Unit 5 Chapter 2 Industry: Class 10 Economics Notes | Unit 5 Chapter 2

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Unit 5: Economy of Nepal

Class 10 Economics

Unit 5 Chapter 2 Industry

For SEE Board Exam Preparation: Complete Theoretical Notes and Full Exercise Solutions

Welcome to the complete study guide on Unit 5 Chapter 2 Industry under Nepal’s Economy. This is Chapter 2 of Unit 5 for Class 10 Economics students in Nepal preparing for their SEE board exams.

Here you will find structured theoretical notes on the classification of industries, industrial policies, the present state, problems, and solutions of the industrial sector in Nepal, along with fully solved textbook exercises.

Explore our complete study list here: Class 10 Economics Notes.

1. Theoretical Notes

Introduction

Industry is classified under the Secondary Sector of production. It uses various types of raw materials, labour, and technology to produce goods and services. In other words, industry is the sector of the economy that transforms raw materials into new products. In this chapter, we will study the introduction, types, importance, current state, problems, and measures to solve the problems related to industry.

Industry ➔ Raw Materials, Labour, Technology ➔ Production of Goods

(A) Introduction to Industry

A group of organized institutions or establishments that produce similar types of goods and are located in a specific place is called an industry. It processes or transforms raw materials to produce consumer or capital goods, and makes those goods available for sale and distribution. In economics, the term ‘industry’ refers to a group of firms that use factors of production (such as land, capital, labour, and organization) to produce and sell and distribute goods.

The Industrial Policy 2067 considers the economic activity of providing goods and services with the objective of earning income by any individual, firm, or company as an industrial business. According to the Industrial Business Act 2076, “the term ‘industry’ means a unit that produces goods of various natures.”

Therefore, an industry is a commercial unit established with the objective of producing and distributing goods and services to earn income.

(B) Types of Industry

Before the Industrial Revolution, industry was confined to agriculture, handicrafts, and commercial production. After the Industrial Revolution, the use of machines and technology changed the character of industry. This made it necessary to classify industries. The classification of industries has been helpful in formulating economic plans and policies, making investment decisions, identifying employment opportunities, and understanding the sectoral contribution to international trade. The classification of industry is presented below based on fixed capital and the nature of goods and services:

(a) On the Basis of Fixed Capital

The Industrial Business Act 2076 has classified industries based on fixed capital as follows:

i. Micro Enterprises: An enterprise with fixed capital of up to a maximum of twenty lakh rupees (excluding land and buildings), in which the entrepreneur himself is involved in the operation and management, is called a micro enterprise. Such an enterprise has a maximum of nine workers including the entrepreneur. The annual turnover of the enterprise is less than one crore rupees. Energy consumption must be a maximum of 20 kilowatts or less.

ii. Cottage Industry: An industry based on traditional skills and technology is called a cottage industry. Such an industry is labour-intensive and based on local raw materials and local technology. Energy consumption must be a maximum of 50 kilowatts or less.

iii. Small Industry: Industries with fixed capital of up to fifteen crore rupees, other than micro enterprises and cottage industries, are small industries.

iv. Medium Industry: Industries with fixed capital of more than fifteen crore rupees and up to fifty crore rupees are medium industries.

v. Large Industry: Industries with fixed capital of more than fifty crore rupees are large industries.

(b) On the Basis of Nature of Goods and Services

Based on the nature of the goods and services produced, industries are classified as follows:

i. Energy-Based Industry: Industries engaged in the business of producing energy fall under this category.

ii. Production-Based Industry: Industries that produce goods by using, processing, or transforming raw materials, auxiliary raw materials, or semi-processed raw materials fall under this category.

iii. Agriculture and Forest Product Based Industry: Industries that produce any goods from raw materials based on agricultural or forest products, or those related to agricultural or forest products, fall under this category.

iv. Mining Industry: Industries that extract or process minerals to produce metallic or non-metallic mineral substances fall under this category.

v. Infrastructure Industry: Industries that build and operate physical infrastructure fall under this category.

vi. Tourism Industry: Industries related to tourism services fall under this category.

vii. Information Technology, Communication, and Information Dissemination Technology Based Industry: Industries that use technology for the collection, processing, and dissemination of information to provide information, communication, or information dissemination technology services fall under this category.

viii. Service-Based Industry: Industries that produce or provide services fall under this category.

