TOURISM

TOURISM

Tourism was a major source of foreign exchange earnings. Especially since Mount Everest (Sagarmatha in Nepali) was first climbed by Sir Edmund Hillary and Tensing Sherpa in 1953, the Himalayas have attracted foreigners to Nepal. Mountaineering and hiking were of considerable interest as were rafting, canoeing, and hang gliding. Tourism was facilitated with the opening of airways to Kathmandu and other parts of the country and the easing of travel restrictions.

In the 1950s, there was a shortage of hotels. Beginning in the 1960s, the government encouraged the building of hotels and other tourist facilities through loans. According to government statistics, between 1985 and 1988 the number of hotel rooms increased from under 22,000 to more than 27,000.

Prior to the trade impasse with India beginning in March 1989, tourism had grown by more than 10 percent per year for most of the 1980s. Between 1985 and 1988, the number of tourists increased from approximately 181,000 to about 266,000. More than 80 percent of the tourists arrived in the country by air.

In FY 1985, more than US$40 million worth of foreign exchange was earned through tourism. By FY 1988, this amount had increased to more than US$64 million. In FY 1989, tourism accounted for more than 3.5 percent of GDP and about 25 percent of total foreign exchange earnings. The 1989 trade and transit impasse with India negatively affected tourism because the transport and service sectors of the economy lacked supplies. Beginning in FY 1990, however, Kathmandu initiated a policy to allocate fuel on a priority basis to tour operators and hotels.

INDUSTRY

INDUSTRY

During the 1950s and 1960s, Kathmandu received aid commitments from Moscow and Beijing. During the 1960s, Soviet and Chinese aid also supported development of a few government-owned industries. Most of the industries established used agricultural products such as jute, sugar, and tea as raw materials. Other industries were dependent on various inputs imported from other countries, mainly India.

As a result of the 1989-90 trade dispute with India, many inputs were unavailable, causing lower capacity utilization in some industries. During the same period, Nepal also lost India as its traditional market for certain goods. Because of the lack of industrial materials, such as coal, furnace oil, machinery, and spare parts, there was a considerable adverse impact on industrial production.

Industry accounted for less than 20 percent of total GDP in the 1980s. Relatively small by international standards, most of the industries established in the 1950s and 1960s were developed with government protection. Traditional cottage industries, including basket-weaving as well as cotton fabric and edible oil production, comprised approximately 60 percent of industrial output; there also were efforts to develop cottage industries to produce furniture, soap, and textiles. The remainder of industrial output came from modern industries, such as jute mills, cigarette factories, and cement plants.

Manufacturing

Among the modern industries were large manufacturing plants, including many public sector operations. The major manufacturing industries produced jute, sugar, cigarettes, beer, matches, shoes, chemicals, cement, and bricks. The garment and carpet industries, targeted at export production, have grown rapidly since the mid1980s whereas jute production has declined. Industrial estates were located in Patan (also called Lalitpur), Balaju, Hetauda, Pokhara, Dharan, Butawal, and Nepalganj. The government provided the land and buildings for the industrial estates, but the industries themselves were mostly privately owned.

The 1986-87 Nepal Standard Industrial Classification counted 2,054 manufacturing establishments of 10 or more persons from 51 major industry groups, employing about 125,000 workers. That same year the total output from these industries amounted to about Rs10 billion; value added was estimated at almost Rs3.6 billion. It was nearly Rs5.1 billion in FY 1989. By FY 1989, there were 2,334 such establishments recorded, employing about 141,000 persons.

Private Industry

The history of incorporated private firms in Nepal is short. The Nepal Companies Act of 1936 provided for the incorporation of industrial enterprises on joint stock principle with limited liability. The first such firm, Biratnagar Jute Mills, was a collaborative venture of Indian and Nepalese entrepreneurs. It was formed in 1936 with initial capital of 160,000 Indian rupees.

In response to shortages of some consumer goods during World War II (1939-45), fourteen private companies emerged in such diverse fields as mining, electrical generation, and paper and soap production. The initial capital invested in each of these industries was small. In 1942 two paper mills emerged as joint ventures of Nepalese and Indian entrepreneurs. Industrial growth gained momentum after 1945, although the end of World War II had reduced the scarcity of goods and caused many of these companies to incur losses.

Under the Nepal Companies Act, there was no provision for private limited companies. In 1951, however, a new act was implemented with provisions for private limited companies. This act encouraged the establishment of ninety-two new private joint stock companies between 1952 and 1964. Most of these companies were much smaller than existing companies. Under the provisions of the 1951 act, public disclosure of the activities of the firms was not required, whereas the 1936 act allowed substantial government intervention. The Industrial Enterprises Act of 1974 and its frequent amendments shifted the government's emphasis on growth from the public to the private sector. However, discrepancies between policy and practice were evident, and the public sector continued to be favored.

Public Companies

Public companies also had varied success. Between 1936 and 1939, twenty public companies were formed, of which three failed. Between 1945 and 1951, thirty-five public firms were incorporated, six of which went out of business. Between 1936 and 1963, fiftyfour firms were incorporated, but at the end of 1963 only thirtyfour remained in operation. The success of public companies continued to be erratic.

Minerals

Because only a few minerals were available in small quantities for commercial utilization, the mineral industry's contribution to the economy was small. Most mineral commodities were used for domestic construction. The principal mineral agency was the Department of Mines and Geology. Geological surveys conducted in the past had indicated the possibility of major metallic and industrial mineral deposits, but a poor infrastructure and lack of a skilled work force inhibited further development of the mineral industry.

The most important mineral resources exploited were limestone for cement, clay, garnet, magnetite, and talc. Crude magnetite production declined from a high of approximately 63,200 tons in 1986 to approximately 28,000 tons in 1989; it was projected to decline further to 25,000 tons in 1990.

In 1990 mineral production decreased significantly, largely because of political unrest. Production of cement fell approximately 51 percent over 1989--from approximately 218,000 tons to about 107,200 tons. Production of clays for cement manufacture dropped from 7,206 tons to 824 tons. Lignite production decreased 19 percent, and talc production fell 73 percent. Ornamental marble production, however, increased in 1989--by 100 percent in cut marble and 1,560 percent in marble chips.

Nonetheless, the mining industry had the potential to become a more important part of the economy, as new mines were being planned or were being developed. Two cement plants already were in operation, and a third one was being planned. It was expected that with full production in the three plants, Nepal might become selfsufficient in cement. A magnetite mine and pressuring plant east of Kathmandu had completed its construction phase and began production of chalk powder (talcum powder) on a trial basis in 1990. A highgrade lead and zinc mine was being developed north of Kathmandu in the region of Ganesh Himal and was expected to become operational in the 1990s, although raising enough capital for the project was problematic. Production of agricultural lime in 1989 doubled that of the previous year, suggesting that progress was being made towards meeting requirements of the agricultural sector.

FORESTS

FORESTS

From 1950 to 1980, Nepal lost half of its forest cover. The first scientific measurement of forest resources was done in a 1964 survey, which estimated about 6.5 million hectares of forest area. Studies indicated that as of 1987 the forest area in the hills had remained the same but that elsewhere forests had been degraded. By 1988 forests covered only approximately 30 percent of the land area. Deforestation was typical of much of the country and was linked to increased demands for grazing land, farmland, and fodder as the animal and human populations grew. Further, most of the population's energy needs were met by firewood. All these factors exacerbated deforestation.

Fuelwood needs of the population mainly resulted from the lack of alternative sources of energy. This fact was particularly evident during the 1989 trade and transit impasse with India when the dispute resulted in a shortage of domestic cooking fuel. Because of the decreased availability of kerosene during this period, the demand for fuelwood rose sharply in the Kathmandu Valley, and fuelwood consumption increased by an estimated 415 percent.

Deforestation caused erosion and complicated cultivation, affecting the future productivity of agricultural lands. Although several laws to counter degradation had been enacted, the results were modest, and government plans for afforestation had not met their targets. The government also established the Timber Corporation of Nepal, the Fuelwood Corporation, and the Forest Products Development Board to harvest the forests in such a way that their degradation would be retarded. In 1988-89 the Fuelwood Corporation merged with the Timber Corporation of Nepal, but forest management through these and other government agencies had made very little progress. In FY 1989, more than 28,000 hectares were targeted for afforestation, but only approximately 23,000 hectares were afforested that year.

A twenty-one-year forestry master plan was devised in FY 1989 to stem deforestation. Implemented with the help of the Asian Development Bank, the program targeted reforestation and education. It sought to maintain the forestation level at 37 percent of land area.

LAND REFORM

LAND REFORM

Nepal was long under a feudal system where a small number of landlords held most of the agricultural land. The state extended its control over the land by the administrative device of making land grants and assignments and raising revenues. Most of the landlords who were granted state lands were not directly involved in farming but contracted with tenant farmers on a customary, and hereditary, basis. The basic purpose of land reform was to protect the tenant farmers, take away excess holdings from landlords, and distribute property to farmers with small landholdings (holding one to three hectares) and landless agrarian households.

