Let us imagine!
Outside the departure terminal of Tribhuvan International Airport (TIA), a Gen Z youth is standing. But he is not holding a one-way ticket to Qatar. Instead, he is trying to register a startup through a new digital business portal on his tablet.
He represents today’s young Nepali generation – one that is tired of an economy sustained merely by exporting its labor force abroad through migration and surviving on remittances. Rather than leaving Nepal in search of jobs, this generation wants to create opportunities within the country itself.
But the real question is: Is Nepal’s state mechanism, private sector, and economic structure truly prepared for such a transformation?
Now let us return to reality!
On Monday, President Ram Chandra Poudel presented the government’s Programs and Policies for the fiscal year 2026-27, before the joint session of Parliament. From Singha Durbar to the boardrooms of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Nepalese Industries (CNI), Nepal Chamber of Commerce (NCC), and major corporate houses, a common debate should have been: Is Nepal genuinely moving toward a productivity-driven economy, or will these policies remain, like many before them, merely ambitious dreams?
Because Nepal’s economic crisis is no longer just about a lack of capital. The problem runs deeper: low productivity, weak economic efficiency, poor competitiveness, and inefficient utilization of resources.
Over the past decade, Nepal’s economy expanded at an average rate of only around 4 percent. But that growth was also not driven by production, industry, or exports. Instead, it was largely sustained by remittance-fueled consumption.
The industrial sector’s contribution to GDP has fallen to around 5 percent. A large portion of the workforce remains trapped in low-productivity agriculture. Investment is concentrated heavily in real estate, imports, and trade rather than productive industries.
As a result, Nepal remains stuck in a vicious cycle of import dependency, weak export capacity, low job creation, and heavy reliance on remittances.
Productivity refers to the ability to generate more output using limited labor, capital, and technology. Labor productivity is generally measured by total output produced per worker or per labor hour. This indicator reflects the real efficiency of an economy.
Yet recent data show Nepal’s labor productivity, measured in constant prices, stands at around USD 4,800 – which is among the weakest in South Asia. Although productivity has been increasing gradually year by year, countries like Sri Lanka have already surpassed USD 11,000, while India remains far ahead of Nepal. Bangladesh, meanwhile, has been making rapid progress through export-oriented industrialization.
Studies by the Asian Productivity Organization (APO) show that although Nepal and Bangladesh once had similar productivity levels, Bangladesh is now moving ahead rapidly.
The message is clear: if Nepal fails to raise productivity now, it will fall even further behind in not only the domestic front but also in regional competition. This challenge becomes even more urgent as Nepal prepares to graduate from Least Developed Country (LDC) status later this year. To remain competitive after graduation, improving productivity is no longer optional – it is essential.
Against this backdrop, the government’s latest policy document signals an intention to boost productivity by prioritizing the digital economy, green industrialization, IT exports, agricultural modernization, investment promotion, governance reform, and infrastructure development. For the first time, the government has also indicated that administrative efficiency will become central to economic reform.
Under the proposed ‘Investment Express’ concept, the government has pledged to complete business registration and construction permits within 30 days. Plans have also been announced for digital signatures, online procurement systems, integrated government databases, AI-based services, digital taxation systems, and expansion of the citizen app.
Similarly, the government aims to transform IT service exports, data centers, digital parks, startups, green industries, special economic zones, and remote work into new engines of economic transformation.
In agriculture also, mechanization, agritech, irrigation expansion, land banks, agro-processing, cold storage centers, and supply-chain improvements have also been included in the policy paper.
Public procurement reforms, performance-based evaluation systems, and concepts such as ‘zero-day procurement’ appear to be attempts to break Nepal’s long-standing ‘Asare development’ or the practice of budget spending at the end of the fiscal year.
But in Nepal the core problem is not policy formulation but implementation.
Economists broadly agree: Nepal’s problem is not the absence of new policies, but the repeated failure to implement existing ones. Worse, attempts to run today’s economy using policy frameworks designed 30 or 40 years ago have only deepened the problem. It is somewhat like installing a Mercedes-Benz engine into a modern BYD or Deepal electric vehicle (EV).
In Nepal, debates still revolve around how much budget has been spent. No one asks how much actual production has increased.
The government has set a target of 7 percent economic growth. Nepal would indeed require sustained growth above 7 percent to build a USD 100 billion economy. But without clear matrix to measure labor productivity targets, industrial productivity indicators, industrial competitiveness, export efficiency, or reductions in production costs, such growth ambitions may remain confined to paper.
Skepticism also stems from Nepal’s performance over the past decade. The economy grew at an average rate of around 4.2 percent in last decade, but this expansion was driven largely by remittance-supported consumption rather than industrial production.
The country’s weaknesses have been deeply structural. Around 57 percent of the national budget was consumed by recurrent expenditures like salaries and administrative costs, while only around 23 percent was allocated to capital expenditure. Even then, the infamous ‘Asare development’ culture – where budgets are hurriedly spent in the final weeks of the fiscal year – resulted mainly in poor-quality infrastructure.
Given this historical background, achieving 7 percent economic growth will be “extremely challenging.” Economist Chandra Mani Adhikari also argues that Nepal still lacks the basic infrastructure required to sustain such growth.
For example, while the government dreams of producing 30,000 megawatts (MW) of electricity, transmission line bottlenecks remain a major obstacle. Without a multi-buyer and multi-seller electricity market system, power cannot be distributed or sold efficiently. Simply increasing electricity production without solving infrastructure bottlenecks is no longer enough.
