Nepal agriculture comes under pressure while industry runs below capacity
Nepal Rastra Bank says crop output has fallen, farm lending has weakened and average industrial capacity use remains at just 42.11%, underscoring persistent stress across the rural economy.
Nepal’s economy showed gradual improvement in the first half of the current fiscal year, but agriculture and industry remain under clear strain. That is the main message from the Economic Activity Study Report released by Nepal Rastra Bank in Kathmandu on June 15. The central bank projected overall economic growth of 3.85%, down from 4.33% a year earlier. In the country’s GDP structure, agriculture accounts for 24.5%, industry for 14%, and services for 62%.
The sharpest warning sign in the report is the decline in farm output. Production of food and other crops fell by 6.76% after increasing by 1.77% in the previous year. The report says key crops including rice and maize were affected. Vegetable and horticulture production did rise, but only by 1.02%, which was far too small to offset the broader deterioration in the sector. The bank linked the overall decline mainly to weather shocks and the effects of climate change.
Provincial data show that the pressure is widespread. Food crop production fell in every province except Karnali. Vegetable output increased in Madhesh, Bagmati and Lumbini, but declined elsewhere. Fruit production rose in Madhesh, Gandaki and Sudurpaschim while falling in Koshi, Bagmati, Lumbini and Karnali. The report also highlighted the uneven weight of provinces in staple production: Koshi accounts for 25.76% of the country’s total rice output, while Karnali contributes only 2.54%.
Credit data point to the same stress. Lending from banks and financial institutions to agriculture declined by 2.49% to Rs 333.11 billion. Livestock farming received the largest share of agricultural credit at Rs 6.64 billion, while tobacco received the smallest at Rs 16.89 million. Bagmati held 36.88% of all agricultural credit, followed by Madhesh with 18.30%, Koshi with 16.56%, Lumbini with 15.14%, Gandaki with 6.95%, Sudurpaschim with 4.70% and Karnali with 1.47%.
The report also lists province-specific bottlenecks. Koshi remains heavily subsistence-based and needs commercialization and productivity gains. Madhesh still faces problems with market access, storage, minimum support price enforcement, insurance, pest management, soil testing and mechanization. Bagmati must preserve indigenous seeds and strengthen pesticide testing of fruit and vegetables, while Gandaki needs better storage, processing, transport and market linkages. Lumbini, meanwhile, needs coordinated development of irrigation, roads, energy and agro-industrial systems.
Agriculture’s weakness is mirrored by industry. Average industrial capacity utilization stands at only 42.11% nationwide, and the report says no industry is operating at full capacity. In the first six months, 461 new industries were registered, including 363 in Bagmati and only four in Sudurpaschim. Those projects drew Rs 55.83 billion in proposed foreign investment and were expected to create 22,885 jobs. Among the relatively stronger segments, the report cited garments, textiles, hydropower, tyre and tube production, and noodles.