June 29: The capacity utilization of industries is declining as the economic activities have slowed down in the country. The slump in economic activities due to the Covid-19 pandemic, Russia-Ukraine war and lack of liquidity in the financial sector has affected the capacity utilization of the industries.

A study on economic activities conducted by the Nepal Rastra Bank (NRB) has revealed that only 43.07 percent of the average capacity of industries was utilized in the first six months of the current fiscal year.

The central bank’s study report covered 154 industries in all 7 provinces.

During the same period last year, the average capacity utilization of industries was 48.3 percent. Among the industries included in the survey, the capacity utilization of the electricity industry was 93.19 percent, chocolate industry was 85.59 percent and processed tea industry was 85.39 percent.

The capacity utilization of industries that produce vegetable ghee, mustard oil, soybean oil, rice, wheat flour, animal feed, biscuits, noodles, alcohol, soft drinks, synthetic fabrics, processed leather, paints, tablets, capsules, ointments, liquids, soaps, plastic goods, cement, concrete, iron rods and sheets, aluminum production, electric wires and cables, tires and tubes, leather and textile footwear industries on the other hand has increased.

Similarly, capacity utilization of processed milk, sugar, chocolate, processed tea, beer, cigarettes, yarn, pashmina, garments, jute goods, raw hides, chopped wood, paper, rosin, dry syrup, bricks, steel products, GI wire, GI pipe, household metal goods and shoes has decreased.

On a regional basis, the study report pointed out that the capacity utilization of industries in Karnali province is the highest at 51.9 percent and the capacity utilization of industries in Madhesh is the lowest at 34.1 percent.

Prakash Kumar Shrestha, executive director of NRB’s research department said that due to the increase in prices in the international market, the cost of industries that rely on imported raw materials increased and the capacity utilization of those industries decreased.

The study also revealed that industrial insecurity, uneasy labor relations, lack of ability to adopt technology, low productivity, lack of diversification in exportable goods and other problems prevented the development of the industrial sector. However, it has been found that the industrial capacity in some provinces is increasing due to the industrial sector-friendly policy and development including transport infrastructure.

Industrial loans also decreased

Loans from banks to the industrial sector also decreased this year. Compared to the mid-January 2022, the loans provided by banks and financial institutions to the industrial sector decreased by 6.9 percent to Rs 1343.37 billion in mid-January this year. In the same period last year, such loans had increased by 19.4 percent.

As per NRB’s report, the share of loans to the industrial sector is 27.9 percent of the total loans. Among the industrial loans, 1.3 percent loan has been provided to the mining industry, 20.1 percent to the agriculture, forestry, and beverage industries, 39.6 percent to the non-food product manufacturing industry, 13 percent to the construction industry, 20 percent to the electricity, gas and water industry, and 6 percent to the metal products, machinery, and electronics industry.