Nepal’s Industrial Policy Over Micro, Cottage and Small Industries -An Overview


Hari Gopal Shrestha

1.0   Introduction

1.1 Background

It has been well recognized that poverty is closely linked to the levels of underemployment and unemployment in Nepal. Therefore, the strategy of reducing the poverty in the economic plans of the country should be focused on generating and improving self-employment through micro-enterprise development. The key to the economic development of Nepal lies with the development of such micro and small scale industries since the sector helps in employment and income generation in the local level making the population self-reliant. In such circumstances, there is a loud voice from the experts and public as well that the sector should be promoted, and it has to be a primary agenda of the state.
The Government should recognize the role played by micro, cottage and small industries (MCSI) in the rural and overall development of Nepal’s economy. The government should also be aware that the MCSI need government protection and incentives; and these all should be addressed through the Industrial Policy by introducing different measures and strategies that will help on its promotion and expansion.
The first industrial policy brought out in 1957 and subsequently replaced in several times. Despite the never-ending political uncertainty, something good happened in the economic policy front; a long-awaited industrial policy (IP) to buttress the domestic industrial sector was endorsed by the government in 2010. This new IP replaced the outdated, in the view of experts, IP of 1992.
The main objectives of the new IP are to promote industrial activity, increase employment generation, and boost per capita income. There are several measures and strategies in that policy regarding various types of industries, but main focus of this paper will be only on micro, cottage and small industries (MCSI).

1.2 History of industries in Nepal

Traditional industries mainly consisted of weaving of coarse clothes, pottery, household utensils, carving of Thangka, casting of god’s statue etc. Modern industries started in 1930s with saw mills, match factories, cotton and sugar mills, and jute industries. After few years of introduction of modern industries, there was formed Industrial promotion Board in 1936; and in same year, Company Act, and Nepal Patent Design and Trade Mark Act brought out.

1.3 Evolution of industrial policies

The first industrial policy brought out in 1957 and subsequently replaced in 1960, 1974, 1981, 1987, 1992 and lately in 2010. Till 1992, focus was on International Standard (IS), supported by high tariff wall and quota restrictions. There required Licenses to establish and expand the industries. Foreign investment allowed up to 50 percent in equity.  After the Industrial Policy-1992, a license is not required for establishment, expansion and modernization of industrial enterprises except those related with defense, public health and environment.
The Industrial Policy-1992 was based on the principle of bringing the private sector in the forefront of play for industrialization of the country through; privatization of the Public Enterprises (PEs), ensuring prevention from nationalization of the private industries, and promoting competitiveness and competition among the private industries for reducing the production cost. Government was supposed to make joint investment with the private sector in the areas where the private sector shy away and such ventures are essential for the country.
To reflect the changes the national and the world economies have gone through in the past two decades, Nepal desperately needed an updated industrial policy. And ultimately the government endorsed a long-awaited industrial policy (IP) to buttress the domestic industrial sector in 2010. This new IP replaced the outdated IP of 1992. Its Broad objective is to contribute to poverty eradication program through promotion of public and private sector partnership and broad based industrial growth.

2. Policy over Micro, Cottage and Small Industries (MCSI)

It is obvious that micro, cottage and small industries (MCSI) are playing important role in the rural and overall development of Nepal’s economy. It is seen that the government has been trying to address its needs, i.e. government protection and incentives, through the Industrial Policy by introducing different measures and strategies that will help promote and expand the micro, cottage and small industries.

2.1 The Industrial Policy-1992 over MCSI

In The Industrial Policy-1992, we can get some policies regarding Cottage and Small Industries. Under the policy of Industrial Support Service, it had forced to formulate Institutional Arrangement as well as Arrangement for Finance for Cottage and Small Industries. An Institutional Arrangement policy was to provide facilities for the well skill development training, management training, technical and consultancy services, machines and equipments, raw materials and marketing network for the products in an integrated way for the cottage and small scale industries which are based on local raw-materials, labour and the traditions. Likely, The policy of Arrangement for Finance for small and cottage Industries was regarded for providing loan for fixed and working capital for the small and cottage industries.

2.2 The Industrial Policy-2010 over MCSI

In the Industrial Policy- 2010, we can get separate and special policies and strategies regarding the micro, cottage and small industries. It has also clearly defined such type of industries with certain criteria. Micro, cottage, small, medium and large are five types of industries that are categorized in the policy-2010 on the basis of investment and nature of the industries.

