CHAPTER II

PLAN OUTLAY & ITS ALLOCATION

Review of the Third Plan:

The Third Plan attempted to increase the Gross Domestic Product by 19 per cent. The Plan
envisaged an outlay of Rs. 2,500 million, of which Rs. 1,740 million was the public sector share,
with the panchayat sector and the private sector share receiving Rs. 240 million and Rs. 520
million respectively. After including the Government Grants-in-Aid to Panchayat of Rs. 40 million
and equity investment in public sector of Rs. 20 million, the public sector outlay for the Plan period
would come to Rs. 1,800 million. In addition, the Plan also envisaged the provision of Rs. 150
million of credit to the private sector through financial institutions in the public sector.

Compared to the above investment target, it is estimated that the actual development
expenditure in the public sector during the Plan period would be Rs.1,780 million .This figure is
based on the actual expenditure in the first three years of the Plan period , the revised estimate of
1968-69 and the original budget estimate of 1969-70 . With regard to investment in the panchayat
and private sectors, no information is available. The details of public sector expenditures are given
in Table 1.

Although the above expenditure were incorporated into the development budget, they also
include regular expenditures. It is, therefore, necessary to ascertain the amount of ‘actual’
development expenditure incurred during the Plan period .In accordance with the newly adopted
classification system (of regular and development expenditure) followed by the Ministry of
Finance on the advice of the National Planning Commission, the actual development expenditure
for the Third Plan period will be only Rs. 1,420 million. This estimate is based mainly upon the
analysis of the budget for the year 1968-69. The development expenditure under the traditional
and new classification is indicated in Table 2.
 TABLE 1
PUBLIC SECTOR EXPENDITURE DURING THE THIRD PLAN
(Rs. in Thousand)
1965-66 1966-67 1967-68 1968-69 1969- Total
70
Sectors Plan Est. Actual Est. Actual Est. Actual Est. Revis. Est. Est. Actual
Target
1. Transport,
Communication &
Power 875000 130678 117027 152851 116839 147371 128056 173036 186879 324504 928040 873305
2. Agriculture &
Rural
Development 377500 63883 56966 104755 74362 98561 70665 101144 67061 128658 497028 397739
3. Industry 125000 21326 21726 18759 17507 20333 13628 16493 13149 20579 97490 86589
4. Social Services
5. Miscellaneous 292500 50058 44910 50629 43730 50237 38396 56152 44872 67119 279186 239027
6. Unallocable 70000 37809 22325 49487 19866 11584 17719 58150 49019 59276 236666 168205
- 100 100 500 500 1100 1100 53400 500 7500 62600 14200
Total 1740000 308854 263054 376932 272804 349186 269564 458375 365980 607663 2101010 1779065
 TABLE 2
DEVELOPMENT EXPENDITURE UNDER THIRD PLAN
(Rs. In million )
Fiscal year Under traditional Under new
Classification classification
1965-66 263 230
1966-67 273 217
1967-68 270 225
1968-69 366 300
1969-70 608 450
Total 1,780 1,424

The above table reveals that during the Third Plan period development expenditure in the
public sector, under the new classification, is Rs. 360 million less than development expenditure under
the prevailing system. When the increase in national output is compared to the expenditure, it becomes
necessary to determine the volume of the actual capital investment out of such increase. Since the
recurring expenditures shall be included in development outlays under the new classification, it is clear
that the volume of capital investment shall be reduced by less than 1,420 million.
The estimation of expenditure during the Fourth Plan period is based on the new classification
of the development expenditure. Accordingly, provisions for preparing the development and regular
budgets (according to the new classification) shall be made. The details of this are shown in Annex 2.

