Nepal in the early 1990s was predominantly a rural-agricultural society, where more than 90 % of the people lived in rural areas and depended on farming as a source of livelihood. Even in settlements designated as urban areas, the rural-urban distinction easily was blurred; around 50 % of urbanites outside the three cities in the Kathmandu Valley were engaged in farming for their livelihood. Even in the Kathmandu Valley cities, 30 to 40 % of city dwellers were agriculturalists. In this sense, most urban areas were economic extensions of rural areas, but with an urban manifestation and a commercial component. Farming was the dominant order of society and the mainstay of the economy, a situation that was unlikely to change, given the extremely sluggish pace of economic transformation.

In terms of production relations, the first two classes were dependent on large landowners for survival. Small landowners, on the other hand, were comparatively independent; they did not have to depend on the large landowning class for survival, particularly if they were involved in circular migration as a source of supplementary cash income. Nor did they regularly employ members of the first two classes. Landowners of medium-sized plots were independent of large landowners. Their engagement in wage laboring or tenancy farming was sporadic, if present at all. In some cases, they employed others during peak farming seasons. The large landowning class regularly employed farm workers and benefited from the existence of excess labor, which kept wages low. In general, the situation of landholders was exacerbated by the archaic nature of farming technology and the absence of other resources. It was not surprising that rural poverty was widespread.