Nepal is developing county with an agricultural economy. Nepal entered the modern era in 1951 without schools, hospitals, roads, telecommunications, electric power, industry, or civil service. Nepal has used a series of five-year plans in an attempt to make progress in economic development. It completed its ninth economic development plan in 2002. Nepal's economy is irrevocably tied to India. Nepal's geographical position and the scarcity of natural resources used in the production of industrial goods meant that its economy was subject to fluctuations resulting from changes in its relationship with India. Agriculture remains Nepal's principal economic activity, employing 70% of the population and providing 37% of GDP. Only about 20% of the total area is cultivable; another 33% is forested; most of the rest is mountainous. Rice and wheat are the main food crops. The lowland Terai region produces an agricultural surplus, part of which supplies the food-deficient hill areas. Progress has been made in exploiting Nepal's natural resources, tourism and hydroelectricity. Commerce has been a major occupation in Nepal since early times. Being situated at the crossroads of the ancient Trans-Himalayan trade route, trading is second nature to the Nepalese people. Foreign trade is characterized mainly by import of manufactured products and export of agricultural raw materials. Nepal imports manufactured goods and petroleum products worth about US$ 1 billion annually. The value of exports is about US$ 315 million. Woolen carpets are Nepal's largest export, earning the country over US$ 135 million per year.
Industrial activity mainly involves the processing of agricultural products, including pulses, jute, sugarcane, tobacco, and grain. Manufacturing is still at the developmental stage and it represents less than 10% of the GDP. Major industries are woolen carpets, garments, textiles, leather products, paper and cement. Other products made in Nepal are steel utensils, cigarettes, beverages and sugar. There are many modern large-scale factories but the majority is cottage or small scale operations Traditional cottage industries, including basket-weaving as well as cotton fabric and edible oil production, comprised approximately 60 percent of industrial output; there also were efforts to develop cottage industries to produce furniture, soap, and textiles. The remainder of industrial output came from modern industries, such as jute mills, cigarette factories, and cement plants. Other industries were dependent on various inputs imported from other countries, mainly India. The main areas of manufacturing concentration are Biratnagar, the Birganj–Hitaura corridor, and the Kathmandu Valley.
Thanks to Nepal's natural beauty, rich cultural heritage and the diversity of sight-seeing and adventure opportunities available with eight of the world's 10 highest mountain peaks, including Mount Everest at 8,848 m. Tourism was a major source of foreign exchange earnings. Especially since Mount Everest (Sagarmatha in Nepali) was first climbed by Sir Edmund Hillary and Tensing Sherpa in 1953, the Himalayas have attracted foreigners to Nepal. Mountaineering and hiking were of considerable interest as were rafting, canoeing, and hang gliding. Tourism was facilitated with the opening of airways to Kathmandu and other parts of the country and the easing of travel restrictions. Nepal earned over US$ 152 million from tourism in 1998.