State, Economy & Class Struggle in Nepal

Pratyush Chandra


1. Monarchy & Democracy in Nepal – Myth & Reality

The foremost reason that is cited in support of monarchy in Nepal is to ensure politico-economic stability. Inherent in this thesis is a criticism of the Nepali society that democracy by itself cannot sustain stability there. Parliamentary democracy that enlivens various local interest groups has to be tempered and controlled by an overseeing authority that can police them. Both the monarchists and ‘legal’ democrats in the country uphold this bias against the Nepali ‘demos’. The latter perhaps will counter this assessment by saying that they support constitutional monarchy, as in Britain, where monarchy is simply allegoric. But, this is not what was established in Nepal with their agreement in the 1990s – the arrangement to which they agreed keeps monarchy as the final authority. Given the internal class dynamics in Nepal and international scenario, is their any reason to hope for a successful reformist road to Nepali democracy, even in the pattern of constitutional monarchies in some European countries?

The comparison of Britain and Nepal is not only hilarious but mischievous too. A sense of being equal to the royal whites placates many hearts in Nepal. After all, many times in the 19th and 20th Centuries the Nepali royalty struggled to be treated equally. In the world of big powers, where Nepal is evidently powerless and on the receiving end, it gives some Nepalis an easy sense of national pride, history and identity. Understandably, it gives them a heart in this heartless world of competition and race. A handful of Nepali middle class immigrants and children of Nepali high and low nobility in Europe and the US may get a source of emotional and even material sustenance through the exotic image of a Hindu Nepal.

Britain in the 16th-19th centuries as the pioneer of world capitalism was going through tremendous internal transformations as a result of fierce struggle for hegemony between the rentier interests and profiteers – between landlords, merchants and industrialists. It was this struggle that determined the fate of monarchy in Britain. The situation in Nepal is obviously nowhere near Britain. Definitely like in Britain, in Nepal too the rentier interests are the most consistent support bases for monarchy. But the comparison has to stop here. These rentier interests are not complemented and countered by the forces rising from trade and industry within the country as in Britain. The formidable presence of foreign economic interests in the case of Nepal destroys any scope of such internal ‘class’ struggles among the exploiting classes for hegemony. These foreign forces find Nepali rentiers, at least till now, better equipped to regulate the superstructure to sustain their interests on the Nepali soil.

The class base sustaining monarchy in Nepal is that of the financial ‘capital’/moneylenders/landlords, ‘corporate’ interests in many joint ventures with Indian and other foreign capitalists, the mercantile establishments and the upper crust of civil servants and armed forces. The mass base for monarchy is constituted by sections of rich and middle peasantry, petty bourgeoisie and urban intellectuals who waver according to the strength of the working class struggles and their own class-conscious elements. Most of the ‘legal democratic’ forces at grassroots’ level represent this mass base. However, the post-1990s political economic development has developed a ‘democratic’ elite who has consistently interacted with the new institutions and has formidable interest in sustaining them. It is this section that today constitutes the leadership of all the mainstream ‘democratic’ forces in the country. The post-February development this year characteristically attests this fact. Even when the younger generation of democrats occasionally displayed republican sentiment, the leadership almost consistently refrained from attacking the institution of monarchy in their criticism of the monarch. In fact, many of them called for the preservation of the ‘heritage’ of monarchy.