2.2.1 Types of Industries

2.2.1.1 Micro Enterprises

For the Industrial Policy- 2010, Micro Enterprises should fulfill following criteria:
  • Maximum capital investment of ¿2, 00,000 excluding land and building.
  • Self involvement of Proprietor in the enterprises.
  • Employees including Proprietor should not be more than 9.
  • Should have yearly transaction less than ¿20, 00,000.
  •  If there is used motorized machine, it should not be having power more than 10 KW.
(Clearance: Despite fulfilling above criteria the industries which should have taken permission; i.e. the industries of alcoholic and cigarettes are not considered as small enterprises. Similarly, once registered as small enterprises but, if it got promotion to next category that will not remain as small enterprises.)

2.2.1.2 Traditional and Other Cottage Industries

The industries, as listed below, which use the traditional techniques and technology, and local materials and technology based equipment, those industries related with national art and culture, and using up to 10 KW of electric power are considered as Traditional and Other Cottage Industries.
  1. Hand loom, peddle loom, Semi automatic loom, Clothe warping, and traditional technology based colouring, printing, and tailoring (Excluding readymade clothes). 
  2. Woolen and silk based handmade carpet, clothes etc. 
  3. Handmade paper and its products. 
  4. Filigree and Ornamental Items based on Traditional Crafts. 
  5. Traditional sculpture carving. 
  6. Handmade metal (Cupper, Brass, Bronze and German silver) utensils and curio goods. 
  7. Handmade iron utensils and domestic used knife like other instruments. 
  8. Handmade golden and silver jewelries and utensils. 
  9. Cutting industry for valuable, semi valuable and normal stone that is available within national boundary. 
  10. Jute like natural thread based industries. 
  11.  Stone sculpture industries. 
  12. Thanka, Paubha and other traditional paintings. 
  13. Mask and dolls which show traditional culture. 
  14. Traditional handmade musical instruments. 
  15.  Decorative items made from wood, bone, horn and other minerals. 
  16. Ceramic and other clay pots.

2.2.1.3 Small Scale Industries

Except above two; i.e. Micro Enterprises and Traditional and Other Cottage Industries; all the industries which has capital investment less than ¿ 5,00,00,000 fall in small scale industries category.

2.2.2 Policy regarding Micro Enterprises, Cottage and Small Industries

In the Industrial Policy-2010, there are specially introduced policies regarding Micro Enterprises, Cottage and Small Industries. These have been explained in 10 points as follows:
  1.  For strengthening Micro Enterprises, Cottage and Small industries; institutional structure and infrastructures will be developed with formation of required law.
  2.  For linking and expanding the market with improvement of competitive ability of Micro Enterprises, Cottage and Small industries, the service of Micro Enterprises, Cottage and Small industries development fund will be made more effective through the expansion of such services.
  3. On the basis of availability of natural and human resources, and opportunity of investment in the district; district enterprises and industrial development program will be prepared with the coordination with District Development Committee, Municipality and Village Development Committee and with the cooperation with them programs will be implemented step by step.
  4. On the establishment and promotion of Micro Enterprises, Cottage and Small industries; special priority will be given to the government defined targeted group; and on the basis of possibility of resources and market demand, the industries having high potential will be selected and conduction ability will be improved through the awareness and industrial development training to them.
  5.  To provide Business Development Service (BDS) to the productive industries of rural area, Industrial Clusters will be developed by establishing community or cooperative based Micro Enterprises, Cottage and Small industries.
  6. On the concept of One Village One Product, the resource having most potential will be found and such resource based industrial products will be promoted through establishment of Product Development Centers; and also industrial promotion will be on high priority through Product Specific Industrial Clusters.
  7. To establish MCSI village, the local government will get subsidies as per proportion to expenditure on industrial infrastructure development.
  8. Promotion of the MCSI will be done with their identity through Collective Mark.
  9. For the protection of intellectual property in MCSI, it will be protected and proper utilized through management of unified and qualified institution.
  10.  For achieving good product and their marketing, there will be special management of Information and Technology.