(C) Importance of Industry

Industry is necessary for the economic development of any country. The development of industry, on one hand, increases employment opportunities and, on the other, meets the supply of required goods and services. It also indirectly supports the development of the agricultural sector. Industry plays an important role in reducing poverty in the country. The industrial sector plays a crucial role in transforming an import-dependent economy like Nepal’s into an export-oriented economy and reducing the trade deficit. Industry helps increase national income, build capital, and accelerate economic development. The importance of industry in the context of Nepal is presented as follows:

(a) Increase in Employment: The development of industry increases employment opportunities. According to the Economic Survey 2081/82, a total of approximately 19,500 people have found direct employment in 634 industries operating within 10 industrial zones operational until Falgun 2081 (February 2025). Employment opportunities can be further created by increasing investment in industry.

(b) Increase in Production: Industrialization increases the country’s production. The country’s raw materials and natural resources are properly utilized. This increases the country’s production, which also increases income. According to the Economic Survey 2081/82, the contribution of the industrial sector to the Gross Domestic Product is approximately 13 percent.

(c) Increase in Living Standards: Industrialization helps increase workers’ skills and thereby raise their incomes. When workers have a regular source of income, it becomes easier to manage quality education and healthcare for family members, which also helps improve their standard of living.

(d) Increase in Government Revenue: With the expansion of industry, revenue collected from excise duties and value added tax (VAT) increases. According to the Economic Survey 2081/82, revenue of nearly Rs. 20 billion is expected to be collected from industry. Similarly, foreign exchange reserves can also be increased by boosting exports through industrialization.

(e) Increase in Social Welfare: Industrial development increases government revenue, which is spent on the welfare of the people. From this, roads, hospitals, schools, buildings, and parks are constructed. When the infrastructure thus built is put to appropriate use by the people, social welfare increases.

(f) Increase in Investment: Industrialization increases people’s income. With an increase in income, the savings rate and investment also increase, which is essential for achieving a high economic growth rate. According to the Economic Survey 2081/82, until Falgun 2081, investment of approximately Rs. 56.52 billion from the Government of Nepal and Rs. 21 billion from the private sector, totalling Rs. 77.52 billion, has been made in 10 industrial zones.

(g) Development of Agriculture: Industrialization produces machinery and modern equipment needed for the agricultural sector, such as tractors, threshers, and harvesters. This supports the modernization and commercialization of agriculture, aiding the development of the agricultural sector.

(h) Development of Other Sectors: Industry plays an important role in developing transportation, construction, communication, and other sectors by producing goods such as iron, steel, and cement needed for infrastructure development.

(D) Current Situation of Industry in Nepal

The formal establishment of industry in Nepal began with the setting up of the Biratnagar Jute Mill in B.S. 1993 (1936 AD). So far in Nepal, a total of 9,519 industries have been registered, comprising 1,419 large, 2,139 medium, and 5,961 small industries. In addition, a total of 658,862 micro, cottage, and small industries combined have been registered.

Of the industries registered in Nepal, the share of large, medium, and small industries is 15, 22, and 63 percent respectively. An estimated 731,560 jobs are expected to be created from large, medium, and small industries. In Nepal, the registration, regulation, and administration of large industries with fixed capital of more than Rs. 50 crore and foreign investment industries are carried out by the Department of Industry, while the registration, regulation, and administration of medium, small, micro, and cottage industries are handled by the provincial governments. (Source: Ministry of Industry, Commerce and Supplies Reform Action Plan 2081)

Based on the number of industries registered until Falgun 2081, the shares of production-based, service-based, and tourism industries are 35.84, 25.79, and 23.10 percent respectively. Based on investment, the highest approved investment is in energy-based industries (56.55%), followed by production-based industries (20.96%), tourism-based industries (9%), and the lowest in mining industries (0.29%). (Source: Economic Survey 2081/82)