2. Nepali Economy – Problems & Prospects

In order to understand the Nepali situation we must look at its economic contours. In 2003, Nepal’s population was around 24.7 millions, of which around 86% resided in the rural areas, suggesting their dependence on agriculture. The per capita income (PCA) is US $240, which is far below the average PCA in low-income countries ($430) and in South Asia ($460). The share of agriculture in the total Gross Domestic Product has come down from 60.3% in 1983 to 40.6% in 2003. On the other hand, the services sector has increased its share from 26.9% in 1983 to 37.8% in 2003, while the industrial sector too has increased its share in GDP from 12.8% to 21.6%. Even though the increasing share of services and industrial sectors in GDP in comparison to the agriculture sector is a universal trend, it is a peculiar South Asian phenomenon that this is not accompanied with a proportionate shift of the working force from the agriculture sector to the other two sectors. As mentioned above, 86% of the population is directly dependent on agriculture and allied activities, while 80.2% of the labour force is employed in this sector. The services absorb 17% of the labour force, while the industrial sector employs just 2.8%. This situation is aggravated by a tremendous sluggishness in average annual growth (AAG) in the overall productive sectors (agriculture and industrial) and stagnation in services sector. The AAG in agriculture decreased from 3.4 in 1983-93 to 3.3 in 1993-2003 (2.2/2.5 in 2002/03) and in the industrial sector for the same periods it decreased from 9.2 to 4.9 (-2.8/2.3 in 2002/03). In the manufacturing sector, specifically, the AAG declined from 10.1 in 1983-93 to 4.3 in 1993-2003, while it was –10.0 in 2002. On the other hand, in the services sector it remained constant during both decades at 4.9 (-1.7/3.2 in 2002/03).

These facts have several grave implications for the Nepali society. We can enumerate some of them here. Firstly, there is a tremendous rural/urban divide, which provides the topological glimpse of poverty in Nepal – an immense sea of rural poor encircling a few islands of urban affluence. Officially, people living below poverty line amount to 42%. The lowest 20% of population gets 11.5 % of national income whereas the highest 20% gets 44.8%. Taking into consideration the extent of rural inequality and the persistence of semi-feudal forms of exploitation in an increasingly monetised rural setting one can only imagine the state of the poor peasantry, the semi-proletarians and the landless. In 1994, 43.1% of rural household were marginal farmers (less than 0.5 hectares) occupying just 11.3% of the total land, 45.9% were small farmers (0.5-2.0 hectares) owning 46.8% of the total land, and 11% were large farmers (more than 2.0 hectares) owning 41.9% of the total land. Even the World Bank admits that the poverty cannot be reduced in Nepal since “growth has been concentrated primarily in the urban areas and particularly in Kathmandu valley, largely excluding 86 percent of the population who live in rural areas, where per capita agricultural production has grown minimally and the overall level of economic activity has been sluggish”.

Secondly, the disproportion between the share of industrial sector in the GDP and the amount of employment generated there demonstrates that whatever growth we find in this sector is in capital-intensive industries controlled by foreign capital collaborating with a handful of Nepali mercantilist corporates. (A major section of this Nepali big capital is in fact from the Indian business community of Marwaris who migrated a hundred years ago. Since Marwaris are largely endogamous, they have strong familial ties with their Indian counterparts.) In the post-liberalisation phase in the Indian subcontinent, where the Indian big capital overwhelmingly dominates, the employment-generation potentiality of the profit-driven industrial growth is very limited. Whatever employment is generated in the peripheral small scale industries fall in the informal sector, with rampant casualisation, no job security and very low wage. The extent of informalisation in the overall Nepali economy can be gathered from the fact that, even if the “market agricultural workforce” employed in commercialised farming activities is excluded, the informal sector employment, officially, comes to 90.7% of the total labour force. Further, in Nepal unemployment is at 4.89%, which by the head count methodology goes up to 15%, and underemployment is 45% of the total man-days.

Thirdly, the stress on the services sector, especially on tourism, has led to critical consequences. On the one hand, it too has been unable to absorb workforce proportional to its share in GDP, and the labour market in this sector is rampantly informal. Further, the Shangri-la image of Nepal that is sold in this sector, especially in tourism, has degenerating fallouts with a tremendous increase in drug abusage and prostitution. There are people in command who seek to sustain Nepal’s image as South Asia’s Las Vegas or even Bangkok.

