Promise, Pitfalls and the Path Ahead

The last major review of Nepal’s IT industry was based on 2022 data, just after the COVID-19 pandemic. At the time, the industry’s trajectory was clearly upward. That momentum has not stalled, which is encouraging. Many companies that once operated informally have since formalized, and when IIDS releases its second report (IIDS 2.0), we expect the numbers to show even greater growth. Global competition and trends have fuelled this expansion organically.

That earlier report catalyzed consultations, the formation of NAS-IT and growing engagement from development partners. Some IT policy issues even reached Parliament, and structured lobbying began to emerge. The private sector, which was once vocal about policy gaps but unclear on what it needed, has become more organized. In the last two national budgets, the government declared an “IT Decade,” expressed commitment to create 500,000 jobs and announced plans for an IT hub.

This year’s ordinance which opened outbound investment was a positive development. For the first time, Nepali companies were legally permitted to invest abroad. However, implementation has remained low. The fourth amendment to Nepal Rastra Bank’s Foreign Investment and Foreign Loan Management Bylaw, 2021 has set foreign investment limit at $1 million or 50% of average foreign currency earnings from IT exports over the past three years, whichever is lower. Only a handful of Nepali IT companies meet this criteria. Regulatory delays like this will leave Nepal far behind. While the ordinance generated initial optimism, it ultimately failed to empower the very segment it targeted.

Another promising area is the freelancer ecosystem. While freelancing jobs like content writing and editing have declined, demand for software development, DevOps and related tech roles still remain strong. AI is reshaping the space, but Nepali freelancers are competitive, thanks to their cost-effectiveness and professionalism, particularly compared to peers in India, the Philippines, or Vietnam.

Still, skills alone are not enough. Without consistent upskilling, this trend could reverse. We need targeted training, global certifications and access to essential software tools. The current $500 international payment cap hampers this effort and needs urgent revision. There is also the “urban poor freelancer” dynamic—individuals trying to formalize earnings to access loans or buy homes. Initially, many registered with the Inland Revenue Department (IRD), but when tax rates rose, some income began flowing in as remittances to avoid withholding. This trend warrants deeper examination.

Taxation is another sticking point. Companies are required to pay 39% in taxes, while freelancers can pay just 5%—even for similar work. Even though any foreign currency earned through IT work, whether by firms or freelancers, benefits the economy and should be encouraged, this disparity should be reviewed.

As per our estimates, Nepal’s IT industry is now worth around $1.5 billion. The number of registered IT export firms has risen from 106 in 2023 to over 300 today, according to IRD and Department of Industry data. Although formalization is growing, the informal segment still remains significant.

Skills are a critical bottleneck for this industry. Nepal produces roughly 17,000 tech graduates annually. If 35% of tech workers come from non-tech backgrounds, as our study suggests, the talent pool increases only modestly. Reaching the 500,000-job target will require early engagement, starting from as early as Grade 8. Vocational and technical education must be rebranded as a smart, not secondary, path. About 35% of management graduates already work in the tech sector which shows the openness of this sector. Short-term training programs can bridge the gap, but they need scale. Training 20,000 people across 10 future-oriented tech roles, for example, can yield real results.

Early-stage financing is another weak spot. Nepal lacks a true venture capital (VC) ecosystem. What passes for VC here is often just private equity (PE) focused on safer bets like hydropower. Most startups begin with two or three founders without any collateral and limited access to capital. Banks do not understand their models, and current PEVC players only support mature businesses. A funding bridge, through seed capital or government-backed grants, is urgently needed to prevent the startup pipeline from drying up.

The government has expressed ambition but has not consistently followed through. The 2023/24 budget declared it a “foundation year” for digital transformation, referencing the Digital Nepal Framework and e-Governance Blueprint. Yet the Red Book showed no actual funding for implementation. The same story is playing out this year. Great ideas exist, but execution is hampered by weak managerial capacity, fragmented leadership and bureaucratic inertia.

There is room for optimism though. Awareness about digital transformation is growing, especially in the Prime Minister’s Office, the e-Governance Board, and the Ministry of Communication and IT. More technically trained bureaucrats are assuming leadership roles. But institutional capacity must be built, not just assumed.

Our restrictive stance on international education and foreign-affiliated universities is another issue. Some operate with questionable quality, advertising ‘no exams’ and offering little real value. Still, we should welcome credible institutions with global affiliations, like India has with MIT-linked campuses, as long as quality and transparency are guaranteed. We also need to reimagine education itself. The old bachelor’s-master’s model is fading. Gen Z and Gen Alpha are gravitating toward micro-credentials and skill-based learning. Our systems must evolve to allow permeability between vocational, academic and global tracks.

From an infrastructure standpoint, connectivity is now as essential as food or shelter. However, our telecom sector continues to lag, hurting the digital economy. A strong digital public infrastructure is needed. India’s Aadhaar offers a useful model for us. Nepal’s National ID rollout is a start, but interoperability and service integration are still lacking.

On the global front, the US accounts for over 77% of Nepal’s IT service exports, followed by Europe. The Middle East is emerging as a new market. With decades of labor migration to the region, why not expand this relationship into skilled tech labor? Bilateral digital employment agreements could be a win-win situation for both parties.

Leading companies like Cedar Gate, Leapfrog, Deerwalk/Deerhold, Fusemachines, CloudFactory, SecurityPal, LogPoint, Amnil, QuickFox and Techkraft highlight Nepal’s talent. Yet we have not fully leveraged or marketed this talent globally. Most firms serve foreign startups and SMEs. The corporate enterprise market remains untapped.

A recent review of 12,000 registered IT companies found only about 7,000 active, and only 800–900 have proper office setups. Many register multiple entities to qualify for procurement bids, padding the numbers without adding value. Public procurement policies must be updated to build trust in domestic products.

Ironically, the government itself undermines local innovation by spending millions on foreign software. State-run systems are stretched, operated by understaffed and undertrained teams. Digitization has not yet translated into greater accountability. The legacy mindset still dominates.

To move forward, we need committed leadership—both political and institutional. Tech diplomacy efforts have begun, and private sector voices are growing louder. But without a dedicated champion for Nepal’s digital economy, progress will remain fragmented.

The sector’s income potential is clear. Junior professionals earn around Rs 50,000 a month and mid-level employees make Rs 150,000, while senior roles can reach Rs 300,000. Freelancers often earn more—some reportedly up to Rs 80 million annually. Even moderate freelance earnings of Rs 200,000–250,000 per month is higher than Nepal’s minimum wage.

What kind of work are Nepali firms doing for global clients? Software development (frontend and backend), UI/UX, DevOps and increasingly AI-driven services, especially in health and education, are some of the services that Nepali firms provide. Python remains a sought-after skill. But to move beyond SMEs and reach global corporations, we need stronger branding, sales pipelines and global certifications.

Gender disparity is another matter of concern for us. Only 7.88% of core IT roles are held by women. While there appears to be no pay gap in Nepal, more investment is needed to bring girls and women into STEM fields.

Nepal has the ingredients—skills, ambition and connectivity—to be a serious digital player. But to get there, we need structure, scale and smart policy. The global workforce is already transforming. If we do not act now, we may miss the moment.

This was the cover opinion of August 2025 issue of New Business Age Magazine.