Priority of the Fourth Plan:

In conformity with the objectives and policies of the Fourth Plan, priority has been given to the
continuing projects, which were started during the Third Plan period or to those projects related to
foreign aid. With the objectives of producing more within a short period of time and the creation of the
infrastructure for accelerating the process of economic development in the future, priority has been
given to the development of basic sectors like transport and communications during the Fourth Plan
period. The lack of transport and communications has become the main deterrent to accelerating the
process of economic development. No large scale development in the agricultural and industrial sectors
is possible without adequate communications facilities. Therefore, as some new projects essential for
regional development have to be planned along with the uncompleted projects started during the Third
Plan period, the greater portion of expenditure in the public sector has been envisaged for the
development of transport and communications facilities.
More than 93 per cent of the manpower in Nepal is engaged in agriculture. Agricultural
development is, therefore, very important and the improvement of the standard of living of the majority
of the people is possible only by increasing agricultural production. Increased food production is
essential for accelerating the speed of development and to eliminate the deterrents to development.
Agricultural products also provide the raw materials required for various industries. In view of these
factors the agricultural development programme has occupied an important place in the Plan.
In order of priority, industry is third after transport and agriculture. Although the main
responsibility for developing industries falls upon private sector, His Majesty’s Government may involve
itself when the private sector is unable to develop certain basic industries. During the Fourth Plan
period, firm reform measures will be undertaken for the reinforcement of industries that have already
been established in the public sector.
Although it is desirable to expand such services as education, health etc., the improvement and
strengthening of existing facilities, rather than expansion of them, has been considered more
appropriate during the Plan period because of increasing expenditures in this sector.
Expenditure Required for the Fourth Plan:

With regard to the above mentioned priorities and the fulfillment of the objectives and programs
of the various sectors, the total expenditure planned is Rs. 3,540 million. The estimated breakdown by
sectors is as follows:
Rs. 2,550 million in public sector,
Rs. 120 million in panchayat sector and
Rs. 870 million in private sector.

Out of the Rs. 3,540 million, 2,930 million shall be in the form of capital investment. This could
be further divided according to sectors, as Rs. 2,250 million in the public sector; 120 million in the
panchayat sector and Rs. 650 million in the private sector.

TABLE 3
BREAKDOWN OF EXPENDITURE IN THE FOURTH PLAN
(Rs. In million)
Public Sector Panchayat Sector Private Sector Total
Sectors Amount Per cent Amoun Per cent Amount Per cent Amount Per cent
t
1. Transport &
Communications 1050.0 41.0 52.0 43.3 150.0 17.3 1252.0 35.4
2. Agriculture,
Land Reform,
Irrigation, Forest
& Botany 662.8 26.0 39.0 32.5 470.0 54.0 1171.8 33.0
3. Industry,
Commerce,
Power & Mining 470.0 18.5 - - 250.0 28.7 720.0 20.3
4. Panchayat,
Education,
Health & Social 352.5 13.8 29.0 24.2 - - 381.5 10.8
Services 14.7 0.6 - - - - 14.7 0.4
5. Statistics
Total 2,550.0 100.0 120.0 100.0 870.0 100.0 3,540.0 100.0

Expenditure in Public Sector:

Out of the total expenditure of the Fourth Plan, the estimated expenditure envisaged for the
public sector is Rs. 2,550 million. Also, His Majesty’s Government will make available Rs. 20 million as
a development grant for the panchayat sector. Thus His Majesty’s government will allocate Rs. 2,570
million for the development budget of the Fourth Plan.
Considering the objectives and the amount allocated in the public sector, the average annual
expenditure comes to be 500 million of rupees. It shows a significant increase when compared with the
annual expenditure of Rs. 290 million during the Third Plan period under the new classification of
development expenditure. The estimated expenditure for FY 1970-71 is Rs. 450 million. Besides, if the
proposed reforms in the administrative machinery materialize thereby making it more organized and
systematic, the chances of successfully implementing the increasing numbe r of projects will improve. A
detailed statement of the resources available, from both domestic and external sources, to meet the
specified expenses in the public sector has been given in the chapter dealing with ‘Financial
Resources’.