Efforts at land reform began with the enactment of the Land and Cultivation Record Compilation Act in 1956 and continued with the Lands Act in 1957 when the government began to compile tenants' records. Although these acts facilitated land reform, the lot of the small farmer did not improve, and further efforts were made. The Agricultural Reorganization Act, passed in 1963, and the Land Reform Act, passed in 1964, emphasized security for tenant farmers and put a ceiling on landholdings. There were several loopholes in the acts, however, which continued to allow large landholders to control most of the lands. There was some success in protecting the rights of tenant farmers, but not much was achieved in land redistribution. As of 1990, average landholdings remained small.

AGRICULTURE

AGRICULTURE

Agriculture dominated the economy. In the late 1980s, it was the livelihood for more than 90 percent of the population--although only approximately 20 percent of the total land area was cultivable--and accounted for, on average, about 60 percent of the GDP and approximately 75 percent of exports. Since the formulation of the Fifth Five-Year Plan (1975-80), agriculture has been the highest priority because economic growth was dependent on both increasing the productivity of existing crops and diversifying the agricultural base for use as industrial inputs.

In trying to increase agricultural production and diversify the agricultural base, the government focused on irrigation, the use of fertilizers and insecticides, the introduction of new implements and new seeds of high-yield varieties, and the provision of credit. The lack of distribution of these inputs, as well as problems in obtaining supplies, however, inhibited progress. Although land reclamation and settlement were occurring in the Tarai Region, environmental degradation--ecological imbalance resulting from deforestation--also prevented progress.

Although new agricultural technologies helped increase food production, there still was room for further growth. Past experience indicated bottlenecks, however, in using modern technology to achieve a healthy growth. The conflicting goals of producing cash crops both for food and for industrial inputs also were problematic.

The production of crops fluctuated widely as a result of these factors as well as weather conditions. Although agricultural production grew at an average annual rate of 2.4 percent from 1974 to 1989, it did not keep pace with population growth, which increased at an average annual rate of 2.6 percent over the same period. Further, the annual average growth rate of food grain production was only 1.2 percent during the same period.

There were some successes. Fertile lands in the Tarai Region and hardworking peasants in the Hill Region provided greater supplies of food staples (mostly rice and corn), increasing the daily caloric intake of the population locally to over 2,000 calories per capita in 1988 from about 1,900 per capita in 1965. Moreover, areas with access to irrigation facilities increased from approximately 6,200 hectares in 1956 to nearly 583,000 hectares by 1990.

Rice was the most important cereal crop. In 1966 total rice production amounted to a little more than 1 million tons; by 1989 more than 3 million tons were produced. Fluctuation in rice production was very common because of changes in rainfall; overall, however, rice production had increased following the introduction of new cultivation techniques as well as increases in cultivated land. By 1988 approximately 3.9 million hectares of land were under paddy cultivation. In 1966 approximately 500,000 tons of corn, the second major food crop, were produced. By 1989 corn production had increased to over 1 million tons.

Other food crops included wheat, millet, and barley, but their contribution to the agricultural sector was small. Increased production of cash crops--used as input to new industries--dominated in the early 1970s. Sugarcane and tobacco also showed considerable increases in production from the 1970s to the l980s. Potatoes and oilseed production had shown moderate growth since 1980. Medicinal herbs were grown in the north on the slopes of the Himalayas, but increases in production were limited by continued environmental degradation. According to government statistics, production of milk, meat, and fruit had improved but as of the late 1980s still had not reached a point where nutritionally balanced food was available to most people. Additionally, the increases in meat and milk production had not met the desired level of output as of 1989.

Food grains contributed 76 percent of total crop production in 1988-89. In 1989-90 despite poor weather conditions and a lack of agricultural inputs--particularly fertilizer--there was a production increase of 5 percent. In fact, severe weather fluctuations often affected production levels. Some of the gains in production through the 1980s were due to increased productivity of the work force (about 7 percent over fifteen years); other gains were due to increased land use and favorable weather conditions.

LABOR

LABOR

Workers' rights and organized labor were in transition in mid1991 . During the late 1940s and early 1950s, some labor disputes led to strikes and lockouts and labor unions sprang up in various factories. In 1957 the government announced the Industrial Policy of Nepal, under which it undertook the responsibility of promoting, assisting, and regulating industries.

The Factories and Factory Workers' Act of 1959 established rules and regulations to govern labor-management relationships and working conditions in factories. The 1977 amended version of the act provided for a six-day, forty-eight-hour work week, thirty days annually for holidays and fifteen days annually for sick leave, and some health and safety standards and benefits. Implementation of the act, a responsibility of the Ministry of Labor and Social Services, was not always forthcoming, however, and was only somewhat affected by the success of the prodemocracy movement.

A revision of the body of labor laws was pending in mid-1991; it was to include a code that defined and regulated workers' rights. Labor unions, restricted prior to the July 1991 repeal of the Organization and Control Act of 1963, still were limited. Estimates suggested that only approximately 3 percent of the economically active population, or 30 percent of nonagricultural workers, were union members.

Because of limited industrialization, unemployment and particularly underemployment were quite high. In 1977 the National Planning Commission undertook a survey, which determined unemployment to be 5.6 percent in rural areas and almost 6 percent in urban areas. Underemployment was estimated to be about 63 percent in rural areas and about 45 percent in urban areas. In 1981 the Asian Regional Team for Employment Production estimated the unemployment and underemployment rates to range from 21 to 28 percent in the Tarai Region and from 37 to 47 percent in the Hill Region. The availability of nonagricultural employment opportunities in the labor force was reported at approximately 600,000 positions in 1981. Underemployment for all of Nepal was reported to range from 25 to 40 percent in 1987; unemployment nationally stood at 5 percent.

MONEY AND BANKING

MONEY AND BANKING

Nepal's first commercial bank, the Nepal Bank Limited, was established in 1937. The government owned 51 percent of the shares in the bank and controlled its operations to a large extent. Nepal Bank Limited was headquartered in Kathmandu and had branches in other parts of the country.

There were other government banking institutions. Rastriya Banijya Bank (National Commercial Bank), a state-owned commercial bank, was established in 1966. The Land Reform Savings Corporation was established in 1966 to deal with finances related to land reforms.

There were two other specialized financial institutions. Nepal Industrial Development Corporation, a state-owned development finance organization headquartered in Kathmandu, was established in 1959 with United States assistance to offer financial and technical assistance to private industry. Although the government invested in the corporation, representatives from the private business sector also sat on the board of directors. The Co-operative Bank, which became the Agricultural Development Bank in 1967, was the main source of financing for small agribusinesses and cooperatives. Almost 75 percent of the bank was state-owned; 21 percent was owned by the Nepal Rastra Bank, and 5 percent by cooperatives and private individuals. The Agricultural Development Bank also served as the government's implementing agency for small farmers' group development projects assisted by the Asian Development Bank and financed by the United Nations Development Programme. The Ministry of Finance reported in 1990 that the Agricultural Development Bank, which is vested with the leading role in agricultural loan investment, had granted loans to only 9 percent of the total number of farming families since 1965.

Since the 1960s, both commercial and specialized banks have expanded. More businesses and households had better access to the credit market although the credit market had not expanded.

In the mid-1980s, three foreign commercial banks opened branches in Nepal. The Nepal Arab Bank was co-owned by the Emirates Bank International Limited (Dubai), the Nepalese government, and the Nepalese public. The Nepal Indosuez Bank was jointly owned by the French Banque Indosuez, Rastriya Banijya Bank, Rastriya Beema Sansthan (National Insurance Corporation), and the Nepalese public. Nepal Grindlays Bank was co-owned by a British firm called Grindlays Bank, local financial interests, and the Nepalese public.

Nepal Rastra Bank was created in 1956 as the central bank. Its function was to supervise commercial banks and to guide the basic monetary policy of the nation. Its major aims were to regulate the issue of paper money; secure countrywide circulation of Nepalese currency and achieve stability in its exchange rates; mobilize capital for economic development and for trade and industry growth; develop the banking system in the country, thereby ensuring the existence of banking facilities; and maintain the economic interests of the general public. Nepal Rastra Bank also was to oversee foreign exchange rates and foreign exchange reserves.

Prior to the establishment of Nepal Rastra Bank, Kathmandu had little control over its foreign currency holdings. Indian rupees were the prevalent medium of exchange in most parts of the country. Nepalese currency was used mostly in the Kathmandu Valley and the surrounding hill areas. The existence of a dual currency system made it hard for the government to know the status of Indian currency holdings in Nepal. The exchange rates between Indian and Nepalese rupees were determined in the marketplace. Between 1932 and 1955, the value of 100 Indian rupees varied between Rs71 and Rs177. The government entered the currency market with a form of fixed exchange rate between the two currencies in 1958. An act passed in 1960 sought to regulate foreign exchange transactions. Beginning in the 1960s, the government made special efforts to use Nepalese currency inside the country as a medium of exchange.

It was only after the signing of the 1960 Trade and Transit Treaty with India that Nepal had full access to foreign currencies other than the Indian rupee. Prior to the treaty, all foreign exchange earnings went to the Central Bank of India, and all foreign currency needs were provided by the Indian government. After 1960 Nepal had full access to all foreign currency transactions and directly controlled its exports and imports with countries other than India.

As a result of the treaty, the government had to separate Indian currency (convertible currency because of free convertibility) from other currencies (nonconvertible currency because it was directly controlled by Nepal Rastra Bank). In 1991 government statistics still separated trade with India from trade with other countries. Tables showing international reserves listed convertible and nonconvertible foreign exchange reserves separately.

