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Reviving Nepal’s agricultural economy

Although the agriculture sector currently receives a nominal share of the budget and is likely to remain one of the most under-invested, a shift in focus would likely yield better results.

Smallholder farmers harvesting tomatoes in Dharam Pokhara village, Nepal (Photo: Nabin Baral/IWMI, via Flickr)

Till date, Nepal’s agricultural sector remains a crucial part of the national economy in terms of income, employment, and livelihood, with over two thirds of the total population engaged in it. Despite the heavy reliance on agriculture, the sector is marred by declining productivity, low use of technology, and the unavailability of certain crucial facilities.

As a consequence, over 61 percent of the total employment contributes only 20 percent to the economy, and the agriculture sector’s contribution to GDP has declined sharply from 50 percent in 1990 to 21 percent in 2022. Although annual crop production has increased, a decrease in winter crop production has limited the sector’s growth rate to only 2.7 percent. This stagnation, coupled with the sector’s reliance on exogenous factors, most notably a favorable monsoon, further emphasizes the need to build structural components to support the sector.

Agriculture in Nepal depends largely on monsoon rains as the country witnesses monsoon-based growth in agricultural GDP at the time of favorable rainfall. Nepal has about 3.6 million hectares of land suitable for agriculture. While irrigation structures are available to provide irrigation facilities to about 44 percent of irrigable land, only 33 percent  of this land has access to year-round irrigation. Farmer-managed irrigation systems (FMIS) occupy special status in the national economy and food security system, accounting for 51 percent of irrigated agricultural areas.

Despite having plenty of water available—about 225 billion cubic meters annually—Nepal has a long way to go in tapping its resources to the fullest. The budget allocated for the water resources and irrigation sector only accounts for 1-2 percent of the national budget; of this nominal share, only a portion goes for irrigation infrastructure. As a result, many ongoing irrigation projects have encountered budget shortages and slow implementation progress, hindering the development of the agricultural sector. While irrigated agriculture is the basis of rural livelihood, food security, and the national economy in many countries with similar conditions to Nepal, our efforts have not been enough.

While Nepal’s agriculture production can be increased significantly through a focus on irrigation facilities, such focus must be guided by the pursuit of maximizing the value for investment. The Tarai region, with over 2 million hectares of fertile plains, offers three to four times greater economic return on irrigation through net value of production (NVP) compared to the Hills. Studies show an output elasticity of irrigation of 0.31 in Tarai, compared to 0.08 in the Mountains and Hills.

The output elasticity of capital is also twice in Tarai (0.14) compared to Hills (0.07) and much lower in the Mountains (0.04). Improving the irrigation facilities could potentially increase both production and productivity in Tarai. More essentially, the utilization of structural endowments of the Tarai belt can be leveraged to provide support to the entire region.

The construction of an irrigation canal in the Churia region would provide irrigation opportunities to about a million hectares of land, particularly in the Tarai.The irrigation canals would ensure a reliable year-round water supply, enhancing agricultural productivity and food security. This irrigation project could be a part of inter-basin connectivity with existing irrigation systems and water basins, connecting underserved agricultural land in the Tarai. Currently, 2-4 percent of the water potential from all major river basins is utilized only for consumptive purposes.  It would also help farmers to manage risks associated with droughts, floods, and water availability fluctuations during the monsoon seasons.

Agriculture in Nepal depends largely on monsoon rains as the country witnesses monsoon-based growth in agricultural GDP at the time of favorable rainfall.

Additionally, an integrated water resources management approach, like a network of irrigation canals in the Churia region, would not only solve the irrigation problems, but also increase the groundwater table, reduce soil erosion, and decrease the intensity of flood hazards and inundation problems that are prevailing annually.

Bridging idle lands with an irrigation system—an irrigation canal project—would generate employment opportunities while boosting agricultural output. The quickest route to rural poverty alleviation is the stimulation of local economies; an increase in irrigation systems would generate gainful employment opportunities and increase per capita income through agricultural development and optimal utilization of agricultural land and irrigation facilities. More the irrigation systems the more cultivable land areas will be, which increases crop yields that can contribute to the national GDP.

Although the agriculture sector currently receives a nominal share of the budget and is likely to remain one of the most under-invested, a shift in focus, as detailed above, would likely yield better results. Investment in irrigation facilities based on the returns they generate would also allow farmers to diversify their crops from low-value cereal crops to high-value crops and increase agricultural production and income in the presence of reliable irrigation facilities.

Rishab Gyawali ​​is a researcher at Samriddhi Foundation. The views expressed in this article are the author’s own and do not represent the views of the organization.