On top of that, weak inter agency coordination, limited administrative capacity, slow project implementation, and policy instability continue to raise doubts about whether Nepal can successfully execute such highly ambitious programs.
Studies show Nepal’s Incremental Capital Output Ratio (ICOR) – a key indicator of investment efficiency – currently stands between 5 and 5.5. In simple terms, Nepal requires a large amount of investment to generate relatively little output.
If Nepal hopes to sustain long-term economic growth above 7 percent, the ICOR must fall closer to 3.5 to 4.
That raises serious questions not only for the government, but also for the private sector.
Following the recent election at Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Anjan Shrestha has become its 21st president. Birendra Raj Pandey recently assumed leadership of Confederation of Nepalese Industries (CNI), while Kamlesh Agrawal now leads Nepal Chamber of Commerce (NCC).
Whether Nepal’s private sector remains merely a critic of the state or evolves into a co-driver of the economy will depend heavily on these organizations and their leadership.
There is now a growing belief that private-sector organizations should not simply provide recommendations from the sidelines but should sit directly in the cockpit of economic transformation itself. Cooperation, coordination, and understanding between the new government and the private sector will determine whether Nepal moves toward a productivity revolution or remains trapped in the status quo.
Upon assuming office as FNCCI president Shrestha stated that the private sector should no longer limit itself to functioning as a lobbying force but should instead emerge as a facilitator of productivity growth, competitiveness, and structural transformation.
He argues that the private sector itself must take the lead in boosting productivity, expanding competitiveness, and transforming the economy.
Shrestha’s proposed ‘6 Pillars, 60 Initiatives’ action plan also includes competitiveness enhancement, production growth, skills development, human capital investment, industrial-zone development, and improved investment efficiency.
However, the private sector itself is not free from criticism.
Despite contributing around 81 percent of Nepal’s economy, the private sector remains heavily import-oriented, insufficiently technology-driven, and weak in research and innovation.
Critics argue that the private sector’s growing focus on trade rather than industrial expansion has weakened the economy’s productive foundation. While it can also be argued that government policies themselves have encouraged imports, the private sector – which dominates the economy – must now clarify its own direction.
Productivity cannot grow under an old business culture built on syndicates, cartels, limited competition, and easy profits. The era of easy profit-making in Nepal is effectively over.
At one time, limited competition allowed businesses in Nepal to generate high profits from simple trading activities. But both domestic and international competition are now intensifying rapidly. As Nepal prepares to graduate from LDC status this year, the country will face increasing pressure to compete not only with Bangladesh, Sri Lanka, and Pakistan, but also with far larger economies like India and China.
Thus, protectionist policies alone will no longer be enough to sustain Nepali industries. Free and fair market competitiveness itself is becoming the foundation of survival. To achieve that, both the government and the private sector must move toward an economic structure capable of producing more at lower cost.
“Our priority will be to build a productivity-driven private sector, skilled human resources, effective investment, and enterprises capable of competing in global markets,” Shrestha says. “The federation will move forward not merely as a pressure group, but as a facilitator institution.”
Likewise, the private sector must invest more heavily in technology, management modernization, labor productivity, research and innovation, export expansion, branding, and quality improvement.
At the same time, if the government fails to translate its policy announcements into actual productivity growth, industrial production, export expansion, efficient public services, and quality employment, Nepal may once again struggle to escape the cycle of low productivity and weak economic growth.
Particularly, if Nepal fails to transform its geographic advantage between India and China, its hydropower potential, tourism industry, young workforce, and digital opportunities into a productive economy, the country could lose yet another decade of opportunity.
That said, the economy is not entirely without hope.
Nepal’s electricity generation capacity has now reached 4,296 megawatts (MW). The IT sector is attracting increasing interest from the younger generation. There are also positive signs in high-value agriculture, digital services, startups, and small enterprises.
But converting these achievements into broad national economic transformation will still require major institutional and policy reforms.
Especially without rapid improvements in technical education, skills development, financial access for productive sectors, export infrastructure, digital governance, and policy stability, a true productivity revolution appears unlikely.
Because Nepal has never lacked plans. What it has lacked is implementation and strong political will power.
If the government fails to transform its policies and programs into real production, exports, employment, and efficient public services, the current policy document will become just another ambitious dream like many before it.
Only if the upcoming national budget – based upon these policies and programs – focuses not merely on spending money but also on improving total factor productivity through better technology and labor efficiency can Nepal gradually transition from a remittance-dependent, consumption-driven economy toward a knowledge-based economy. That would require the government to steer the private sector away from a rent-seeking culture and toward productivity growth.
Because one reality is now clear: Nepal’s long-term economic problem is not merely a shortage of resources, but weak resource utilization, low productivity, and poor economic efficiency.
For years, Nepal’s economic growth has been constrained by weak labor productivity, low industrial capacity, poor capital allocation, slow project implementation, expensive transportation and logistics costs, limited technology adoption, administrative delays, and policy instability.
Particularly, the concentration of large-scale investment in real estate, imports, and trading activities rather than productive industries has prevented structural productivity growth.
As a result, Nepal remains trapped in a cycle of high import dependency, weak exports, low job creation, and remittance reliance.
If the government can rapidly implement its policies and programs, Nepal may gradually transition from a remittance-driven consumption economy toward a productivity-based economy.
And ultimately, Nepal’s future in the coming decade may depend on a defining question: Can the country finally achieve a productivity revolution or will it lose yet another decade of opportunity?
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