ROLE OF GOVERNMENT

ROLE OF GOVERNMENT

Government participation (or interference) in the economy was very strong, beginning with the Rana period, which lasted from the mid-nineteenth century until the mid-twentieth century. During Rana rule, there were very few industries other than cottage type, and they were under strict government supervision. After the fall of the Ranas in 1950-51, economic planning as an approach to development was discussed. Finally, in 1956 the First Five-Year Plan (1956-61) was announced.

The Five-Year Plans

Economic plans generally strove to increase output and employment; develop the infrastructure; attain economic stability; promote industry, commerce, and international trade; establish administrative and public service institutions to support economic development; and introduce labor-intensive production techniques to alleviate underemployment. The social goals of the plans were improving health and education as well as encouraging equitable income distribution. Although each plan had different development priorities, the allocation of resources did not always reflect these priorities. The first four plans concentrated on infrastructure--to make it possible to facilitate the movement of goods and services--and to increase the size of the market. Each of the five-year plans depended heavily on foreign assistance in the forms of grants and loans.

The First Five-Year Plan (1956-61) allocated about Rs576 million for development expenditures. Transportation and communications received top priority with over 36 percent of the budget allocations. Agriculture, including village development and irrigation, took second priority with about 20 percent of budget expenditures. The plan, which also focused on collecting statistics, was not well conceived, however, and resulted in actual expenditures of about Rs382.9 million--two-thirds the budgeted amount. In most cases, targets were missed by a wide margin. For example, although approximately 1,450 kilometers of highways were targeted for construction, only about 565 kilometers were built.

After Parliament, which had been established under the 1959 constitution, was suspended in 1960, the Second Plan failed to materialize on schedule. A new plan was not introduced until 1962 and covered only three years, 1962-65. The Second Plan had expenditures of almost Rs615 million. Transportation and communication again received top priority with about 39 percent of budget expenditures. Industry, tourism, and social services were the second priority. Although targets again were missed, there were improvements in industrial production, road construction, telephone installations, irrigation, and education. However, only the organizational improvement area of the target was met.

The first two plans were developed with very little research and a minimal data base. Neither plan was detailed, and both contained only general terms. The administrative machinery with which to execute these plans also was inadequate. The National Planning Commission, which formulated the second plan, noted the difficulty of preparing plans in the absence of statistical data. Further, as was the case with the first plan, the bulk of the development budget depended on foreign aid--mostly in the form of grants. The failure of these plans was indicated by the government's inability to spend the budgeted amounts.

The Third Five-Year Plan (1965-70) increased the involvement of local panchayat. It also focused on transport, communications, and industrial and agricultural development. Total planned expenditures were more than Rs1.6 billion.

The Fourth Five-Year Plan (1970-75) increased proposed expenditures to more than Rs3.3 billion. Transportation and communications again were the top priority, receiving 41.2 percent of expenditures, followed by agriculture, which was allocated 26 percent of the budget. Although the third and fourth plans increased the involvement of the panchayat in the development process, the central government continued to carry most of the responsibilities.

The Fifth Five-Year Plan (1975-80) proposed expenditures of more than Rs8.8 billion. For the first time, the problem of poverty was addressed in a five-year plan, although no specific goals were mentioned. Top priority was given to agricultural development, and emphasis was placed on increasing food production and cash crops such as sugar cane and tobacco. Increased industrial production and social services also were targeted. Controlling population growth was considered a priority.

The Sixth Five-Year Plan (1980-85) proposed an outlay of more than Rs22 billion. Agriculture remained the top priority; increased social services were second. The budget share allocated to transportation and communication was less than that allocated in the previous plan; it was felt that the transportation network had reached a point where it was more beneficial to increase spending on agriculture and industry.

The Seventh Five-Year Plan (1985-90) proposed expenditures of Rs29 billion. It encouraged private sector participation in the economy (less than Rs22 billion) and local government participation (Rs2 billion). The plan targeted increasing productivity of all sectors, expanding opportunity for productive employment, and fulfilling the minimum basic needs of the people. For the first time since the plans were devised, specific goals were set for meeting basic needs. The availability of food, clothing, fuelwood, drinking water, primary health care, sanitation, primary and skillbased education, and minimum rural transport facilities was emphasized.

Because of the political upheavals in mid-1990, the new government postponed formulating the next plan. The July 1990 budget speech of the minister of finance, however, implied that for the interim, the goals of the seventh plan were being followed.

Foreign aid as a percentage of development averaged around 66 percent. The government continually failed to use all committed foreign aid, however, probably as a result of inefficiency. In the Rs26.6 billion budget presented in July 1991, approximately Rs11.8 billion, or 44.4 percent of the budget, was expected to be derived from foreign loans or grants.

Other Development Programs

The government launched the Structural Adjustment Program and the Basic Needs Program in 1985. These programs stressed selfreliance , financial discipline, and austerity as goals through the year 2000. The Structural Adjustment Program sought to confront some of the longer-term constraints to economic growth. Its measures included increasing domestic resource mobilization, reducing the growth of expenditures and domestic bank borrowings, and strengthening the commercial banking and public enterprise sectors.

The Structural Adjustment Program initiative focused on sustainable growth through balance in different sectors of the economy. Rural development in particular was targeted in order to raise the standard of living and increase agricultural production. Funds for education and health services, electricity and power, irrigation, and transportation and communications were provided. Government subsidies were supposed to be removed, new and improved standards of government efficiency were issued, and privatization of government enterprises was increased. Further, domestic resources were more fully used, and domestic bank borrowings and the growth of expenditures were decreased. The initial response to the Structural Adjustment Program was good, as gross domestic product (GDP), exports, and agriculture showed growth.

The objective of the Basic Needs Program was also to improve the standard of living by increasing food production, as well as to provide clothing, health services, and education. Six goals were to be achieved by the year 2000. Daily food consumption was to be raised to 2,250 calories per capita. Each person was to have the equivalent of eleven meters of clothing and a pair of shoes per year. Housing requirements were estimated at thirty square meters per urban household and at forty to sixty square meters per rural household. Essential utilities and sanitation were to be furnished by the government. Universal primary education for all children between five and ten years of age also was to be provided. The government was responsible for supplying teachers, classrooms, and educational materials, although villagers pitched in with labor and supplies to build schoolhouses. The population growth rate was targeted at 1.9 percent by 2000 (down from 2.6 percent in the 1980s), and life expectancy was to increase to 65 years of age by 2000 (up from almost 51 years in the late 1980s). The infant mortality rate was to be reduced to 45 deaths per 1,000 by the year 2000; World Bank figures placed infant mortality at 171 per 1,000 in 1965 and at 126 per 1,000 in 1988. Universal primary health services also were to be ensured, primarily by the government, improved social services provided to handicapped people, law and order maintained, and an environment conducive to development established.

ECONOMIC SETTING

ECONOMIC SETTING

Nepal's economy is irrevocably tied to India. Nepal's geographical position and the scarcity of natural resources used in the production of industrial goods meant that its economy was subject to fluctuations resulting from changes in its relationship with India. Trade and transit rights affected the movement of goods and increased transportation costs, although Nepal also engaged in unrecorded border trade with India. Real economic growth averaged 4 percent annually in the 1980s, but the 1989 trade and transit dispute with India adversely affected economic progress, and economic growth declined to only 1.5 percent that year as the availability of imported raw materials for export industries was disrupted.

The Nepalese rupee was linked to the Indian rupee. Since the late 1960s, the universal currency has been Nepalese, although as of 1991 Indian currency still was used as convertible currency. During the trade and transit dispute of 1989, however, Kathmandu made convertibility of the Indian rupee more difficult.

Agricultural domination of the economy had not changed by 1991. What little industrial activity there was largely involved the processing of agricultural products. Since the 1960s, investment in the agricultural sector has not had a parallel effect in productivity per unit of land. Agricultural production continued to be influenced by weather conditions and the lack of arable land and has not always kept pace with population growth.

Nepal suffered from an underdeveloped infrastructure. This problem was exacerbated by a weak public investment program and ineffective administrative services. Economic development plans sought to improve the infrastructure but were implemented at the expense of investment in direct production and resulted in a slow growth rate. Further, economic growth did not keep pace with population growth. Largely dependent on agriculture, economic growth also was undermined by poor harvests. The growth of public expenditures during the first half of the 1980s doubled the current account deficit of the balance of payments and caused a serious decline in international reserves.

HEALTH

HEALTH
Health-care problems were varied and enormous. Health and health-care facilities were generally poor and directly reflected the mode of life. The majority of people lived in mass poverty and deprivation, while the nation's small wealth was concentrated in the hands of a few. Deprivation was apparent in the pervasiveness of poor nutrition and sanitation, inadequate housing for most families, and the general absence of modern medical care and other social services, especially in rural areas. The rich lived comparatively well but also shared such common problems as the lack of an abundant and clean water supply, and the prevalence of disease.