(E) Problems and Measures to Solve the Problems of the Industrial Sector in Nepal

The problems and measures to address them in Nepal’s industrial sector are presented in the table below:

Basis	Problem	Measures to Solve the Problem
1. Industrial Infrastructure	Industrial infrastructure necessary for establishing and operating industries — such as transportation, roads, electricity, and communications — is insufficient.	Industrial infrastructure such as transportation, roads, electricity, and communications must be developed and expanded to strengthen the industrial sector.
2. Capital	Due to low capital formation, there is a shortage of capital needed for investment in the industrial sector. Foreign investment has also not been attracted in sufficient amounts.	To increase domestic capital, the habit of saving must be encouraged, and an investment-friendly environment must be created for foreign investors.
3. Technical Human Resources	There is a shortage of technical human resources required for industrial activities.	The shortage of technical manpower can be overcome by providing workers with technical education and vocational training to make them skilled.
4. Competition	Goods produced by domestic industries have not been able to compete with foreign goods in terms of quality and cost.	Domestic industries must improve the quality and reduce the cost of goods they produce to make them competitive.
5. Research and Development	There is a lack of research and development for the production of goods demanded in both domestic and foreign markets.	Emphasis must be placed on research and development in order to produce goods that meet the demand of both domestic and international markets.
6. Policy and Regulation	There is a lack of clear policies and regulations necessary for the development and expansion of industry.	Clear policies and regulations necessary for the development of industry must be formulated and implemented.

2. Exercise — With Solutions
Very Short Answer Questions [1 Mark]

a. What is the annual turnover limit for a Micro Enterprise?

Answer: The annual turnover limit for a Micro Enterprise is less than one crore rupees.

b. What is a Cottage Industry?

Answer: An industry based on traditional skills and technology, that is labour-intensive and operates using local raw materials, is called a Cottage Industry.

c. What kinds of industries are called Small Industries?

Answer: Industries with fixed capital of up to fifteen crore rupees, other than micro enterprises and cottage industries, are called Small Industries.

d. How much fixed capital is required for a Medium Industry?

Answer: A Medium Industry requires fixed capital of more than fifteen crore rupees and up to fifty crore rupees.

e. Define Large Industry.

Answer: Industries with fixed capital of more than fifty crore rupees are called Large Industries.

f. What is the contribution of the industrial sector to Nepal’s Gross Domestic Product?

Answer: According to the Economic Survey 2081/82, the contribution of the industrial sector to Nepal’s Gross Domestic Product (GDP) is approximately 13 percent.

g. What kinds of industries are called Energy-Based Industries?

Answer: Industries engaged in the business of producing energy — such as hydropower and solar energy — are called Energy-Based Industries.

3. Exercise: Short Answer Questions [5 Marks]

a. Give an introduction to Industry with examples. 5 Marks

A commercial unit or establishment that uses raw materials, labour, and technology to produce new consumer or capital goods through processing or transformation, and then sells and distributes them, is called an Industry. According to the Industrial Business Act 2076, an industry is the economic activity of providing goods and services with the objective of earning income.
Examples: A jute mill (turning raw jute into sacks), a cement factory (making cement from limestone), a noodle (chowchow) industry, and a textile industry are examples of industries.

b. Classify industries on the basis of Fixed Capital. 5 Marks

The Industrial Business Act 2076 has classified industries into the following 5 categories based on fixed capital:

1. Micro Enterprise: Fixed capital of up to a maximum of Rs. 20 lakh (excluding land and buildings) and annual turnover of less than Rs. 1 crore.

2. Cottage Industry: An industry based on traditional skills and technology.

3. Small Industry: Industries other than micro enterprises and cottage industries, with fixed capital of up to Rs. 15 crore.

