Nepal’s industrial sector is in decline, and this should be a cause for serious concern. The contribution of Nepal’s industrial sector to the Gross Domestic Product (GDP) declined from 6.20% in FY 2014/15 to 4.87% in FY 2023/24. The promotion of industrialization is important for the country’s overall development. The figures indicate that the country is gradually witnessing a trend of deindustrialization. This raises alarming questions about the country’s economic trajectory. Industrialization is not just a matter of economic expansion; it is a crucial pillar for national development, job creation, and overall economic stability. Each successive government in Nepal has been providing repeated assurances about fostering industrial development. But the reality on the ground suggests that there has been little progress on this front. Merely declaring industrial areas is not enough; the state must ensure proper infrastructure, policies, and incentives to make these zones operational and productive. The government must take immediate and decisive measures to promote industrial development in the country if Nepal is to move toward sustainable economic growth.
Despite the government’s pledge to support industrialization, the flow of credit to the industrial sector still remains significantly low, accounting for about 8.4 percent of the total credit investment in the first six months of the current Fiscal Year (FY). The dwindling confidence among investors seems to have stymied industrial growth in Nepal, leaving entrepreneurs reluctant to establish or expand their businesses. Entrepreneurs argue that they are not ready to take any risks as they need security and reliable returns—both of which, they say, are currently lacking. This situation calls for the government to introduce measures necessary to assure industrialists of security and returns. This move could take the country back onto the path of industrialization. Of course, the government has introduced various initiatives such as Special Economic Zones (SEZs), Industrial Villages, and Industrial Estates. But these efforts do not seem to have brought any tangible results in terms of reviving industrialization. The failure to expedite the construction of industrial infrastructure has directly impacted manufacturing growth, exacerbating Nepal’s trade deficit, which has already reached Rs 861 billion in the first seven months of the current fiscal year.
Nepal’s complicated and bureaucratic land acquisition process continues to be a major barrier to industrialization. Unlike other countries that have streamlined land allocation to attract potential investors, Nepal’s industries struggle with high land costs, limited availability, and excessive taxation from all three tiers of government. The situation is further worsened by unstable policies, political uncertainty, and a lack of a long-term industrial strategy. High production costs, dependence on imported raw materials, labor disputes, and non-competitive markets are additional hurdles for Nepal’s industrial sector. The government must recognize that simply seeking investment is not enough—it must also safeguard and incentivize domestic investors. Policies that protect local industries, ensure affordable access to capital, and enhance the ease of doing business are crucial for long-term industrial expansion. It is encouraging to note that the government and private sectors have taken some efforts in this regard. The government recently amended laws and regulations to create a more favorable industrial environment, and the Confederation of Nepalese Industries (CNI) has launched the 'Make in Nepal' campaign. The government’s strong backing of campaigns like this is necessary to realize this goal. If Nepal is serious about reversing the decline of its industrial sector and ensuring economic self-sufficiency, the government must take urgent steps to address these challenges facing industrial development.