Nepal’s average industrial capacity utilization fell to 48.3% in the last fiscal year (2023/24), marking its lowest level in  eight years , according to the latest Nepal Rastra Bank (NRB) report. Prior to this, it was 48.2% in fiscal year, 2015/16 .

The NRB study on economic activities highlights persistent challenges in the industrial sector, including the need to create an investment-friendly environment, develop essential infrastructure such as roads, energy, and communication, and attract foreign investment to facilitate technology transfer and enhance managerial capacity. These issues continue to undermine the sector’s growth potential.  

Another critical challenge identified in the report is the outmigration of semi-skilled and skilled workers. Due to a lack of dignified job opportunities at home, the number of Nepali workers seeking employment abroad has increased. In the first seven months of the current fiscal year, 2024/25, 274,622 first-time labor permits were issued, up from 245,432 in the same period last fiscal year. Additionally, 190,886 Nepali migrant workers renewed their labor permits in the period, a rise from 157,045. These numbers do not include those migrating to India for seasonal jobs.  

Read: Economic Challenges Hurt Manufacturing Industries

The report emphasizes the importance of boosting investment in export-oriented industries and improving labor relations to foster a harmonious industrial environment. 

Among the industries surveyed, pashmina manufacturing units had the highest capacity utilization at 97.9%, while those producing vegetable ghee recorded the lowest at just 0.9%. 

Several other industries saw increased capacity utilization, including those involved in the production of processed milk, rice, wheat flour, sugar, processed tea, liquor, soft drinks, yarn, GI wire, cement, household metal products, aluminum, electrical wires, tires and tubes, transformers, and footwear.  

On the other hand, industries producing mustard oil, soybean oil, animal feed, biscuits, chocolates, instant noodles, beer, cigarettes, synthetic textiles, garments, raw hides, plywood, paper, resin, paints, pharmaceutical products (tablets, capsules, ointments, dry syrups), soap, plastic goods, jute products, polythene pipes, bricks, concrete, iron rods and sheets, steel products, GI pipes, fabric shoes, and electricity all saw a decline in capacity utilization.  

FY	Industrial Capacity Utilization
2015/16	48.2%
2016/17	57.3%
2017/18	59.7%
2018/19	57.1%
2019/20	48.4%
2020/21	52.2%
2021/22	52.8%
2022/23	49.8%
2023/24	48.3%

Source: NRB

The NRB study further identifies additional challenges within the industrial sector, such as reducing the cost of establishing and operating new industries, effectively managing and expanding existing industrial zones, corridors, and special economic zones, increasing the production and consumption of domestic raw materials, and ensuring adequate energy and space for industrial operations. Moreover, enhancing the efficiency of industrial supply chains remains a pressing need.  

The decline in industrial capacity utilization has been reported despite the growth in lending from bank and financial institutions (BFIs) to the industrial sector. It increased 9.4% year-on-year in FY 2023/24, reaching Rs 1.518 trillion. In the same period the previous year, industrial lending had grown by 10.8%, the report says.

Industrial loans accounted for 29.4% of total lending, with significant sector-wise distribution: 38.03% for the non-food manufacturing industry (the highest), 24.25%** for the electricity, gas, and water industry, 20.53% for the agriculture, forestry, and beverage industry, 11.81% for the construction industry, and 4.59% for metal production, machinery, and electronics. The mining industry received the least share at just 0.80%.  

In terms of geographical distribution, Bagmati Province received the highest share of industrial loan investment, amounting to Rs 1.063 trillion, while Karnali Province saw the least, with only Rs 4.11 billion in industrial loans.  

Earlier this year, the Provincial Economic Activities Report (Integrated) for FY 2023/24 revealed that industrial capacity utilization had declined across all provinces except Koshi.