Kathmandu, August 14 :

Industrial sector in Nepal, once acknowledged as one of the strongest economic sectors of the national economy, now stands on precarious ground.

Industrial sector, which is basically dominated by the manufacturing sector, has registered only about two per cent growth in fiscal year 2005-06 as per government’s latest statistics, says a source at the Central Bureau of Statistics (CBS), a government-owned undertaking under the National Planning Commission (NP-C). The dismal growth rate for over three years is attributed to bad business environment, increased conflict coupled with a weak industrialisation process.

As per recent data of CBS, prepared for the third quarter of 2005-06, overall manufacturing sector’s production index has gone down by 2.29 per cent. Garment units were hit hard in recent imes due to deteriorating business climate and conflict that has registered a decline by over 18 per cent.

Production of vegetable ghee has increased by over eight per cent in contrast to a fall of more than four per cent in mustard oil. CBS has prepared production performance in various sectors. There are about 3,000 small, medium and big manufacturing units in the country.

Industrialist Pradeep K Shrestha and chairman of Panchakanya Group of Industries feels sad over the deteriorating growth in industrial sector, despite the adoption of liberalised economic policies.

“The industrial sector is having a bad time as enterprises are not being operated on a regular basis for years and, import of raw materials from other countries has increased production cost,” he adds.

Nepal had great opportunities after signing the Trade Treaty in 1996 with India to boost the industrialisation process. However, that opportunity could not be properly utilised. After signing another trade treaty in 2002, Nepal has performed badly on the foreign trade front, thanks to its own inefficiency in exploiting business potentials that has increased trade deficit with India alarmingly.

Dr Rudra Suwal, economist at CBS, says that the performance of the manufacturing sector in recent years has been stagnant due to weak business environment and deteriorating capacity of enterprises.

He worries over the fact that the contribution of manufacturing sector to GDP has declined from an earlier 10 per cent to only seven per cent currently. Local products’ market is also being displaced due to high production cost and increased inflow of foreign goods, Dr Suwal commented. As per the recent survey for third quarter performance of manufacturing sector for the fiscal year 2005-06, producers’ price index has increased by 4.25 per cent.

Pradeep K Shrestha, the former president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), draws attention to the price rise in manufactured goods due to import of raw materials from other countries.

Other reasons for the high price of domestic products is attributed to disturbance in production units across the country, devaluation of Nepali currency vis-a-vis US dollar and increased cost of transportation, says Shrestha.

Dr Suwal is worried about the closure of domestic industries, such as garment units in recent times that have also contributed to reducing manufacturing sector’s contribution to the country’s GDP.