Many observers have characterized Nepal as a country spanning the medieval and modern ages. The urban-rural divide illustrates this split. Nepal is in limbo, a condition that has managed to perpetuate itself through half a century of development planning and massive infusions of foreign aid. Undeniably, the country has made great progress since it opened up to the world, particularly in establishing a basic infrastructure in transport, communications, health, and education. However, its difficult topography, coupled with inefficiencies that are the legacy of an enduring system of feudalistic patronage in society and government, mean that the results of development plans rarely match expectations.
Economic gains in various sectors have been offset by population growth and environmental degradation, both poised to become even more problematic in the future. The disparity between rich and poor is growing, and discontent in the countryside bodes ill for the stability of a country that depends heavily on tourism. While Nepal has continued to prioritize liberalization and privatization of its economy in order to encourage growth and attract investment, the political problems of the last decade have hardly fostered a conducive environment. Until these policies are allowed to bear fruit, Nepal will not be able to break out of the shackles of its subsistence agriculture economy and develop industrially.
Cottage industries exporting goods such as carpets and garments will continue to grow. Tourism, as long as visitors remain safe from internal instability, will remain crucial to the economy. Foreign aid—so far mismanaged, underutilized, and responsible for a debt burden that demands servicing—is set to provide the bulk of development funds in the years to come. The development of large hydroelectricity projects could bring considerable benefits, but these carry inevitable social and environmental consequences. Ultimately, until Nepal achieves democratic stability and the institutional culture demonstrates that it is prepared to deal with corruption at every level, it will fail to achieve economic prosperity. The emigration of peasants and highly educated urbanites will also continue, draining Nepal of valuable population resources. The benefits of development have accrued to the rich, privileged, and educated; as in olden times, the country lives in the shadow of the Kathmandu Valley.