4. Medium Industry: Industries with fixed capital of more than Rs. 15 crore and up to Rs. 50 crore.

5. Large Industry: Industries with fixed capital of more than Rs. 50 crore.

c. Mention any five types of industries based on the nature of goods and services, and give examples. 5 Marks

Five types of industries based on the nature of goods and services, along with their examples, are as follows:

1. Energy-Based Industry: Produces energy. (Example: Hydropower project, solar energy centre)

2. Production-Based Industry: Processes raw materials to create new goods. (Example: Cement factory, soap industry)

3. Agriculture and Forest Product Based Industry: Uses agricultural or forest raw materials. (Example: Tea processing industry, herbal medicine industry, sawmill)

4. Tourism Industry: Related to tourism services. (Example: Hotel, resort, travel agency)

5. Service-Based Industry: Produces or provides services. (Example: Hospital, school, transportation company)

d. Discuss the current state of industry in Nepal. 5 Marks

The formal beginning of industry in Nepal took place with the establishment of the Biratnagar Jute Mill in B.S. 1993. The current state of industry in Nepal is as follows:

– Currently, a total of 9,519 industries are registered in Nepal, comprising 1,419 large, 2,139 medium, and 5,961 small industries. Additionally, more than 658,000 micro, cottage, and small industries combined are registered.

– Among registered industries, the share of small industries is the highest at 63%, followed by medium at 22% and large industries at 15%.

– In terms of investment, the highest attraction is for energy-based industries (56.55%), followed by production-based industries (20.96%). Investment in mining industries is very low (0.29%).

– Overall, the industrial sector is estimated to provide employment to more than 731,000 people.

4. Long Answer Questions [8 Marks]

a. Describe the importance of industry in the context of Nepal in point form. 8 Marks

Industry has enormous importance in transforming an import-dependent economy like Nepal’s into an export-oriented one and achieving all-round national development. Its importances can be described under the following points:

1. Increase in Employment: The development of industry provides direct and indirect employment opportunities to thousands of young people in the country, which helps resolve the unemployment problem.

2. Increase in Production and Import Substitution: By utilizing the country’s own natural resources and raw materials to produce various goods, national income increases and the compulsion to import from abroad decreases.

3. Improvement in Living Standards: Industrial employment increases people’s regular income. When income rises, families can access quality education, healthcare, and food, which raises the overall standard of living.

4. Increase in Government Revenue: With the establishment and expansion of industries, the government collects large revenues from customs duty, excise duty, Value Added Tax (VAT), and income tax, which are spent on national development.

5. Development of the Agricultural Sector: Industry produces machinery and equipment needed for agriculture, such as tractors, threshers, fertilizers, pesticides, and tools, and also consumes agricultural produce as raw materials. This helps in the commercialization of agriculture.

6. Support for Infrastructure Development: Industries that produce construction materials such as iron, steel, and cement directly assist in building physical infrastructure such as roads, bridges, and buildings in the country.

b. What actions can be taken to address the problems visible in Nepal’s industrial sector? Provide suggestions. 8 Marks

Nepal’s industrial sector has not been able to develop as expected. The following actions can be suggested to address the various problems seen in this sector:

1. Development of Industrial Infrastructure: Basic infrastructure indispensable for running industries — such as a reliable road network, continuous and affordable electricity supply, and communications — must be developed and expanded rapidly.

2. Capital Formation and Attracting Foreign Investment: To increase domestic capital, people’s savings habits must be encouraged. In addition, a safe, investment-friendly, and hassle-free environment (One-Window Policy) must be created to attract foreign investors.

3. Production of Technical and Skilled Manpower: To fill the gap in skilled manpower needed by industries, the state must expand technical education and vocational training (CTEVT) centres and produce manpower in accordance with market demand.

4. Improving Quality and Building Competitive Capacity: To make domestic products competitive against foreign goods, policies must be adopted to reduce production costs and bring about sweeping improvements in product quality.

5. Investment in Research and Development: Investment in Research and Development (R&D) must be increased to discover what goods are in demand in both domestic and foreign markets and to develop new technologies.

6. Formulation of Clear and Stable Policies and Regulations: To avoid creating uncertainty for entrepreneurs, clear, stable, and incentive-oriented policies and regulations necessary for the development and expansion of industry must be formulated and effectively implemented.