Diseases and Disease Control
Poor health conditions were evident in the high rate of infant mortality and a short life expectancy. In the mid-1960s, a national health survey was conducted. In 1991 that survey was still considered the major comprehensive published source of information on the national public health situation.
A number of diseases and chronic infections were prevalent. Goiter, a disease directly associated with iodine deficiency, was endemic in certain villages in the hills and mountains. In most of the villages surveyed, more than half of the population had goiter, and in these same villages the incidence of deafness and mental retardation was much higher than in other villages. Leprosy also was a serious problem. Foreign assistance, specifically through Christian missions, was responsible for setting up leprosy treatment centers in different parts of the country. Tuberculosis has been a chronic problem and was more common in urban areas. During the 1970s, the Tuberculosis Control Project was established to provide immunizations to all children younger than fifteen, and it is likely that this project has reduced tuberculosis. Other chronic, widespread problems were intestinal parasites, diarrhea, and gastrointestinal disorders. Some polio and typhoid infections were common but not severe.
Malnutrition was a chronic problem, especially in rural areas. More than 50 percent of the children surveyed were reported to have stunted growth. "Wasting," defined as a condition in which a child has very low weight for his or her height, was also evident. These conditions were particularly bad in the Hill and Mountain regions, both of which suffered from food shortages. The country's public health program, however, has essentially eliminated smallpox and has been able to control malaria, which used to be endemic to the Tarai Region and other lowlands.

Health-Care Facilities

The health-care delivery network in Nepal was poorly developed. Health-care practices in the country could be classified into three major categories: popular folk medical care, which relied on a jhankri (medicine man or shaman); Ayurvedic treatment; and allopathic (modern) medicine. These practices were not necessarily exclusive; most people used all three, depending on the type of illness and the availability of services, sometimes even simultaneously.
Popular folk medicine derived from a large body of commonly held assumptions about magical and supernatural causes of illness. Sickness and death often were attributed to ghosts, demons, and evil spirits, or they were thought to result from the evil eye, planetary influences, or the displeasures of ancestors. Many precautions against these dangers were taken, including the wearing of charms or certain ornaments, the avoidance of certain foods and sights, and the propitiation of ghosts and gods with sacrificial gifts. When illness struck or an epidemic threatened, people went to see a jhankri for treatment. Such pseudomedical practices were ubiquitous; in many parts of Nepal, a jhankri was the only source of medical care available. Nepalese also regularly saw jotishi (Brahman astrologers) for counseling because they believed in planetary influence on their lives, resulting from disalignments of certain planetary signs. Jotishi were commonly relied on even in urban areas, and even by those who were well educated and frequently used modern medicine. And, virtually no arranged marital union was proposed and concluded without first consulting a jotishi.
The Ayurvedic system of medicine was believed to have evolved among the Hindus about 2,000 years ago. It originally was based on the Ayur-Veda (the Veda of Long Life), but a vast literature since has accumulated around this original text. According to the Ayurvedic theory, the body, like the universe, consists of three forces--phlegm, bile, and wind--and physical and spiritual wellbeing rests on maintaining the proper balance among these three internal forces. A harmonious existence between body and mind results. Ayurvedic pharmacopoeia--based on medicinal plants, plant roots, and herbs--remained a major source of medical treatment in Nepal. This school of medical practice also applies the hot-and- cold concept of foods and diets. In the late 1980s, there were nearly 280 practicing Ayurvedic physicians, popularly known as vaidhya, 145 Ayurvedic dispensaries, and a national college of Ayurvedic medicine in Kathmandu.
In 1991 the most commonly used form of medical treatment, especially for major health problems, was modern medicine whenever and wherever accessible. Within the domain of modern medicine, providing public health-care facilities was largely the responsibility of the government. Private facilities also existed in various regions. Modern medical service generally was provided by trained doctors, paramedics, nurses, and other community health workers. The government-operated health-care delivery system consisted of hospitals and health centers, including health posts in rural areas.
Hospitals were located mostly in urban areas and provided a much wider range of medical services than health centers. They were attended by doctors, as well as by nurses, and equipped with basic laboratory facilities. Small health centers and posts in rural areas--most of them staffed by paramedical personnel, health aides, and other minimally trained community health workers--served the needs of the scattered population. Even though these rural facilities were more accessible than urban hospitals, they generally failed to provide necessary services on a regular and consistent basis. The majority of them were barely functional because of such problems as inadequate funding; lack of trained staff; absenteeism; and chronic shortages of equipment, medicines, and vaccines.
Nepal had a total of 123 hospitals, eighteen health centers, and 816 health posts in 1990. There was one hospital bed for every 4,283 persons, an improvement since 1977, when there was one hospital bed for every 6,489 persons. The number of doctors totaled 879 in 1988, or one physician available for about 20,000 people. For the same period, other medical personnel included 601 nurses, 2,062 assistant nurses and midwives, 2,790 senior and assistant auxiliary health workers and health assistants, and 6,808 villagebased health workers.
There was no doubt in the late 1980s that considerable progress had been made in health care, but the available facilities were still inadequate to meet the growing medical needs of the population. The majority of people lacked easy access to modern medical centers, partly because of the absence of such facilities in nearby locations and partly because of the physical barrier posed by the country's rugged terrain. Because there were very few modern means of transportation in rural areas, particularly in the hills and mountains, people had to walk on average about half a day to get to health posts. Such a long walk was not only difficult (especially when the patient needed medical attention), but also meant economic hardship for the majority who rarely could afford to be absent for the whole day from their daily work. As a result, many minor illnesses went untreated, and some of them later developed into major illnesses.
In the early 1990s, Nepal's geographical limitations continued to play a large part in the country's social and economic problems. Moreover, despite twenty-five years of family planning programs, the population growth rate continued to outpace agricultural production and parts of the country continued to be food deficit areas. The educational base was also limited; only one-third of the population was literate. The generally poor health of the population and a lack of adequate health-care facilities also hindered social and economic improvements.

EDUCATION

Education under Rana Rule
The Rana rulers, who placed Nepal under their feudal yoke for about 100 years until the beginning of the 1950s, feared an educated public. This fear also was held by Prime Minister Chandra Shamsher Rana, who established Tri-Chandra College in 1918 and named it after himself. During the inauguration of the college, Chandra Shamsher lamented that its opening was the ultimate death knell to Rana rule. He personally felt responsible for the downfall of Rana rule, and his words became prophetic for the crumbling of Rana political power in 1950-51.
The privileged access of members of the higher castes and wealthier economic strata to education was for centuries a distinguishing feature of society. The Ranas kept education the exclusive prerogative of the ruling elite; the rest of the population remained largely illiterate. The Ranas were opposed to any form of public schooling for the people, although they emphasized formal instruction for their own children to prepare them for a place in the government.
The founder of the Rana regime, Jang Bahadur Kunwar, later known as Jang Bahadur Rana, decided to give his children an English education rather than the traditional religiously oriented training. In 1854 Jang Bahadur engaged an English tutor to hold classes for his children in the Rana palace. This act tipped the balance in favor of English education and established its supremacy over the traditional type of Sanskrit-based education. In 1991 English education still carried a higher status and prestige than did traditional education.
Jang Bahadur's successor opened these classes to all Rana children and formally organized them into Durbar High School. A brief shift in government education policy came in 1901, when Prime Minister Dev Shamsher Rana took office and called for sweeping education reforms. He proposed a system of universal public primary education, using Nepali as the language of instruction, and opening Durbar High School to children who were not members of the Rana clan. Dev Shamsher's policies were so unpopular that he was deposed within a few months. His call for reforms did not entirely disappear, however. A few Nepali-language primary schools in the Kathmandu Valley, the Hill Region, and the Tarai remained open, and the practice of admitting a few middle- and low-caste children to Durbar High School continued.
Before World War II (1939-45), several new English middle and high schools were founded in Patan, Biratnagar, and elsewhere, and a girls' high school was opened in Kathmandu. In the villages, public respect for education was increasing, largely as a result of the influence of returning Gurkha soldiers, many of whom had learned to read and write while serving in the British army. Some retired soldiers began giving rudimentary education to children in their villages. Some members of the high-caste, elite families sent their children to Patna University, Banaras Hindu University, or other universities in India for higher academic or technical training. It was in fact, some of these students, having realized how oppressive the policies of Rana rule were, who initiated antiRana movements, provided revolutionary cadres, and finally began the revolution that ultimately led to the overthrow of Rana rule in 1951.
Before the 1950-51 revolution, Nepal had 310 primary and middle schools, eleven high schools, two colleges, one normal school, and one special technical school. In the early 1950s, the average literacy rate was 5 percent. Literacy among males was 10 percent and among females less than 1 percent. Only 1 child in 100 attended school.

