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apidly diminishing compara� ve and compe� � ve edges previously enjoyed
by Nepal over exportable items such as carpet, garment, handicra� s,
pashmina, and herbal products at regional and global markets.
As of recent sta� s� cs, share of exports in total trade structure is found to
be 14 percent, while imports cons� tute 86 percent. The share of trade with
India alone is as high as 67 percent and the extent of trade defi cit with India
is alarmingly widening. This is evident of increasing dependency with India
and other partners of development in the world. The economy witnessed,
for the fi rst � me a� er many years, a nega� ve balance of payments situa� on
un� l the last ten months of FY 2010/11 and that marginally increased to a
surplus of Rs. 2.93 billion at the end against the target of Rs. 9 billion in FY
2010/11. The magnitude of gross foreign exchange reserves downsized at
Rs. 270 billion in mid-June 2011 as compared to Rs. 271.7 billion in mid-
June 2009, which is suffi cient to sustain imports of merchandise goods and
services only for about 7.3 months (NRB, FY 2010/2011).
The growth rate of remi� ances sharply declined from 51 percent in
FY 2008/09 to 10.1 percent during FY 2010/11. Although it is extremely
diffi cult to be specifi c about the size of foreign employment and remi� ances
in Nepal, infl ow of remi� ances according to offi cial sta� s� cs marked Rs.
259.93 billion during FY 2010/11, which is es� mated to be 23 percent of
GDP (appendix 1). The crude and conserva� ve es� ma� on suggests that size
of foreign employment surpassed two million, spread over several leading
des� na� ons comprising Malaysia (33%), Gulf Countries (62.5%), and South
Korea, Hong Kong and other countries (4.5%) as of August 2010/11 (Dept.
of Foreign Employment, 2011). In addi� on, it is assumed that approximately
one million workers are employed par� cularly in blue color job in India.
The number of industries permi� ed for foreign investment � ll FY 2009/10
went up to 1,898 with a total project cost of Rs. 143 billion and a total fi xed
cost equal to Rs. 1,120 billion. The size of Foreign Direct Investment (FDI)
stagnated at Rs. 58 billion by mid-March 2010 genera� ng employment for
144,513 Nepalese ci� zens. The contribu� on of foreign exchange earnings
from tourism sector remarkably declined from 4.1 percent in 1994/95 to
2.4 percent of GDP during FY 2010/11 (Economic Survey, Vol. 2, July 2011).
In this context, on July 16, 2011 Asia-Pacifi c Exchange and Coopera� on
Founda� on (APECF) announced its ambi� ous plan to raise US$ 3 billion to
develop Lumbini as an interna� onal pilgrimage Center for Buddhists from all
over the world (APECF, 2011).
Although revenues are buoyant and revenue/GDP the ra� o is es� mated
to be 15.3 percent (appendix 1) with growing fi scal and budget defi cits,
eff orts towards internal revenue mobiliza� on are inadequate to eff ec� vely
supplement requirements for addi� onal capital expenditures. The structure
of taxa� on is massively dominated by indirect taxes (Dahal, 2009) comprising
VAT, Customs Du� es and Excise Du� es and its contribu� on is as high as 63
percent of total revenue, while the share of direct taxes especially income
tax leveled at 20 percent and the contribu� on of non-tax revenues marked
17 percent in FY 2010/11. Employing per capita income criterion tax burden
Changing paradigms of aid eff ec� veness in Nepal 23