Economic Environment

• all the economics surrounding that influence business

• it affects the business decision relating to the resources
allocation, cost, profit & expenditure
• Important component of economic environment of
business in Nepal consist of economic structure,
economic reforms and economic Policies
• Structure of any countries economy determined by size
of its population, income level, natural resources,
agricultural and manufacturing activities, Openness of
economy, the degree of urbanization etc
 Economic Dimensions of Economy
• The Dimensions or the factors constituting the business environment
include political, social, technological, legal and economic factors which
are considered important for taking decisions and for improving the
operations of a firm.
• Dimensions of an economy refers to the facets of economy of a country.
• Dimensions of an economy reflect the economic development of a
country
• part of general environment which influences the performance of many
firms at the same time.
• Economic Dimension consists of factors like inflation rates, interest
rates, consumers’ incomes, economic policies, market conditions etc.
which affect the performance of a business firm.
• Economic Dimensions of an Economy may be analyzed
through four facets or dimensions
• Economic dimension: GNP per-capita income, personal consumption and
expenditure, personal ownership of good, inflation rate, private investment,
poverty situation and level of employment, budget position, fiscal and monetary
policies
• Socio economic dimension: indicate quality of people and demographic
composition of a country, migration of population.
• The industrial and agricultural dimension indicate the agricultural and industrial
base of the economy.
• The economic development dimension indicates economic development plan,
policies, strategies etc.
 Economic dimension
• It indicates the economic performance of a country
• It is major external economic performance through balance of
payment, statement exchange rates
• internal economic performance through aggregate result in terms of
output, price and employment
• It indicates the supply side performance and demand side performance
• It indicates important economic variables
• GNP per-capita income, personal consumption and expenditure,
personal ownership of good, inflation rate, private investment, poverty
situation and level of employment, budget position, fiscal and
monetary policies
• Following are the main aspects of Economic dimension:
• (i) The role of public and private sectors in the existing structure of the
economy.
• (ii) The rate of increase in GNP and per capita income both at current and
constant prices.
• (iii) Amount of exports and imports of different products.
• (iv) Increase in transportation and communication facilities.
• (v) Trends in agricultural and industrial production.
• (vi) Amount of savings and investments.
• (vii) Internal as well as external public debts.
• (viii) Nature of money supply in the economy.
• (ix) Planned outlay in private and public sector.
• (x) Balance of payments and changes in foreign exchange reserves.
 Analysis of economic dimension and its impact on
business
GDP:
 The monetary value of all goods and services produced within a nation
over a specified period of time.
Indicator used to measure performance of country’s economy
used to measure the size and growth of economy.
 important component of the overall health of economy
Increasing GDP rates helps in creating attractive market and attract the
business people and investors to expand their business.
 GDP of Nepal in FY 2018/2019 was Rs. 3007.3 Arab( $27 billion) acc.to
15th plan
GDP Per capita income
• It is the average income of the people of a country in a particular year
• It is country’s economic out put per person
• It is the national income divided by the total population of the country
• Nepal's per capita income is one of the lowest in the world.
• Second lowest in south Asia after Afghanistan.
• Nepal’s per capita income can be used as an indicator of general level of income,
demand and poverty of its people
• per capita income indicate the wealth of people in a country and estimate the
business activities within the country .
• more business activities get expand along with increase in the wealth and
purchasing power of people.
• Nepal’s GDP per capita income during FY 2018/2019 was $1004( Rs.115460)acc.
To 15th plan.
• Interest Rates:
Changes in the interest rates greatly affect the demand for goods
and services. For example, low long term rates on home loans are
beneficial for banks and consumers both.
• Consumer Income:
Increase in the incomes of the consumers leads to increase in their
purchasing power. Hence, demand for goods and services rises.
•  Inflation Rate:
High inflation rate increases the cost of production and hence puts
constraints on firms. Inflation can cause adverse effect on the
economy. Inflation also affect the new investment planning of
investor. Inflation rate is currently at 4.5 percent in FY 2075/76.
• Taxes:
Taxes are financial charges or levy imposed. taxes have important impact on
business. Business firm act as tax collectors and interested in lowering the tax
burden.
• Monetary policies:
It is the process by which the central bank of country controls the supply of money,
availabilities of money or rate of interest in order to attained the growth and
stabilities of economy .
• Fiscal policies:
Determines country’s economic direction. It is related to levels of taxation and
public expenditure.
• Saving, debt and credit availability
consumer saving put positively contribute to debt and credit availability. The
commercial bank could be in position to loan out money to business man and
entrepreneur
• Income distributions
A business firm interest in knowing the pattern of income
distribution to estimate the demand for given commodity as a
better purchasing power depends upon the income level.
• Poverty situation: (18.7 percent) at the end of the 14th plan.
• Foreign exchange rates: the rate between two currencies at
which one is exchanged for another.
• BOP:
• The international debt crises:
• Business cycle: fluctuation in aggregate economic activities(output,
employment, demand etc) four phases: depression, recovery, prosperity and
recession.
 Socio economic dimension/ Basic social
and economic indicators for Nepal
• Population
Most general indicator of potential market size.
Can provide basis for estimating consumption.
Acc. To census 2068 population of Nepal was 26494504.
Population growth rate 1.35%
• Population density and regional distribution
Densely populated areas tend to make product distribution less
costly
Density of population 180/Sq.km.(acc.to 2068 census)
Himalayan region 6.73%, Hilly region 43%, Terai region 50.27%
• Age and sex structure
It may help to identify the groups and target consumers
Age groups(years) Population %

