IMAGE: LINDSAY BUCKLEY
IN FEBRUARY Nepal’s Ministry of Industry published a notification in the Nepal Gazette that looked like a breakthrough. The government expanded the number of sectors eligible for foreign investment through the “automatic route” from 60 to 102; scrapped the previous ceiling of Rs500m ($3.8m) for investments made through its online system; and ditched the minimum threshold for IT and digital businesses. Industry ministry officials spoke of “instant approval certificates”. Nepal, the message went, was finally open for business.
The numbers suggest a different conclusion. In fiscal year 2024-25, Nepal recorded foreign investment commitments of nearly Rs65bn. Actual realised inflows: just Rs12bn. The conversion rate—18.5%—was an improvement on the previous year, when Rs69.8bn in commitments produced Rs8.4bn in actual investment. The country generates interest easily enough. Turning that interest into power plants and data centres is another matter altogether.
The automatic route, as the term is used internationally, allows foreign investors to put money into specified sectors without prior discretionary approval from a government agency. Submit an application, meet the criteria, receive approval as a matter of course. The alternative—the “government route”—means case-by-case scrutiny and ministerial sign-offs. India has used the automatic route for years. Vietnam has been gradually adjusting its own policies. Nepal’s reform brings it into line with regional peers at the level of written law.
But written law is where the alignment ends. The new system gives investors automatic approval for entry. It does little to speed up what follows: from land acquisition and environmental clearances to tax registration and foreign exchange approvals. The 635-megawatt Dudhkoshi Reservoir Hydropower Project, considered critical for Nepal’s energy security, has been stalled at the environmental-impact-assessment stage. Six international financial institutions, including the Asian Development Bank and the World Bank, have pledged $1.68bn. The Ministry of Forest and Environment returned the EIA report because it missed the legally mandated two-year window.
The World Bank’s latest B-READY assessment makes the difficulty plain. Nepal’s Regulatory Framework score improved. Its Public Services score fell to 42.04, well below the global average of 53.97. Its Operational Efficiency score dropped from 72.21 to 56.15—below the global average of 60.03. The laws are getting better. The institutions meant to implement them are getting worse. One figure stands out: Nepal scored 0.00 in the Operational Efficiency of Business Insolvency. A zero means that when investments fail (and some always will) the country lacks any functional mechanism for orderly exit.
Geopolitics adds further complication. India, Nepal’s dominant electricity buyer, announced in 2024 that it would refuse to purchase power generated from Chinese-built or Chinese-funded plants. Chinese participation in export-oriented hydropower has cooled as a result. Indian state-owned firms, meanwhile, have advanced steadily into key river basins. Investors in geopolitically sensitive projects now face a dual approval process: formal government clearance and informal tolerance by both neighbours. This is hardly a predictable environment for capital allocation.
None of this implies the February notification was trivial. The removal of the ceiling and the elimination of minimum thresholds for IT and digital sectors are welcome liberalisation. Fintech is growing fast: Fonepay, Nepal’s leading digital payment platform, reached a valuation of Rs6.7bn after a Rs1.5bn investment from Khetan Group and its partners. Private-equity and venture-capital funds deployed $64m in a single year, the highest on record. These are real, if small, successes.
But these successes have happened despite the environment. The binding constraints on investment in Nepal lie somewhere other than the approval stage. They lie in land, environmental clearance, inter-agency coordination, contract enforcement and institutional credibility. An automatic-route system that accelerates the first step of a long journey does little to shorten that journey when the subsequent steps remain unchanged. Nepal has opened more doors. Investors will decide to walk through them, and to stay, based on factors that no single announcement can fix. ■
