Indian industrialists and businesses investing in Nepal base their investment decisions primarily on Nepal’s political environment, a new study has revealed.

A survey conducted by the Nepal-India Chamber of Commerce and Industry (NICCI) on the "Business Environment in Nepal for Indian Companies" revealed that most Indian investors consider political stability as the key factor influencing their investments. Amid concerns over Nepal’s deteriorating investment climate due to frequent government changes, Indian companies operating in Nepal have highlighted political instability as their primary concern.

According to the report released on Sunday, 88 percent of respondents said the political environment directly impacts their investment decisions, underscoring its significance.

The study covered 17 out of 30 Indian companies currently operating in Nepal, focusing on the business environment and potential for investment expansion. Participants noted that their investments in Nepal were part of their global business expansion strategy. Among the reasons for choosing Nepal, 12 companies cited its geographical proximity, while the availability of human resources was another major factor.

However, policy instability emerged as the biggest challenge for investors. Legal and administrative hurdles, procedural inefficiencies, and underdeveloped infrastructure were also identified as key obstacles.

The study found that Indian companies in Nepal typically reach the "break-even" point within 3 to 5 years—something that is not always achievable in India. However, it pointed out that Nepal's high cost of capital remains a challenge, with interest rates ranging between 15-16 percent. The report recommended stabilizing and reducing these rates, particularly for investments in the green economy.

The study also emphasized the need for policy stability to foster a better investment environment. While Nepalese law currently allows foreign workers, including Indians, to remit 70 percent of their salaries abroad, the report suggested introducing a classification system based on income, allowing high-earning workers to remit up to 80 percent.

According to the Indian Embassy in Nepal, 150 Indian companies had invested in Nepal as of 2022, spanning manufacturing, services (including banking, insurance, dry ports, education, and communication), energy, and tourism sectors.

The findings of the survey were made public during the Prabhakar SJB Rana Memorial Lecture 2025, organized by NICCI in Kathmandu on Sunday.