0-14 92,49232 34.91

15-59 1,50,91,269 56.96

60 - + 21,54,003 8.13

% of Male population is 48.50 and % of female population is

51.50.
• Labour force composition
Labour force is most important input in the production process
Labour force composition provides information of quality and quantity
of people available
It creates impact on country’s ability to produce
It provides data of labour force available in a country
Help business firms in formulating human resource strategies and
marketing plans
It may include sector wise involvement, active and inactive population, women
labour force, labour force participation, self employed population etc
• Employment trends
People are giving up their traditional family occupation
Attraction of new occupation
Shrinking employment opportunities in rural areas
Economic transformation generating new employment
opportunities
Rise in literacy and educational level
Skilled and talented manpower produced
• Migration and foreign employment
Migration from rural to urban areas, from Himalayan and hilly to
terai region
More than 3 million people working out side the country
 The industrial dimension
• Condition of agro based industries
• Construction material producing industries
• Agricultural tools producing industries
• Export oriented industries
• Service sector industries
 An over view of the 15th economic Development
plan: Its objectives and strategies
• The era of planned development started in Nepal with the launching of first 5
year plan in 1956 A.D.
• Through 5 year plan government tries to develop the state and bring welfare in
the society .
• The government assumes the responsibility to fulfill the basic need of people by
uplifting the standard of living.
• the government determine the national goal and targets, set priorities adopts
polices and strategies and mobilizes scarce resources available from different
sources to meet the goal and targets .
• Nepalese 5 year plan have so far played imp role in bringing growth and
development within the country in different sectors .
• 5 year plan are the sources of economic data in Nepal. These plan provide very
useful information to business firms.
 15 th
5 year plan
• The 15th plan has significance of its own as it is the first periodic plan
being implemented by the federal government with a view to
materializing the much-touted slogan of Prosperous Nepal, Happy
Nepali. In fact, since it came to power in February 2018, the present
government led by Prime Minister K.P. Sharma Oli has accentuated
prosperity as its overarching goal.
• With a high and ambitious goal, National Planning Commission has
released the 15th 5-year plan to make Nepal a middle-income country
by 2030, qualifying for going beyond the LDC status.
• The country’s per capita income in current fiscal year will increase by
seven per cent to $1,074, which stood at $1,004 in the previous year.
• at the end of fiscal 2042-2043, per capita income will reach $12,100," 
• However, the economy can grow up to 10.1 per cent per annum in the
next five years based on different scenarios, as per the draft of the 15th
periodic plan.
• Similarly, the draft of the periodic plan envisions that the country’s
agriculture sector can witness an average growth of 5.6 per cent per
annum in the next five years
• while the industrial sector can witness average growth of 17.1 per cent
per annum.
• Likewise, the services sector is expected to witness 9.9 per cent growth
per annum in between fiscal years 2019-20 and 2023-24.
• Moreover, the government has plans to reduce the unemployment rate
by three percentage points, which at present stands at 11.4 per cent.
• Likewise, it has planned to reduce the multidimensional poverty index
by five percentage points, which at present stands at 18.7 per cent.
• Long Term Vision:
Promote Good Governance, Development, and Prosperity of
the country. The main motto of the current 15th 5-year
plan is “Prosperous Nepal, Happy Nepali” (” समृद्ध नेपाल, सुखी
नेपाली”).  To transform Nepal as a nation of happy, healthy,
educated, dignified and high quality living citizens with
equal opportunity, including prosperous, independent and
socialist-oriented economies.
• Goal:
To increase the economic growth rate to 10.5% and
eradicate absolute poverty (reduce to 0%) by 2100 B.S.
Major Highlights and Targets of 15th Periodic plan of Nepal
Current Targets
S.N Indicators Situation (2080/81 BS)

