masses, any program designed to reduce poverty levels in Nepal should focus on its two largest population demography: the children and the youth. More emphasis should be given to educate those in the rural areas. The best way to stop the mass exodus of Nepalese labor is to initiate a nationwide program to educate and employ the youths. Youths should be encouraged to finish school, and go to college. If they cannot afford to do so, the government needs to step-up and provide them with benefits and subsidies to obtain education. If need be, the government should provide free education all the way until they finish college. The 2001 census showed clear disparities between the two genders in terms of various factors. A summary of the disparities is shown in Table 5.1. Although women live longer than men, Nepalese females were disadvantaged when it came to education. Only 75 percent of girls were enrolled in primary school compared to 82 percent of boys. The literacy rate among females aged 15 and older was only 34.6 percent compared to 62.2 percent for males in the same demography. Only 2 percent of Nepalese judges and 26 percent of teachers were women. Only 8.55 percent of civil service personnel were women. Table 5.1: Gender Related Statistics (2001/02)

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Source: National Planning Commission 2003: The Tenth Plan

These statistics show that the Nepalese women have been left behind with very low levels of education. However, low level of education among women has other repercussions as evidenced by land ownership, home ownership, and political representation figures. Women represented only 5.51 percent of homeowners and 10.83 percent of landowners. Only 5.55 percent of cabinet members, 5.85 percent of parliament members, and 13.33 percent of upper house members were women. It would not be wrong to make an assertion that poor representation in politics, civil service and asset ownership by Nepalese women is a result of low levels of education among Nepalese women. However, these numbers are already outdated, and somewhat inaccurate. In 2001, the Maoist conflict was gathering momentum. Many census workers were not allowed to enter districts where Maoists had a stronghold. Also, much improvement has been made since Maoists gave up their fight in 2006, and joined the political process. The latest parliamentary elections held in April 2008 showed significant improvement in womens representation in Nepalese politics. Out of 594 elected members that year, 197 members i.e. 33.2 percent were women (IPU 2011). This puts Nepal in 18th position, out of 187 in the list of countries, in terms of women representation in national parliaments. Compared to the 2001 figures, this is a significant improvement. Despite the progress made in political representation, women in Nepal still lag behind in education. But, simply educating the children, youth and women is not a sufficient outcome. Like Deng Xiaoping, Nepal needs a leader who can think radically different from his/her predecessor and create jobs at home. Educating the populace is no good if you cannot harness that education to build the nation.

6. CONCLUSION
Nepals economic performance has been generally sluggish over the years, despite important reforms made during 1990s and early 2000s. GDP per capita is still one of the lowest in the region. Despite lackluster growth, there has been significant decline in poverty level from 42% in 1995/96 to about 25% in 2009/10, primarily because of increasing remittance flow to the country specially in recent years. During the 1990s and early 2000s, annual average GDP growth rate was around 5 percent, but the income inequality has been on the rise over the years from 0.34 in 1995/96 to 0.42 in 2003/04. This indicates that the economic growth in Nepal has 32

not been all inclusive, thereby implying that certain groups or region in the country have benefitted, where as majority of the population has not been able to benefit from the fruits of development. After the establishment of multiparty democracy in Nepal in 1990, foreign assistance for the development of Nepal has jumped significantly. Peoples Republic of China has been one of the major donors during the last several years, and the amount of development assistance has increased substantially in recent years. Most of these assistance has been provided for the development of infrastructure and related activities, which has directly or indirectly contributed to the reduction of poverty in Nepal. China, like other countries, has proved to be a reliable development partner of Nepal. Besides providing economic and technical assistance, China has also opened its huge market for the Nepalese products. As a result the trade between the two countries has increased substantially in recent years. China until the 1980s was struggling to solve its poverty and other developmental problems. Although steps in the right direction were being implemented even before 1949, the massive changes started happening after 1949. First, the agricultural revolution that Mao Tse-tung started after 1949 aimed to educate the rural populace, and uplift their living standards. China under Mao significantly improved the health and education of its rural population. Maos people no longer were hungry, but they were still poor. Second, the industrial revolution that Deng Xiaoping started in 1978 aimed to bring industrialization and globalization into China. New factories and industries serving not only the Chinese market but the world market sprang up everywhere in no timefrom the coastal China to the deeper rural inland China. As a result of such efforts, China today is the worlds leading exporter of agricultural and other commodities. It has experienced significant economic and social growth. The real danger in China today comes from the tendency to fall into the middle income trap. Similar to the early twenty-first century China, Nepal today suffers from poverty and other developmental ills. Although much advancements and progress has been made in Nepal in terms of health and education, much of rural population lags behind in both. There is also a major difference in the Chinese governments of then and Nepalese governments of today. China always had a socially committed government. The only reason why China had not been able to exploit its full potential was due to its closure from the world market. Had China interacted with the world market in todays manner, it would have grown decades ago. However, Nepalese governments have not been committed to any social or economic causes. And, this makes a huge difference in developing the country forward. So, todays Nepal will be better served if it follows the reforms and policies that China implemented in the last few decades. The Chinese developmental blueprint is a good model for Nepal to follow as most of the problems, their causes, and potential solutions in Nepal closely match that of early twenty-first century Chinas. Agriculture, rural infrastructure, education of women and children, health care, and public service delivery are some of the core areas that need reforms in Nepal. Creating jobs in Nepal to retain the youths, and rescuing and educating the children

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who are prone to being trapped in poverty are the major challenges that lay ahead for Nepal.

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