Kathmandu, December 12

Owing to the devastating earthquake and subsequent supply line disruptions due to border blockade, manufacturing units operated below half of their capacity in the last fiscal.

According to the latest report of Nepal Rastra Bank (NRB), manufacturing units operated at merely 48 per cent of their capacity on an average, against 52 per cent in the fiscal 2014-15. The disruptions in supply lines from neighbouring India that prolonged for around four-and-a-half months from fourth week of September last year to February 6 this year and impacts of earthquake caused decline in capacity utilisation of manufacturing plants in the last fiscal.

“The fall in capacity utilisation was largely triggered by lack of raw material, rampant power outage, fuel crisis and high transportation cost to ferry goods due to protest in the country in the last fiscal,” said Nara Bahadur Thapa, executive director at the Research Department of NRB, “Particularly in the last fiscal, lack of raw materials and fuel crisis dealt a severe blow to the manufacturing sector, which was already struggling due to irregular power supply, labour unrest and other hassles.”

The low capacity utilisation rate implies that most of the industries in the country are not making maximum use of their plants, thus, lowering production of goods. As a result, contribution of the manufacturing sector to the economy remained weak in the last fiscal, similar to other sectors that were adversely affected due to the blockade. Growth of the manufacturing sector declined by around 10 per cent in fiscal 2015-16 as compared to the previous fiscal due to under capacity utilisation of the manufacturing units.

Owing to various hassles to run industries in the country like irregular power supply, labour unrest, among others, the contribution of manufacturing sector to the gross domestic product has been declining over the years. Manufacturing sector’s contribution in the economy stood at 5.53 per cent in fiscal 2015-16 from as high as 9.03 per cent in fiscal year 2000-01.

According to Thapa, who is also the executive director of NRB, average capacity utilisation of the manufacturing plants is expected to go up in the current fiscal as supply of power even in dry season is regular compared to last fiscal and as substantial flow of credit to manufacturing sector is likely to boost production.

The NRB report titled ‘Economic Activities Study Report’ had surveyed the performance of various industries manufacturing goods ranging from cement, steel, bricks, pashmina, readymade garments, paper, soap, noodles, sugar, biscuits, processed tea, cooking oil, animal feeds, alcohol and cigarettes. The study was conducted in 47 districts, including the three in Kathmandu Valley, Biratnagar, Janakpur, Birgunj, Pokhara, Siddharthanagar, Nepalgunj, Dhangadi, among others.

The central bank has been publishing the report twice a year — on half-yearly and annual basis.