In an attempt to make its policy attractive to investors, the government has removed the upper ceiling on foreign direct investment through the automatic route, a cap that previously limited inflows to Rs 500 million. Acting under the Foreign Investment and Technology Transfer Act 2019, the Ministry of Industry, Commerce and Supplies has widened the door. Foreign investors can now bring in as much capital as they are prepared to commit. The change applies to both automatic and manual approval systems. One condition remains in place: except for IT projects, investors must still meet a minimum threshold of Rs 200 million to qualify through the online window. The government has identified 102 businesses under the automatic route that will now operate without an upper limit. These include energy, agriculture and forest-based industries, manufacturing, services, infrastructure, tourism, and a growing list of IT activities. The Cabinet endorsed the policy last month, clearly hoping it will finally improve Nepal’s persistently weak FDI performance. From the government’s standpoint, the reasoning is plain enough. Nepal has spent years trying to present itself as investment friendly but has struggled to attract large foreign capital. Even after lowering the minimum FDI threshold from Rs 50 million to Rs 20 million in 2022 and revising several laws, inflows remained modest.
Call for red carpet treatment to FDI in priority sectors
Removing the cap aims at gaining big outcomes. First, the move improves Nepal’s image in the global investment market. Large investors rarely accept artificial limits, and the earlier ceiling kept the automatic route useful mainly for mid-sized ventures.The reform could also support sectors that require heavy upfront capital. Energy projects, data infrastructure, and advanced manufacturing often demand deep financial commitments from the outset. The fast track approval system is another welcome step. Nepal’s bureaucracy has long tested investor patience, and a smoother process could save months of delay. If the system works as promised, investors will take note.The IT sector may see the quickest benefit. By allowing unlimited online investment with no minimum ceiling, the government is signaling a serious push toward the digital economy. Data centres, cloud services, and outsourcing firms do not always require large physical space, but they depend heavily on predictable rules and policy clarity. On paper, this reform brings Nepal closer to its regional competitors.Still, removing the cap will not solve Nepal’s FDI problem on its own. Investors continue to worry about political uncertainty, slow contract enforcement, weak infrastructure, and frequent policy reversals.
If these issues persist, the new rule risks becoming another well intended reform that looks good in the Gazette but produces limited results on the ground.There is also a domestic dimension the government must handle with care. Unlimited foreign capital can unsettle local businesses, particularly in manufacturing and services. Without sensible safeguards, large foreign firms could crowd out smaller Nepali enterprises. That would invite resistance from the very private sector the government is trying to encourage. Meanwhile, policy consistency must come first. Investors watch what governments do over time, not what they promise in a single notice. Regulatory bodies must process approvals quickly and predictably. Infrastructure gaps in power transmission, logistics, and digital connectivity require steady attention. At the same time, domestic firms need better access to finance and technology partnerships so they can grow alongside foreign entrants. Removing the FDI ceiling sends a strong signal. Still, signals alone do not build factories or data centers. If the government follows through with steady policy, clean administration, and real improvements on the ground, Nepal’s investment outlook could finally improve.
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