Education since 1951

After the 1951 revolution, efforts were made to establish an education system. The National Education Planning Commission was founded in 1954, the All Round National Education Committee in 1961, and the National Education Advisory Board in 1968 in order to implement and to refine the education system. In 1971 the New Education System came into operation as an integral part of the Fourth Five-Year Plan (1970-75); it was designed to address individual, as well as societal, needs in concert with the goals of national development.
Formal schooling in modern times was still constrained by the economy and culture. Children were generally needed to work in the fields and at home. Many students began school late (at ages nine or ten); more than half left school after completing only one year. Educating females was viewed as unnecessary; as a consequence, their enrollment levels were far lower than those of males. Regional variations often hindered the effectiveness of uniform text materials and teacher training. Although the government was relatively successful in establishing new schools, the quality of education remained low, particularly in remote regions where the majority of the population lived. Terrain further inhibited management and supervision of schools.
Most schools operated for ten months of the year, five and onehalf days a week. In the warmer regions, June and July were vacation months; in the northern regions, mid-December through midFebruary were vacation months. All schools in Kathmandu closed for winter vacation.
In 1975 primary education was made free, and the government became responsible for providing school facilities, teachers, and educational materials. Primary schooling was compulsory; it began at age six and lasted for five years. Secondary education began at age eleven and lasted another five years in two cycles--two years (lower) and three years (higher). Total school enrollment was approximately 52 percent of school-age children (approximately 70 percent of school-age boys, 30 percent of school-age girls) in 1984. Secondary school enrollment was only 18 percent of the relevant age-group (27 percent of the total boys, 9 percent of the total girls). About 72 percent of all students were male. The Ministry of Education supervised the finance, administration, staffing, and inspection of government schools. It also inspected private schools that received government subsidies.
As of 1987, Nepal had 12,491 primary schools, 3,824 lowersecondary schools, and 1,501 higher-secondary schools. There were 55,207 primary, 11,744 lower-secondary, and 8,918 higher-secondary school teachers. Primary school enrollments totaled 1,952,504 persons; lower-secondary and higher-secondary enrollment figures stood at 289,594 and 289,923 persons, respectively.
Curriculum was greatly influenced by United States models, and it was developed with assistance from the United Nations Educational, Scientific, and Cultural Organization. The National Education Plan established a framework for universal education. The goal of primary education was to teach reading, writing, and arithmetic, and to instill discipline and hygiene. Lower-secondary education emphasized character formation, a positive attitude toward manual labor, and perseverance. Higher-secondary education stressed manpower requirements and preparation for higher education. National development goals were emphasized through the curriculum.
The School Leaving Certificate examination, a nationally administered and monitored high-school-matriculation examination, was given after completion of the higher-secondary level. Those who passed this examination were eligible for college. In addition, some communities had adult education schools.
In the early 1980s, approximately 60 percent of the primary school teachers and 35 percent of secondary school teachers were untrained, despite the institution of a uniform method of training in 1951. The Institute of Education, part of Tribhuvan University, was responsible for inservice and preservice teacher training programs. Beginning in 1976, the institute organized a distancelearning program--electronic links between distant locations--for prospective teachers. Developments in telecommunications will provide new educational options.
At the higher education level, there was only one doctoral degree-granting institution in Nepal, Tribhuvan University. It was named after King Tribhuvan Bir Bikram Shah, the grandfather of King Birendra, and was chartered in 1959. All public colleges fell under Tribhuvan University. Private colleges were operated independently, although they also were required to meet the requirements and standards set by Tribhuvan University. The total number of colleges increased significantly, from 8 in 1958 to 132 in 1988 (69 under Tribhuvan University and 63 private colleges). In terms of subjects, these colleges covered a wide range of disciplines, such as social sciences; humanities; commerce (business); physical sciences, including some medical sciences; engineering; education; forestry; law; and Sanskrit. The number of students enrolled in higher education institutions totaled almost 83,000 in 1987; the largest percentage was in humanities and social sciences (40 percent), followed by commerce (31 percent), science and technology (11 percent), and education (6 percent). Approximately 20 percent of the students enrolled in Tribhuvan University were females.
The 1981 census found 24 percent of the population to be literate; as of 1990, the literacy rate was estimated to be 33 percent. There still was a big gap between male and female literacy rates. About 35 percent of the male population was literate in 1981, but only 11.5 percent of the female population was. A gulf also existed in literacy rates between rural and urban areas. In rural areas, the literacy rates for males and females were 33 percent and 9 percent, respectively; in urban areas, they were significantly higher, 62 percent and 37 percent, respectively. The higher literacy rates in urban areas were largely attributed to the availability of more and better educational opportunities, a greater awareness of the need for education for employment and socioeconomic mobility, and the exodus of educated people from rural to urban areas. Nepal launched a twelve-year literacy program in 1990, targeting 8 million people between the ages of six and forty-five.
There was little doubt among observers that the historical monopoly of educational opportunity by members of the wealthier and higher caste groups gradually was diminishing. Schools and colleges were open to all, and enrollment figures were rising rapidly. The long-standing prejudice against the education of women seemed to be very slowly breaking down, as attested to by increasing enrollments of girls in schools and colleges. Yet two distinct biases--social class and geography--remained pronounced in educational attainment.
Despite general accessibility, education still nonetheless primarily served children of landlords, businessmen, government leaders, or other elite members of the society, for they were the only ones who could easily afford to continue beyond primary school. They also were far more able to afford, and likely to continue, education beyond the high school level. Many students in the general population dropped out before they took the School Leaving Certificate examination. There was an even more important ingredient for success after leaving school: if the quality of available higher education was considered inadequate or inferior, higher caste families could afford to send their children overseas to obtain necessary degrees. Foreign educational degrees, especially those obtained from American and West European institutions, carried greater prestige than degrees from Nepal. Higher caste families also had the necessary connections to receive government scholorships to study abroad.
Further, education remained largely urban-biased. The majority of education institutions, particularly better quality institutions, were found in urban areas. In rural areas where schools were set up, the quality of instruction was inferior, facilities were very poor, and educational materials were either difficult to find or virtually unavailable. Consequently, if rural families were serious about the education of their children, they were forced to send them to urban areas, a very expensive proposition that the vast majority of rural households could not afford.
Although there has been a remarkable numerical growth in the literacy rates, as well as the number of education institutions over the years, the quality of education has not necessarily improved. There were few top-notch teachers and professors, and their morale was low. At the higher educational level, the research focus or tradition was virtually absent, largely because there were few research facilities available for professors. There were some excellent private schools, mostly located in the Kathmandu Valley, but many appeared to be merely money-making ventures rather than serious, devoted educational enterprises. The large majority of schools and colleges were run by poorly prepared and poorly trained teachers and professors. Schools and colleges frequently were closed because of strikes. Students had little respect for teachers and professors and were concerned with obtaining a certificate rather than a quality education. Cheating was rampant during examinations at all levels.

RELIGION

Religion and Society

Religion occupies an integral position in Nepalese life and society. In the early 1990s, Nepal was the only constitutionally declared Hindu state in the world; there was, however, a great deal of intermingling of Hindu and Buddhist beliefs. Many of the people regarded as Hindus in the 1981 census could, with as much justification, be called Buddhists. The fact that Hindus worshipped at Buddhist temples and Buddhists worshipped at Hindu temples has been one of the principal reasons adherents of the two dominant groups in Nepal have never engaged in any overt religious conflicts. Because of such dual faith practices (or mutual respect), the differences between Hindus and Buddhists have been in general very subtle and academic in nature. However, in 1991, approximately 89.5 percent of the Nepalese people identified themselves as Hindus. Buddhists and Muslims comprised only 5.3 and 2.7 percent, respectively. The remainder followed other religions, including Christianity.

The geographical distribution of religious groups revealed a preponderance of Hindus, accounting for at least 87 percent of the population in every region. The largest concentrations of Buddhists were found in the eastern hills, the Kathmandu Valley, and the central Tarai; in each area about 10 percent of the people were Buddhist. Buddhism was relatively more common among the Newar and Tibeto-Nepalese groups. Among the Tibeto-Nepalese, those most influenced by Hinduism were the Magar, Sunwar, and Rai peoples. Hindu influence was less prominent among the Gurung, Limbu, Bhote, and Thakali groups, who continued to employ Buddhist monks for their religious ceremonies.

Hinduism

Hinduism generally is regarded as the oldest formal religion in the world. The origins of Hinduism go back to the pastoral Aryan tribes, spilling over the Hindu Kush from Inner Asia, and mixing with the urban civilization of the Indus Valley and with the tribal cultures of hunting and gathering peoples in the area. Unlike other world religions, Hinduism had no single founder and has never been missionary in orientation. It is believed that about 1200 B.C., or even earlier by some accounts, the Vedas, a body of hymns originating in northern India were produced; these texts form the theological and philosophical precepts of Hinduism.

Hindus believe that the absolute (the totality of existence, including God, man, and universe) is too vast to be contained within a single set of beliefs. A highly diverse and complex religion, Hinduism embraces six philosophical doctrines (darshanas). From these doctrines, individuals select one that is congenial, or conduct their worship simply on a convenient level of morality and observance. Religious practices differ from group to group. The average Hindu does not need any systematic formal creed in order to practice his or her religion Hindus only to comply with the customs of their family and social groups.

One basic concept in Hinduism is that of dharma, natural law and the social and religious obligations it imposes. It holds that individuals should play their proper role in society as determined or prescribed by their dharma. The caste system, although not essential to philosophical Hinduism, has become an integral part of its social or dharmic expression. Under this system, each person is born into a particular caste, whose traditional occupation-- although members do not necessarily practice it--is graded according to the degree of purity and impurity inherent in it.

Other fundamental ideas common to all Hindus concern the nature and destiny of the soul, and the basic forces of the universe. The souls of human beings are seen as separated portions of an allembracing world soul (brahma); man's ultimate goal is reunion with this absolute.

