Nepal's Industrialization Drive Falls Short as New Industry Registrations Plunge 77%
Nepal's industrial sector is contracting sharply, with new small and cottage industry registrations in Lumbini Province falling roughly 77% over five years. Despite government pledges to accelerate industrialization, structural barriers—limited credit access, weak markets, and policy instability—continue to undermine investor confidence and industrial growth.
Industries are the backbone of economic prosperity, employment generation, and a self-reliant economy. Without industrial development, a country cannot achieve its goals of increasing domestic production, substituting imports, and promoting exports. For Nepal, industrialization is not merely an economic priority but a necessity for sustainable growth.
Yet, despite its pressing need, the country has failed to create an environment conducive to industrial expansion. With the formation of the current government, commitments were made to accelerate industrialization and generate employment on a large scale. However, reports of industries shutting down and operational ones struggling to survive have raised serious questions about the government's ability to translate its vision into reality. If industrialization is to become the foundation of prosperity, the government must move beyond ambitious announcements and focus on concrete results.
The declining number of new industry registrations reflects the deteriorating industrial environment. Statistics on micro, cottage, and small-scale industries in Lumbini Province offer a representative picture. According to the provincial Ministry of Industry, Tourism and Transport, 10,759 small and cottage industries were registered in FY 2022/23. However, the number fell to 4,254 in FY 2023/24, 3,639 in FY 2024/25, 3,267 in FY 2025/26, and just 2,501 in FY 2026/27.
A decline of approximately 77 percent over five years compared with the initial year is not an ordinary fluctuation. It points to serious problems concerning investor confidence, market conditions, and the overall business environment. The declining registrations, from Lumbini's hill districts to its major commercial centres in the Terai, indicate a broader weakening of industrial activity.
Several structural challenges underpin this slowdown, including:
- Limited access to capital
- Shrinking markets
- High borrowing costs
- Policy uncertainty
Despite sufficient lendable funds in banks and financial institutions, credit is not reaching productive sectors as expected. Small entrepreneurs face additional hurdles, including stringent collateral requirements and cumbersome lending procedures. Improving access to affordable credit is therefore essential to reviving industrial activity.
Equally important is expanding markets for domestic products. Weak purchasing power and limited market opportunities have discouraged industrialists from increasing production. Promoting industries without ensuring markets for their products is an incomplete approach to industrialization. The government must help domestic producers improve quality, compete with imports, and expand their markets.
Policy instability also discourages long-term investment. Frequent changes in government priorities, tax rates, and regulations undermine investor confidence, particularly when industries require substantial upfront investment. Consistent policies, predictable regulations, and institutional continuity are essential to creating a stable investment climate.
The government should conduct a nationwide assessment to identify closed, distressed, and underperforming industries and develop targeted measures to address their challenges. Reviving viable industries should receive as much priority as attracting new investments.
Expanding markets for domestic products is equally important. Public procurement should prioritize quality Nepali goods while ensuring competitiveness and transparency. The government should promote import-substituting industries and support export-oriented enterprises with access to technology, finance, skills, and international markets. Reliable electricity, efficient transport, adequate storage, and modern industrial and digital infrastructure are also essential to reducing production costs. Similarly, simplifying industry registration and licensing and aligning vocational education with industry needs would help build a more resilient and competitive industrial base.