Expenditure in Panchayat Sector:

Panchayats of various levels shall play a significant role in the planned development of the
country. Since no estimates have yet been made of the availability of local resources in the panchayat
sector or the required amounts to be provided as grant from the center, and since no evaluation of work
done in this sector has been made, an analysis based upon available data and facts, has been presented.
This should help formulate a guideline for the panchayat sector. Accordingly, the total amount
(including the development grant and the village and district resources) is Rs. 21.9 million in FY 1966-
67 and Rs. 30.3 million in 1967-68. Local resources alone amounted to Rs. 17.0 million in 1966-67 and
Rs. 26.2 million in 1967-68. If the resources utilized by the village panchayats in the local development
projects implemented by local resources alone is considered, the actual amounts seem to be higher.
In order to make the panchayat sector better organized, effective and dynamic, provisions have
been made to increase the current amount of central development grants and to provide these grants in
definite proportion to particular local projects. Intending to utilize more local resources as a result of
such provision, the capital investment in the panchayat sector during the Plan period is estimated to be
Rs. 100 million. This amount will be utilized mainly for the construction of minor irrigation, light
transport, drinking water, drainage, school, library and other facilities. During the Plan period, His
Majesty’s
Government will provide development grants of Rs. 20 million to the village panchayats through district
panchayats.

Expenditure in Private Sector:

Estimated expenditure in the private sector is Rs. 870 million of which capital investment will be
Rs. 650 million. The Agricultural Development Bank and the Compulsory Savings Corporation shall
make available Rs. 475 million as agricultural loans in the private sector. This estimate of the volume of
loans is based on the loans issued during the past years and on the cost of agricultural implements
required for achieving the targets for agricultural development in the Fourth Plan. Out of the funds
available from these corporations, Rs. 280 million shall be spent on seeds, fertilizers, insecticides and
other recurring expenditures. Therefore, funds amounting to only Rs.250 million have been allocated for
actual capital investment. No estimate has been made regarding the development expenditure to be met
by the private sector from its own resources, although it will obviously exceed the amount state above.
It is estimated that Rs. 250 million will be invested by the private sector in industry. Nepal
Industrial Development Corporation shall make available Rs. 120 million to lend to the private sector. It
is assumed that private sector will not only be encouraged but also be able to mobilize and invest its
own capital, thereby reaching the figure envisaged for total private sector investment. In view of
investment made and experience gained in preceeding years, it is also estimated that private sector
investment in transport facilities during the Plan period will amount to Rs. 150 million.
 TABLE 4
ALLOCATION OF EXPENDITURE IN PUBLIC SECTOR

Rs. In Thousand
1. Transport and Communication
1,05,00,000
Roads and Bridge 81,31,00
Civil Aviation 16,10,00
Telecommunications 3,67,50
Postal Services 32,50
Nepal Engineering Institute 2,33,00
Nepal Transport Corporation 26,00
Royal Nepal Airlines Corporation 1,00,00 1

2. Agriculture, Land Reform, Irrigation,

Foresty and Botany 66,28,00
Agri. Loan, marketing of Implements and
Agriculture 18,69,00
Procedures 4,61,00 2
Survey, Land Reforms & Land Admin. 9,01,00
Forestry and Botany 8,08,00
Irrigation 25,89,00

3. Industry, Commerce and Electricity 47,00,00

Industry 10,85,00 3
Cottage Industry 2,27,00
Tourism 50,00
Geological Survey and Mines 7,45,00
Electricity 22,53,00
Hydrology and Meteorology 2,40,00
Commerce 1,00,00

4. Panchayat, Education, health and

other Social Services 37,25,00
Panchayat 4,10,84 4
Education 11,97,52
Health 15,12,36
Drinking Water 3,72,60
Housing 1,28,00
Administrative Reform 25,97
Information and Broadcasting 77,71

5. Statistics 1,47,00

Grand Total 2,57,00,00

1) Share Capital.
2) Includes Rs.10 million needed to increase the share capital of Agricultural Development Bank.
3) Includes Rs.10 million needed to increase the share capital of NIDC.
4) Includes development grant of Rs. 20 million to the panchayat sector.