Karma (universal justice) is the belief that the consequence of every good or bad action must be fully realized. Another basic concept is that of samsara, the transmigration of souls; rebirth is required by karma in order that the consequences of action be fulfilled. The role an individual must play throughout his or her life is fixed by his or her good and evil actions in previous existences. It is only when the individual soul sees beyond the veil of maya (illusion or earthly desires)--the forces leading to belief in the appearances of things--that it is able to realize its identity with the impersonal, transcendental reality (world soul) and to escape from the otherwise endless cycle of rebirth to be absorbed into the world soul. This release is known as moksha.

Veneration for the cow has come to be intimately associated with all orthodox Hindu sects. Because the cow is regarded as the symbol of motherhood and fruitfulness, the killing of a cow, even accidentally, is regarded as one of the most serious of religious transgressions.

Hinduism is polytheistic. It incorporates many gods and goddesses with different functions and powers; but in the most important and widely held doctrine, the Vedanta (end of the Vedas), gods and goddesses are considered merely different manifestations or aspects of a single underlying divinity. This single divinity is expressed as a Hindu triad comprising the religion's three major gods: Brahma, Vishnu, and Shiva, personifying creation, preservation, and destruction, respectively. Vishnu and Shiva, or some of their numerous avatars (incarnations), are most widely followed.

Buddha, the founder of Buddhism, is regarded as the ninth avatar of Vishnu. Some Hindus identify Christ as the tenth avatar; others regard Kalki as the final avatar who is yet to come. These avatars are believed to descend upon earth to restore peace, order, and justice, or to save humanity from injustice. The Mahabharata (compiled by the sage Vyasa, probably before A.D. 400), describes the great civil war between the Pandavas (the good) and the Kauravas (the bad)--two factions of the same clan. It is believed that the war was created by Krishna. Perhaps the flashiest and craftiest avatar of Vishnu, Krishna, as a part of his lila (sport or act), is believed motivated to restore justice--the good over the bad.

Buddhism

Buddhism had its origin in the teachings of Siddhartha Gautama, a Kshatriya caste prince of the Sakya clan; he was born in Lumbini, in the central Tarai Region, about 563 B.C. His father was the ruler of a minor principality in the region. Born a Hindu and educated in the Hindu tradition, Siddhartha Gautama renounced worldly life at about the age of twenty-nine and spent the next six years in meditation. At the end of this time, he attained enlightenment; thereafter, known as the Buddha, or the Enlightened One, he devoted the remainder of his life to preaching his doctrine.

The Buddha accepted or reinterpreted the basic concepts of Hinduism, such as karma, samsara, dharma, and moksha, but he generally refused to commit himself to specific metaphysical theories. He said they were essentially irrelevant to his teachings and could only distract attention from them. He was interested in restoring a concern with morality to religious life, which he believed had become stifled in details of ritual, external observances, and legalisms.

The Four Noble Truths summarize the Buddha's analysis of the human situation and the solution he found for the problems of life. The first truth is that life, in a world of unceasing change, is inherently imperfect and sorrowful, and that misery is not merely a result of occasional frustration of desire or misfortune, but is a quality permeating all experience. The second truth is that the cause of sorrow is desire, the emotional involvement with existence that led from rebirth to rebirth through the operation of karma. The third truth is that the sorrow can be ended by eliminating desire. The fourth truth sets forth the Eightfold Path leading to elimination of desire, rebirth, and sorrow, and to the attainment of nirvana or nibbana, a state of bliss and selfless enlightment. It rejoins right or perfect understanding, aspiration, speech, action, livelihood, effort, thought, and contemplation.

SOCIAL SYSTEM AND VALUES

SOCIAL SYSTEM AND VALUES

In the mid-twentieth century, Nepal remained gripped in a feudalistic socioeconomic structure despite the influence of Western popular culture, growing commercialization, and some penetration of capitalism. The first challenge to this feudalistic power structure came in 1950-51, when the Rana autocracy was overthrown by the popular democratic movement that restored the authority of the monarchy.

There was no popularly elected government until 1959. During his reign, King Mahendra Bir Bikram Shah Dev frequently changed the government, pitting one ruling clan against another in a manner clearly reminiscent of Shah politics prior to the rise of Rana rule. He also reconstituted the system of palace patronage, replacing the system of Rana patronage. The Ranas, however, firmly controlled the armed forces.

In December 1960, King Mahendra launched a palace coup against the popularly elected government of Prime Minister Bishweshwar Prasad (B.P.) Koirala and reestablished his absolute monarchical rule under the banner of the partyless panchayat system. Until early 1990, the panchayat system, strictly controlled by the palace, remained firmly in place. The transition to a new social order was stymied; society remained entrenched in a feudalistic structure.

There was, however, a tide of Western popular culture and commercialization sweeping over Nepal. In the 1960s and 1970s, many Westerners, so-called hippies, were attracted to Nepal, looking for inexpensive marijuana and hashish. Nepal suddenly emerged as a "hippie Shangri-la." There were no laws or legal restrictions on the sale and purchase of such drugs, and they could be used openly. In fact, some Westerners thought the Nepalese were generally happy and content because they were always high. Although this view was a distortion, nonetheless it was very common to see elderly Nepalese men smoking marijuana, invariably mixed with tobacco, in public. Marijuana plants grew almost everywhere; sometimes they were found growing even along main streets. Locally produced hashish also was widely consumed, particularly during festivals celebrated by some ethnic groups and tribes. It was, however, very unusual for a Nepalese to develop a marijuana or hashish habit until reaching about forty years of age.

By the late 1980s, the situation had changed dramatically. There was an emerging drug subculture in the urban areas, and a number of youths, including college and high school students, sold and consumed drugs. Many of these youths had gone beyond using marijuana and hashish to more potent drugs, such as "crack" and cocaine--drugs unheard of in the past. In the 1960s, Westerners had sought release from the overbearing materialism of developed countries; they copied the Nepalese (and other Easterners) who smoked marijuana and hashish. Ironically, in the 1980s and 1990s, it was Nepalese youths who were enchanted by the North American material and drug culture. There were an estimated 20,000 heroin addicts in 1989. In response to the drug situation in the country, in the late 1980s the government initiated antinarcotics measures and narcotics training, and King Birendra Bir Bikram Shah Dev directed extensive media attention to narcotics abuse. The effectiveness of the battle against narcotics, however, was limited by the lack of an official government body to target drug abuse.

Rural Society and Kinship

Nepal in the early 1990s was predominantly a rural-agricultural society, where more than 90 percent of the people lived in rural areas and depended on farming as a source of livelihood. Even in settlements designated as urban areas, the rural-urban distinction easily was blurred; approximately 50 percent of urbanites outside the three cities in the Kathmandu Valley were engaged in farming for their livelihood. Even in the Kathmandu Valley cities, 30 to 40 percent of city dwellers were agriculturalists. In this sense, most urban areas were economic extensions of rural areas, but with an urban manifestation and a commercial component. Farming was the dominant order of society and the mainstay of the economy, a situation that was unlikely to change, given the extremely sluggish pace of economic transformation.

The basic social unit in a village was the family, or paribar, consisting of a patrilineally extended household. The extended family system should not, however, be construed as a necessarily harmonious form of village life. Many extended families broke apart as sons separated from parents and brothers from each other. At the time of separation, the family property was equally divided among the sons. If parents were alive, they each received a share. Family separation generally occurred in cases where the head of the household was less assertive and domineering, when the father died, or when all the sons married. Unmarried sons normally did not separate from their parents; if the parents were deceased, unmarried sons usually stayed with their older brothers. Because family separation always resulted in a division of family landholdings, landholdings were extremely fragmented, both geographically and socially. Sometimes, family separation and resulting land fragmentation turned into a bitter feud and led to legal disputes.

Beyond the immediate family, there existed a larger kinship network that occasionally involved sharing food. This network also was an important means of meeting farm labor needs, especially during the planting and harvesting seasons, when labor shortages were common.

Above the kinship network was the village, which functioned as a broader unit of social existence. Some villages were no more than hamlets made up of just a few houses; others were sizable communities of several neighboring hamlets. In more populous villages, the caste groups contained occupational low (untouchable) caste groups, such as the Kami (ironsmiths who make tools), the Sarki (leathersmiths), and the Damai (tailors and musicians), who fulfilled the vital basic needs of the village as a fairly selfcontained production unit.

Villagers occasionally pooled their resources and labored together to implement village-level projects, such as building irrigation ditches or channels, or facilities for drinking water. If a household could afford to hire farm labor, it usually relied on the mutual labor-sharing system called parma, which allowed villagers to exchange labor for labor at times of need.

Although farming traditionally ranked among the most desirable occupations, villagers frequently encouraged some of their children to leave in search of civil service, army, and other employment opportunities. Individual migration was often the result of a family decision and an important economic strategy; it not only served as a safety valve for growing population pressures but also generated cash incomes, thereby averting any undue economic crises in the family. Well-to-do village families usually pushed their children to obtain civil service jobs as a means of climbing the bureaucratic ladder and of developing valuable connections with the elite political structure.

Farming was the most important source of livelihood in rural areas, but the scarcity of land placed severe constraints on agricultural development. Landholding was the most important basis for, or criterion of, socioeconomic stratification. The 1981 agricultural census data identifies five classes of peasantry: landless and nearly landless, people with no land or less than half a hectare; subsistence, those with half a hectare to one hectare; small, holders of one to three hectares; medium, people with three to five hectares; and large, farmers of more than five hectares.