1 Economic growth rate 6.8% 10.3%

2 GNP Per Capita 1047 US$ 1595 US$
Population below the
3 18.7% 11%
poverty line
4 Gini Coefficient 0.31 0.29
5 Life expectancy at Birth 69.7 Years 72 Years
6 Unemployment rate 11.4% 6%
7 Roadways 6979 KM 15,000 KM
8 Railways 42 KM 200 KM
9 Family with access to electricity 90.7% 99%
10 People with access to drinking water 88% 99%
11 Internet users 55.4% 80%
12 Hydroelectricity generation 1020 MW 5000 MW
13 HDI 0.574 0.624
14 Happiness Index 4.7 5.1
National Objectives of 15th periodic plan of Nepal
a. To provide easily accessible, qualitative and modern infrastructure, productive employment generation, high
sustainable inclusive economic growth through poverty alleviation.
b. To provide qualitative health and a healthy environment, social justice, accountable social service and
quality of life.
c. To protect the national benefit of democracy, sovereignty and ensure socio-economic transformation for a
strong economic foundation.
Long Term National Objectives:
1. Accessible modern infrastructure and intensive connectivity.
2. Development and full utilization of human capital potentials.
3. High and sustainable production and productivity.
4. High and equitable national income.
5. Well-being and decent life.
6. Safe, civilized and just society.
7. Healthy and balanced environment.
8. Good governance, Comprehensive democracy, National unity, security, and dignity.
Strategies of 15th periodic plan of Nepal:
a. Facilitate accelerated, sustainable and employment-oriented economic growth.
b. Facilitating accessible and quality medical care and education.
c. Internal and non-industrial immobility and development of residence.
d. Increasing production and productivity.
e. Provide comprehensive, effective social security and safety.
f. Alleviating poverty and ensuring equality and justice-based society.
g. Conservation of natural resources and development of sustainability.
h. Strengthening of public service, provincial balancing, and integration of central
units.
i. Involvement of all tiers of government to achieve economic growth.
Priority Areas of 15th periodic plan of Nepal:

The following are the priority areas of this Plan:

(a) Development of hydroelectricity and different energies.
(b) Increase the profitability, expansion, and commercialization of the farming
segment.
(c) Development of the tourism, industry and business segments.
(d) Development of fundamental instruction and wellbeing, drinking water and
sanitation sectors.
(e) Promotion of good administration.
(f) Development of roadways and other physical foundations.
(g) Protection of natural resources and the environment.
 Questions:
1. Define economic environment. Why economic environment is considered as the most significant of all
the external forces?
2. Classify the different dimensions of an economy. What is the significance of each of these dimensions for
environmental analysis?
3. Explain the socio-economic dimension of an economy. What kind of information do you obtain from the
analysis of this dimension.
4. Why economic development plans are considered important dimension of a mixed economy?
5. State the important components of the economic dimension of an economy. In what ways does inflation
affect business decisions?
6. Discuss the basic goals of the 15th plan. Does the plan give any indication of economic development in
Nepal?
7. Choose a business firm and a product and estimate the market potential based on economic and socio-
economic dimensions.
8. Analyze the Indicators of economic environment along with their impact on business running.
9. Different economic dimensions of the economy do have strong impact on business environment. Explain
the statement with key economic indicators in the context of Nepalese business.
10. With the help of some key economic indicators briefly explain how it affects business in Nepal.
That’s All