2.2.3 Strategies regarding Micro Enterprises, Cottage and Small Industries

Like as policies, there are also specially introduced strategies for implementation those policies regarding Micro Enterprises, Cottage and Small Industries. These have been explained in 25 points; and among them some important points are as follows:
  1. On the conduction of programs regarding promotion, development and expansion of MCSI, targeted location and group will be recognized on the basis of prioritization through social mobilization.
  2. Management of provision of Unified Business Development Service for helping on skill development training, selection of technology, product management, accessibility to the capital, and marketing by grouping micro and cottage entrepreneurs as far possible.
  3.  MCSI entrepreneurs will be encouraged to be competitive.
  4. Loan through MCSI Development Fund, Equity Fund, Credit Guarantee Fund.
  5.  Helping on marketing through using Collective Mark for the production from Community or Cooperative MCSI village.
  6. One Village One Product program will be conduct as an exploration.
  7. For making required capital, MCSI Entrepreneurs will be encouraged to make some savings by involving cooperatives.
  8.  For better development of MCSI, technical consultant and inspection service will be provided through their representative institution; and for that they will be encouraged to develop such institutions.
  9.  MCSIs will be developed as Ancillary Industries through Backward and Forward linkages with Large and Medium scale industries.
  10. Information Technology Hub will be established with the involvement of cooperatives as well as private sectors.
  11. Private sectors will be encouraged to initiate institutions likely Business Development Service Provider-BDSP.
  12.  Through Business Incubation Service, brilliant and creative youth and women will be attracted towards MCSI.
  13. Employment will be generated through the provision of Angel Fund and Venture Capital Fund to those entrepreneurs who achieved the Business Incubation Service.
  14. MCSI Village and Product Development Centers will be established.
  15. Easy loan on group for Women entrepreneurs will be managed through Bank and Cooperatives.

2.2.4 Permission

No need of any permission for establishing, expanding and modernizing the industries except those that expose negative impact on security, public health and environment as well.

2.2.5 Registration

 Micro, Cottage and Small Industries (MCSI) must inform to local government office with short description within one month of operation; and such offices should record them.

2.2.6 Special Administrative management to MCSI

  1. Micro, Cottage and Small Industries (MCSI) must inform to municipality or VDC with short description within one month of operation. If Entrepreneur wants, it should be registered with required fees; and local body should inform such registered monthly report to the MCSI development committee office in District. 
  2. The industries that need not get any permission should be registered within 15 days if there is application for registration with required documents. If registration is not possible due to any cause, it should be informed within 3 days.
  3.  Registration and renew of the MCSIs except those which require permission will be done by MCSI Development committee office in the district.
  4. For the purpose of Environmental management, Micro and Traditional Cottage industries need submit only information regarding water source, sewer and solid waste; but in the case of small industry, Initial Environmental Examination should be done as far possible.
  5.  In the case of hilly districts, the rule of being 1 Km far from forest boundary will be revised and on the basis of that industries will be registered.

2.2.7 Facility and Incentives

  • Cottage and Small industries can produce supplementary objects for Large and middle scale industries. If such production is used by Large and middle scale industries, they will get 50% discount on their profit.
  • To establish MCSIs in highly underdeveloped area, there will be given incentives as seed capital.

3. Conclusion

The main objectives of the new IP are to promote industrial activity, increase employment generation, and boost per capita income. The government hopes to increase contribution of the industrial sector to the economy and expects a reduction in poverty. Though the new IP has numerous progressive and encouraging policy agendas, it is also riddled with loopholes and inconsistencies. Some experts have commented that it looks like a typical government document formulated without adequate consultation with associated parties and without prior appraisal by independent agencies.
The experts had further added their remarks that the proposed “one-village-one-product” strategy seems nonsense, politically-charged and populist policy. In their view, it is a catchy slogan which basically means one village specializing in one product. This discounts the possibility of creating synergies among production processes and techniques, i.e. very little possibility for economies of scale and harmonization of products and production structure. They have made also some questions. How are we going to decide a product each village will specialize in? Similarly, will there be enough resources, financial and human capital, to bring about such specialization? This kind of open-ended and wooly strategy dilutes the very purpose of having a well-directed, specific and incentive-enhancing IP.
However, despite having some remarkable points, there are more and more good policies and strategies in the Industrial Policy-2010 that is very essential for promotion and development of MCSIs in Nepal. Now, the question is that whether it will be applied in field or remains as a paper document. It is almost 3 years of release of this new IP, but there is still lack of formation of required Act and regulations to implement that policy. The main targeted goal of poverty reduction will be achieved only if the policies can be implemented in the real field, otherwise these all are meaningless.

4. Bibliography


  • ILO (2005); A Report on Micro and Small Enterprise Policy Review in Nepal, series 7: International Labour Office Prepared for HMG Nepal under the SPPD funded by UNDP
  •   Ministry of Industry, Government of Nepal (1992); Industrial Policy 1992 (2049 BS)
  •  Ministry of Industry, Government of Nepal (2010); Industrial Policy 2010 (2065 BS)
  •  Ojha, Purushottam (2011); Industrial Policy at Crossroad: A Nepalese Perspective; - A seminar paper for the program: - Towards A Return of Industrial Policy? Artnet Symposium 25-26 July 2011 Escap, Bangkok
  • Sapkota, Chandan (2010); Nepal’s Industrial Policy 2010: Good but inadequate reform;- published in Chandan Sapkota's blog
  • The Himalayan Times (2010-04-22 & 2010-05-16)

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