In terms of production relations, the first two classes were dependent on large landowners for survival. Small landowners, on the other hand, were relatively independent; they did not have to depend on the large landowning class for survival, especially if they were involved in circular migration as a source of supplementary cash income. Nor did they regularly employ members of the first two classes. Landowners of medium-sized plots were independent of large landowners. Their engagement in wage laboring or tenancy farming was sporadic, if present at all. In some cases, they employed others during peak farming seasons. The large landowning class regularly employed farm workers and benefited from the existence of excess labor, which kept wages low. In general, the situation of landholders was exacerbated by the archaic nature of farming technology and the absence of other resources. It was not surprising that rural poverty was widespread.

Women's Status and Role in Society

The United Nations has defined the status of women in the context of their access to knowledge, economic resources, and political power, as well as their personal autonomy in the process of decision making. When Nepalese women's status is analyzed in this light, the picture is generally bleak. In the early 1990s, Nepal was a rigidly patriarchical society. In virtually every aspect of life, women were generally subordinate to men.

Women's relative status, however, varied from one ethnic group to another. The status of women in Tibeto-Nepalese communities generally, was relatively better than that of Pahari and Newari women. Women from the low caste groups also enjoyed relatively more autonomy and freedom than Pahari and Newari women.

The senior female member played a commanding role within the family by controlling resources, making crucial planting and harvesting decisions, and determining the expenses and budget allocations. Yet women's lives remained centered on their traditional roles--taking care of most household chores, fetching water and animal fodder, and doing farm work. Their standing in society was mostly contingent on their husbands' and parents' social and economic positions. They had limited access to markets, productive services, education, health care, and local government. Malnutrition and poverty hit women hardest. Female children usually were given less food than male children, especially when the family experienced food shortages. Women usually worked harder and longer than men. By contrast, women from high-class families had maids to take care of most household chores and other menial work and thus worked far less than men or women in lower socioeconomic groups.

The economic contribution of women was substantial, but largely unnoticed because their traditional role was taken for granted. When employed, their wages normally were 25 percent less than those paid to men. In most rural areas, their employment outside the household generally was limited to planting, weeding, and harvesting. In urban areas, they were employed in domestic and traditional jobs, as well as in the government sector, mostly in low-level positions.

One tangible measure of women's status was their educational attainment. Although the constitution offers women equal educational opportunities, many social, economic, and cultural factors contributed to lower enrollment and higher dropout rates for girls. Illiteracy imposed the greatest hindrance to enhancing equal opportunity and status for women. They were caught in a vicious circle imposed by the patriarchical society. Their lower status hindered their education, and the lack of education, in turn, constricted their status and position. Although the female literacy rate has improved noticeably over the years, the level in the early 1990s fell far short of the male level.

The level of educational attainment among female children of wealthy and educated families was much higher than that among female children of poor families. This class disparity in educational attainment was also true for boys. In Nepal, as in many societies, education was heavily class-biased.

In the early 1990s, a direct correlation existed between the level of education and status. Educated women had access to relatively high-status positions in the government and private service sectors, and they had a much higher status than uneducated women. This general rule was more applicable at the societal level than at the household level. Within the family, an educated woman did not necessarily hold a higher status than her uneducated counterpart. Also within the family, a woman's status, especially a daughter-in-law's status, was more closely tied to her husband's authority and to her parental family's wealth and status than anything else.

Social Classes and Stratification

In terms of differences in wealth and access to political power, Nepalese society could be divided into a small ruling elite; a growing, intermediate-sized group of government officials, large landholders, and merchants; and the vast majority of the population, consisting of a peasant base. These divisions are descriptive, functional class categories rather than social class entities based on the Marxian concept of the social relations of production. In a way, all three classes were a long continuum in Nepal's social structure because most members of the ruling elite and government functionaries had their direct roots in the rural landed class, which was one stratum of the farming population.

Even though the agricultural sector as a whole faced similar economic and technological circumstances, it was diverse and contained several strata in landholding, relative economic dependence, and independence. The numerically small intermediate stratum of the farmers was only slightly less diverse than the rest of the rural population in terms of members' ethnic and geographical backgrounds. The relative economic and educational advantages of this group and its occupational activities, however, made its members relatively homogeneous in terms of shared interest. They generally aspired to achieve a middle- or elite-class status.

The smallest and least diverse of the three categories was the ruling elite, largely composed of high-caste, educated Paharis, namely different strata of Brahmans and Chhetris. At the zenith of this class was the monarch, whose authority was derived from the orthodox Hindu contention that the king was the reincarnation of Vishnu, whose assigned role in the Hindu trinity is protection. The monarch's authority was not based on electoral support.

The continued expansion of the bureaucracy was a direct response to a consistent increase in the educated population. Because of the lack of development, a large number of educated people failed to find gainful employment upon graduation. Because they constituted the most potent revolutionary force, and happened to be geographically concentrated in urban centers, the ruling class was almost compelled to absorb them into an already bloated bureaucracy in order to neutralize any sociopolitical disturbance they might cause.

In the 1980s, a significant number of college- and universityeducated people residing in Kathmandu Valley cities discovered a second employment outlet. Development consultant firms and associated services have emerged throughout Kathmandu. Because of the growing pressure on foreign donors to hire Nepalese consultants for development feasibility and evaluation projects, these firms were able to tap into the large pool of foreign aid money and have generated a significant number of jobs. This opportunity has allowed many of the more educated to attain middle class status.

Caste and Ethnicity

Ethnic Groups

Nepalese society was ethnically diverse and complex in the early 1990s, ranging in phenotype (physical characteristics) and culture from the Indian to the Tibetan. Except for the sizable population of those of Indian birth or ancestry concentrated in the Tarai bordering India, the varied ethnic groups had evolved into distinct patterns over time.

Political scientists Joshi and Rose broadly classify the Nepalese population into three major ethnic groups in terms of their origin: Indo-Nepalese, Tibeto-Nepalese, and indigenous Nepalese. In the case of the first two groups, the direction if their migration and Nepal's landscapes appeared to have led to their vertical distribution; most ethnic groups were found at particular altitudes. The first group, comprising those of Indo- Nepalese origin, inhabited the more fertile lower hills, river valleys, and Tarai plains. The second major group consisted of communities of Tibeto-Mongol origin occupying the higher hills from the west to the east. The third and much smaller group comprised a number of tribal communities, such as the Tharus and the Dhimals of the Tarai; they may be remnants of indigenous communities whose habitation predates the advent of Indo-Nepalese and Tibeto-Mongol elements.

Even though Indo-Nepalese migrants were latecomers to Nepal relative to the migrants from the north, they have come to dominate the country not only numerically, but also socially, politically, and economically. They managed to achieve early dominance over the native and northern migrant populations, largely because of the superior formal educational and technological systems they brought with them. Consequently, their overall domination has had tremendous significance in terms of ethnic power structure.

Within the Indo-Nepalese group, at least two distinct categories can be discerned. The first category includes those who fled India and moved to the safe sanctuaries of the Nepal hills several hundred years ago, in the wake of the Muslim invasions of northern India. The hill group of Indian origin primarily was composed of descendants of high-caste Hindu families. According to Joshi and Rose, "These families, mostly of Brahman and Kshatriya status, have spread through the whole of Nepal with the exception of the areas immediately adjacent to the northern border. They usually constitute a significant portion of the local elites and are frequently the largest landowners in an area." This segment of the Indo-Nepalese population, at the apex of which stands the nation's royal family, has played the most dominant role in the country. Other ethnic groups, including those of Indian origin that settled in the Tarai, have been peripheral to the political power structure.

The second group of Indo-Nepalese migrants includes the inhabitants of the Tarai. Many of them are relatively recent migrants, who were encouraged by the government of Nepal or its agents to move into the Tarai for settlement during the nineteenth and early twentieth centuries. In the early 1990s, this group mostly consisted of landless tenants and peasants from northern India's border states of Bihar and Bengal. Some of these Indian migrants later became large landowners.

The north Indian antecedents of a number of caste groups in the hills (that is, the first group of Indo-Nepalese migrants), which, in the early 1990s, made up more than 50 percent of the total population, are evident in their language, religion, social organization, and physical appearance. All of these features, however, have been modified in the Nepalese environment. These groups--several castes of Brahmans, the high-ranking Thakuri and Chhetri (the Nepalese derivative of the Kshatriya) castes, and an untouchable category--generally are classified as Pahari, or Parbate. However, in most parts of Nepal (except in the Tarai), the term pahari has only a limited use in that the Paharis generally are known by their individual caste names.

Nepali, the native tongue of the Paharis and the national language of Nepal, is closely related to, but by no means identical with, Hindi. Both are rooted in Sanskrit. The Hinduism of the Pahari has been influenced by Buddhism and indigenous folk belief. The Paharis' caste system was neither as elaborately graded nor as all embracing in its sanctions as that of the Indians; physically, many of the Paharis showed the results of racial intermixture with the various Mongoloid groups of the region. Similarly, the Bhote or Bhotia groups inhabiting the foothills of the Himalayas--among whom the Sherpas have attracted the most attention in the mountaineering world--have developed regional distinctions among themselves, although clearly related physically as well as culturally to the Tibetans. The term Bhote literally means inhabitant of Bhot, a Sanskrit term for the trans-Himalayan region of Nepal, or the Tibetan region. However, Bhote is also a generic term, often applied to people of Tibetan culture or Mongoloid phenotype. As used by the Paharis and the Newars, it often had a pejorative connotation and could be applied to any non-Hindu of Mongoloid appearance.