Fourthly, the impoverishment in rural and urban areas has resulted in sluggishness in domestic demand for industrial goods, which has further eroded the possibility of an increased industrial growth in Nepal. This fact coupled with the backlash of liberalisation (export-oriented production) has made the industries in Nepal increasingly dependent on external markets – depleting internal resources to feed external demand. This further perpetuates the need for capital-intensity and an import of technologies to compete globally. The World Bank, in 2002, itself provided the glimpse of Nepali dependence while prognosticating slower growth in non-agricultural sectors and a contraction in manufacturing. It speculated that this sluggishness would be due to “(i) drop in domestic demand due to falling agriculture growth that especially affects small industries and services; (ii) decline in export demand as growth in both OECD countries and India has decelerated; (iii) cancellation of export orders caused by trade disruptions and higher insurance costs after the events of September 11th; and (iv) rising costs and uncertainty due to power disruptions, bandhs (general strikes) and direct terrorist attacks by Maoists and other groups on carpet and garment factories and on the liquor business” (these industries are most exploitative, and are heavily dependent on casualised workforce). Hence, there is not much in store for the Nepali industrial sector due to service sector-based (rent-oriented) development strategy and turbulent external market. Moreover, the Indian Multinationals in Nepal have added another dimension to the Nepali economy, they prefer employing Indian labour instead of Nepalis to avoid any investment in human resource development and, of course, class-conscious native proletarians.

3. Finance, Foreign Aid & Politics in Nepal

Interestingly, the fastest growing sub-sectors among services are financial/real estate and community/social services. Moreover, these are the areas that concern the rentier interests (in and out of the State apparatuses) the most. They have been trying everything to make these sub-sectors stable and rewarding. It is the financial sector that is the force behind the neoliberal revolution throughout the world, which motivates the commercialisation of economies and breaks every boundary even if it is meant to attain a degree of self-reliance to be able to compete in the market. While, on the one hand, it helps in the capitalist control over local resources by funding economic activities, on the other hand, it rewards the peripheral agencies who facilitate such acquisitions.

The financial sector in these efforts is complemented by foreign aid driven ‘social sector’, the other sub-sector that has never slackened in Nepal since the initial American efforts under the Truman Doctrine to buy off the Nepali rulers to counter the ‘second world’ influence in South Asia. A foremost radical political economist from Nepal, Nanda R. Shrestha rightly concludes in his “The Political Economy of Land, Landlessness and Migration in Nepal” (Delhi, 2001), “This is what so-called development or foreign aid had achieved: mesmerization of the restless Nepali intellectuals into submission to the reality of consumerism and family sustenance.” It has created a slavish middle class fully trained in protecting and serving the imperialist interests on the Nepali soil. It has created a vast population of “development victims”, too. While enticing the rural producers into commercial ventures without providing them training and peripheral infrastructure, and motivating them to a reckless utilisation of fertilisers, chemicals and genetically transformed seeds for immediate profits regardless of their ecological repercussions, they have made their survival dependent on the ups and downs of the market and on creditors, thus enforcing a form of archaic primitive accumulation and mercantilist exploitation. Once again quoting Shrestha from “In the Name of Development: A Reflection on Nepal” (University Press of America, 1997):

“Development funds have proved to be not only a fantastic boon for the elites, but also a powerful tool of control in their class (power) relations with the poor, an instrument that helps to keep the poor in check while issuing themselves fat checks…To wit, some of the development money has certainly trickled down to a few poor, mainly in the urban-commercial contexts. Consequently, one can find a few poor who have become rich, thus providing good anecdotes of development (capitalist) success. And development advocates are quick to hail such anecdotal rags-to-riches stories to stress their message that the development works. For instance, a poor butcher in Kathmandu has become the owner of a relatively large supermarket-like grocery store which is quite popular among Kathmandu’s elites and Westerners. But what they fail to announce openly is that, for the poor, development is a lottery game and that buried under every success story are scores of tragic stories of development victims. Simply put, poverty remains the stepchild of development, with foreign aid now acting as its sponsor.”

