Nepal’s industrial growth stalled by decades old policies and outdated laws

KATHMANDU: Nepal’s industrial development continues to struggle amid outdated laws, unclear governance, and long-pending policy reforms, stakeholders warned, citing stagnation in key industrial indicators and legal frameworks that no longer align with modern economic needs.

The Industrial Policy introduced in 2067 BS (2010 AD) has remained unchanged for 15 years, despite repeated calls for review. Similarly, the Import–Export Management Act of 2013 BS, now 70 years old, and the 22-year-old IPR framework have not been updated to match contemporary global trade systems.

Industry leaders and experts argue that global best practice requires policy reviews every two to three years, but Nepal’s industrial and trade laws have remained largely unchanged for decades.

Industry Contribution to GDP Drops Sharply

Once contributing nearly 15% of Nepal’s GDP, the industrial sector’s share has now fallen to around 5%. Although the manufacturing segment shows signs of activity, private investment remains constrained due to persistent structural barriers, including unreliable energy supply, high transportation costs, limited access to finance, shortage of skilled labor, and difficulty securing raw materials.

Stakeholders say Nepal could unlock industrial growth by implementing timely policy reforms, ensuring stability, and removing bureaucratic hurdles.

Policy Stability Key to Industrial Revival, Says CNI

Confederation of Nepalese Industries (CNI) Vice-President Swagat Raj Pyakurel stressed that Nepal needs policy stability and stronger institutions to reverse the declining industrial contribution.

“We must build modern legal structures and ensure transparent and honest administration,” he said, noting that excessive legal restrictions discourage innovation and entrepreneurship.

According to Pyakurel, many developed economies operate with fewer laws and greater trust in citizens, but Nepal’s system heavily restricts actions unless explicitly listed in legal frameworks. This, he argues, limits innovation and delays industrial modernization.

Pyakurel also recommended forming a policy-intervention board insulated from political changes to ensure long-term stability in industrial planning.

Governance Confusion and Contradictory Constitutional Provisions

Former government secretary Toyanath Gyawali said Nepal’s governance challenges have worsened due to unclear economic orientation within the Constitution itself. Despite seven constitutions over 70 years, Nepal still lacks clarity on whether it aims for socialism, a mixed economy, or liberal economic reforms.

“Even today’s Constitution includes socialism, mixed economy, and liberal principles simultaneously. This makes it difficult for secretaries to design budgets or policies,” Gyawali said.

He warned that poor governance—not lack of resources—has kept countries like Nepal trapped in economic stagnation.

Gyawali criticized the government for still operating under the 15-year-old Industrial Policy, and failing to update the Import–Export Management Act and IPR laws. He recommended regular two-year reviews of trade, industry, agriculture, and tourism policies.

He also urged the government to update strategies and action plans, invest in infrastructure, and prioritize private sector participation to address Nepal’s 20% poverty rate and 11% unemployment rate.

Government Preparing New Industrial Policy

Commerce and Supplies Secretary Krishna Bahadur Raut said the government is finalizing a new Industrial Policy that clarifies the roles of federal, provincial, and local levels under the post-2015 constitutional structure.

Consultations have been completed across all seven provinces, with umbrella organizations currently submitting written feedback.

The government is simultaneously developing an Industrial Development Strategy, and has recently introduced a Startup Policy and an MSME Policy. MSMEs currently provide approximately 2.7 million jobs in Nepal.

Raut acknowledged persistent export barriers due to certification issues. He said Nepal has already established an accreditation body under the Accreditation Act 2049 BS, with its regulation currently awaiting Cabinet approval.

Once approved, Nepal’s certification capacity will expand, and mutual recognition agreements with India could ease long-standing export bottlenecks.

Nepal currently imports around 5,900 goods under HS codes, but has set quality standards for only 1,148 products, and made NS (Nepal Standard) certification mandatory for just 17 items.

Raut said certification harmonization discussions with India have advanced, with Nepal sending a list of 51 products for recognition.

Government Plans to Push “Made in Nepal” Campaign

The government is preparing to elevate the “Made in Nepal” brand into a large-scale national campaign, similar to India’s “Make in India,” focusing on investment growth, production diversification, and multiplier effects.

Raut said Nepal has sufficient natural resources but suffers from unresolved legal hurdles. Updating mining laws and enabling technology-driven industrial expansion—such as data centers powered by clean energy—could help Nepal overcome its landlocked limitations.

“Nepal must shift from old industrial thinking to creative, technology-driven approaches,” he said.