An extraordinarily complex terrain also affected the geographic distribution and interaction among various ethnic groups. Within the general latitudinal sorting of Indo-Nepalese (lower hills) and Tibeto-Nepalese (higher hills and mountains) groups, there was a lateral (longitudinal) pattern, in which various ethnic populations were concentrated in specific geographic pockets. The deeply cut valleys and high ridges tended to divide ethnic groups into many small, relatively isolated, and more or less self- contained communities. This pattern was especially prominent among the Tibeto-Nepalese population. For example, the Bhote group was found in the far north, trans-Himalayan section of the Mountain Region, close to the Tibetan border. The Sherpas, a subgroup within the Bhote, were concentrated in the northeast, around the Mount Everest area. To the south of their areas were other Tibeto- Nepalese ethnic groups--the Gurung in the west-central hills and the Tamang and Rai in the east-central hills--particularly close to and east of the Kathmandu Valley. The Magar group, found largely in the central hills, was much more widely distributed than the Gurung, Tamang, and Rai. In the areas occupied by the Limbu and Rai peoples, the Limbu domain was located farther east in the hills, just beyond the Rai zone. The Tharu group was found in the Tarai, and the Paharis were scattered throughout Nepal. Newars largely were concentrated in the Kathmandu Valley. However, because of their past migration as traders and merchants, they also were found in virtually all the market centers, especially in the hills, and as far away as Lhasa in Tibet.

This geographically concentrated ethnic distribution pattern generally remained in effect in the early 1990s, despite a trend toward increasing spatial mobility and relocating ethnic populations. For example, a large number of Bhotes (also called Mananges from the Manang District) in the central section of the Mountain Region, Tamangs, and Sherpas have moved to the Kathmandu Valley. Similarly, Thakalis from the Mustang District adjacent to Manang have moved to Pokhara, a major urban center in the hills about 160 kilometers west of Kathmandu, and to Butawal and Siddhartha Nagar, two important urban areas in the central part of the Tarai, directly south of Pokhara. Gurungs, Magars, and Rais also have become increasingly dispersed.

Most of the Indo-Nepalese peoples--both Paharis and Tarai dwellers (commonly known among the Paharis as madhesis, meaning midlanders)--were primarily agriculturalists, although a majority of them also relied on other activities to produce supplementary income. They generally raised some farm animals, particularly water buffalo, cows, goats, and sheep, for domestic purposes. The Paharis traditionally have occupied the vast majority of civil service positions. As a result, they have managed to dominate and to control Nepal's bureaucracy to their advantage. It was not until the 1980s that a prime minister came from the non- Pahari segment of the population. Despite some loosening of the total Pahari domination of the bureaucracy in recent years, a 1991 newspaper report, summarized in the Nepal Press Digest, revealed that 80 percent of the posts in the civil service, the army, and the police still were held by the Brahmans and Chhetris of the hills, who comprised less than 50 percent of the population; 13 percent were held by Kathmandu Valley Newars, whose share of the total population was merely 3 percent. The report added that even in 1991, the eleven-member Council of Ministers in 1991 had six Brahmans and three Newars. Furthermore, six of the nine-member Constitution Recommendation Commission, which drafted the new constitution in 1990, were hill Brahmans. In spite of the increasing number of Newars holding government jobs, they traditionally were recognized as a commercial merchant and handicraft class. It was no exaggeration that they historically have been the prime agents of Nepalese culture and art. A significant number of them also were engaged in farming. In that sense, they can be described as agro-commercialists.

Most of the Tibeto-Nepalese groups traditionally could be considered agro-pastoralists. Because their physical environment offered only limited land and agricultural possibilities, the Tibeto-Nepalese groups who occupied the high mountainous areas, such as the Bhote and particularly the Sherpa, were almost forced to rely more on herding and pastoral activities than on crop farming. They also participated in seasonal trading activity to supplement their income and food supply. However, those peoples inhabiting the medium and low hills south of the high mountains-- particularly the Gurung, Magar, Tamang, Rai, and Limbu groups-- depended on farming and herding in relatively equal amounts because their environment was relatively more suitable for agriculture. Among these groups, the Gurung, Magar, and Rai historically have supplied the bulk of the famous Gurkha contingents to the British and Indian armies, although their ranks have been augmented from the Thakuri and Chhetri castes of the Indo-Nepalese Paharis. The term Gurkha was derived from the name of the former principality of Gorkha, about seventy kilometers west of Kathmandu, and was not an ethnic designation.

The Caste System

One integral aspect of Nepalese society is the existence of the Hindu caste system, modeled after the ancient and orthodox Brahmanic system of the Indian plains. The caste system did not exist prior to the arrival of Indo-Aryans. Its establishment became the basis of the emergence of the feudalistic economic structure of Nepal: the high-caste Hindus began to appropriate lands-- particularly lowlands that were more easily accessible, more cultivatable, and more productive--including those belonging to the existing tribal people, and introduced the system of individual ownership. Even though the cultural and religious rigidity of the caste system slowly has been eroding, its introduction into Nepal was one of the most significant influences stemming from the migration of the Indo-Aryan people into the hills. The migrants from the north later were incorporated into the Hindu caste system, as defined by Indo-Aryan migrants, who quickly controlled the positions of power and authority. Tibetan migrants did not practice private ownership; their system was based on communal ownership.

No single, widely acceptable definition can be advanced for the caste system. Bishop and others, however, view caste as a multifaceted status hierarchy composed of all members of society, with each individual ranked within the broad, fourfold Hindu class (varna, or color) divisions, or within the fifth class of untouchables--outcastes and the socially polluted. The fourfold caste divisions are Brahman (priests and scholars), Kshatriya or Chhetri (rulers and warriors), Vaisya (or Vaisaya, merchants and traders), and Sudra (farmers, artisans, and laborers). These Pahari caste divisions based on the Hindu system are not strictly upheld by the Newars. They have their own caste hierarchy, which, they claim, is parallel in caste divisions to the Pahari Hindu system. In each system, each caste (jati) is ideally an endogamous group in which membership is both hereditary and permanent. The only way to change caste status is to undergo Sanskritization. Sanskritization can be achieved by migrating to a new area and by changing one's caste status and/or marrying across the caste line, which can lead to the upgrading or downgrading of caste, depending on the spouse's caste. However, given the rigidity of the caste system, intercaste marriage carries a social stigma, especially when it takes place between two castes at the extreme ends of the social spectrum.

As Bishop further asserts, at the core of the caste structure is a rank order of values bound up in concepts of ritual status, purity, and pollution. Furthermore, caste determines an individual's behavior, obligations, and expectations. All the social, economic, religious, legal, and political activities of a caste society are prescribed by sanctions that determine and limit access to land, position of political power, and command of human labor. Within such a constrictive system, wealth, political power, high rank, and privilege converge; hereditary occupational specialization is a common feature. Nevertheless, caste is functionally significant only when viewed in a regional or local context and at a particular time. The assumed correlation between the caste hierarchy and the socioeconomic class hierarchy does not always hold. Because of numerous institutional changes over the years and increased dilution (or expansion) of the caste hierarchy stemming from intercaste marriages, many poor high-caste and rich low-caste households could be found in the society in 1991.

Although Paharis, especially those in rural areas, were generally quite conscious of their caste status, the question of caste did not usually arise for Tibeto-Nepalese communities unless they were aware of the Hindu caste status arbitrarily assigned to them. Insofar as they accepted caste-based notions of social rank, the Tibeto-Nepalese tended not only to see themselves at a higher level than did the Hindu Pahari and Newar, but also differed as to ranking among themselves. Thus, it was doubtful that the reported Rai caste's assumption of rank superiority over the Magar and Gurung castes was accepted by the two latter groups. Moreover, the status of a particular group was apt to vary from place to place, depending on its relative demographic size, wealth, and local power.

Language

Even though Nepali (written in Devanagari script, the same as Sanskrit and Hindi) was the national language and was mentioned as the mother tongue by approximately 58 percent of the population, there were several other languages and dialects. Other languages included Maithili, Bhojpuri, Tharu, Tamang, Newari, and Abadhi. Non-Nepali languages and dialects rarely were spoken outside their ethnic enclaves. In order to estimate the numerical distribution of different ethnic groups, the census data indicating various mother tongues spoken in the country must be used.

In terms of linguistic roots, Nepali, Maithili, and Bhojpuri belonged to the Indo-European family; the mother tongues of the Tibeto-Nepalese groups, including Newari, belonged predominantly to the Tibeto-Burman family. The Pahari, whose mother tongue was Nepali, was the largest ethnic group. If the Maithili- and Bhojpuri-speaking populations of the Tarai were included, more than 75 percent of the population belonged to the Indo-Nepalese ethnic group. Only three other ethnic groups--the Tamang, the Tharu, and the Newar--approached or slightly exceeded the one-half million population mark. Most of those non-Nepali linguistic and ethnic population groups were closely knit by bonds of nationalism and cultural harmony, and they were concentrated in certain areas.