4. Political Changes in Nepal

We provided an overview of the Nepali economy above, and briefly touched upon the various processes in its formation. But underneath these processes one must recognise the semi-conscious designs of hegemonic forces to stabilise their hegemony – their struggle to sustain the roots that gave birth to them. Hence, the people who talk about stability and peace at this juncture must clarify whose stability and peace they want. If they say the forces that came to power in the 1990s must be stabilised to be able to deliver goods, then one must identify who came to power during that time. Did they do anything to curb the continuity and ‘stability’ of the above-mentioned economic processes, which have sustained the rule of the people thriving on foreign aid and squeezing the indigenous productive sectors? The liberal inflow of imperialist capital has been further smoothened. The overstress on attracting aid has become another government enterprise. A finance minister in 1993 while enumerating the Nepali Congress government’s successes added – “there has been a noteworthy increase in the volume of foreign assistance after the formation of the elected government”, even when most of this assistance were in the form of loans, increasing Nepal’s indebtedness. Further, data presented above clearly shows the deepening of dependency of the Nepali economy during 1990s after the ‘democratic takover’, rather than any move to counter it. The contribution of the 1990 ‘revolution’ was simply that it served to bring the neo-rich rural and urban gentry close to the state power, which was earlier monopolised by the royalty and armed forces directly representing the Nepali rentier-corporate class and negotiating with the global capital. In fact, the 1990 ‘revolution’ was a culmination of the Panchayat system and commercialisation of the economy undertaken during that time, which created numerous local facilitating agencies and elites. In their urge to find a sustainable political accommodation, they utilised the general unrest and eventually compromised its revolutionary potential by agreeing to the arrangement that kept the monarch at the helm. It was this intermediate ‘class’ representing neo-rich and petty bourgeois interests in the society that entered the parliament. So, effectively the Panchayat System was repainted as parliamentary democracy, leaving the institution of monarchy to play the same gimmicks of diminishing the vitality of the forces of change by accommodation and repression.

However, this 1990 incident can be called a revolution only in this respect that it was only after it that for the first time in the history of Nepal that the labouring classes – proletarians, landless and poor peasantry – could nationally and independently organise themselves, independent of the wavering petty-bourgeois leadership. The successes of Maoist revolutionaries, despite the news about their recent errors and ‘sectist’ infightings, show that the exploited masses of Nepal can be organised above localism and beyond reformist concessionary movements. What the spontaneous Sukumbasi (landless) movement of 1979 in Tarai lacked, and thus was suppressed brutally and quickly, the Maoists have provided – an organisation with a clear political vision.

When we talk of the working class’ struggle against exploitation in societies like Nepal, which is predominantly an agrarian society with a few enclaves of industrialisation, we need to avoid the schematic ‘pigeon hole’ framework of class analysis. In fact, class boundaries in sociological sense are always fuzzy and their solidification (in a sense, of ‘class solidarity’) depends on the level of class struggle. The level of class struggle in turn depends not only on local production relations, but also on the locus of these production relations in the overall national, regional and global political economy. An agrarian society in South Asia, where agriculture is heavily dependent on seasonal variations, where low technological development and population pressure characterise the whole economy, there is always an organic linkage between the proletarian and rural poor (poor peasants and the landless). This linkage if, on the one hand, depreciates the overall wage-levels and perpetuates casualisation of workforce, on the other hand, it allows a self-organisation of the labouring masses across the rural-urban divide. If on the one hand, villages act as depositories of cheap labour, to be pulled out and pushed forth, whenever capital needs it, on the other hand, these same villages act as the zones of political and economic solidarity among labouring masses. The experience of the Chinese Revolution, the glorious history of Latin American workers and peasant movements and the ongoing struggles in Nepal attest the presence of such potentiality in agrarian societies.

(Note: The data utilised here are taken from various World Bank reports on Nepal and from the studies published by a Nepalese trade union, GEFONT, available on its website,

For an analysis of the February “Coup”: The Royal Coup in Nepal


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