In a new book, a Nepali entrepreneur projects the economic future of his country

When we are trying to reimagine Nepal, it becomes paramount to understand the way the Nepali economy has transformed since it was liberalised in 1990.

Nepal’s economy has always been unique. Whenever I am asked to provide a perspective on Nepal to potential clients, I argue that talking about the GDP or the per capita income as indicators does not provide the real picture of the Nepali economy. This is because two major economic activities in Nepal do not feature in the GDP computation: remittances and activities around capital transfer related to land and assets.

Further, the economy is driven by consumption, and the government has been happy to tax consumption, making Nepal the country with the highest tax-to-GDP ratio in South Asia.

The government has also found different ways to increase taxes on consumption. Nepalis pay high import duties on vehicles, comparable to Singapore. When the government saw that many Nepalis were frequently travelling – both domestically and internationally – they started to impose a 13% value-added tax (VAT) on air tickets. There are withholding taxes for any international firm providing education, consulting, or other services, which adds to the cost of services. The bottom line has been to find an easy way – wherever there is spending, tax the spending! These are impediments to creating economic opportunities through reforms. Economic reforms are necessary to attract investments and create more revenues through the creation of jobs and an increase in business volumes.

Despite the fact that the GDP calculation isn’t comprehensive, if one were to look at it as an indicator, Nepal’s GDP has grown at a pace similar to other countries in South Asia. From a GDP of $508 million in 1960, when we began to record statistics, it staggered to $4 billion in 1990, when multiparty democracy was restored, and crossed $10 billion in 2006, when the Shah regime ended. Thereafter, the economy grew to $44 billion in 2024, a fourfold jump in 18 years. The Vision 2030 document projects Nepal’s GDP at $100 billion, and the Vision 2043 document of the government estimates that Nepal will be a $423-billion economy with a per capita income of $12,100.

I project that, given the current trends, by 2043, about 7 to 8 million Nepalis will be living outside Nepal, and the chances of formal and informal remittances crossing the $100 billion mark are very high. Capital transfers will continue to grow, along with consumption. Higher literacy rates, better access to education and healthcare, and the shrinking of the world through innovation in communication and technology will all further increase the mobility of Nepalis, who will pursue “higration” towards greener pastures.

When one dissects the Nepali economy, one discovers four distinct traits, particularly when it comes to consumer and spending behaviour. First, it is a rent-seeking populace and is slowly moving towards becoming an entrepreneurial one too. An expatriate consultant working with us was amazed to see the cafés filled with young Nepalis. We went to one of them, and he figured out that the prices were on par with cafés in the US. He was asking me how people can afford this; he had been reading reports about how Nepal is a poor country. I explained to him, as I do to many, that most Nepalis who spend the money do not have to earn it. Many of them receive remittances and therefore have the luxury to spend them the way they want. Four out of five households in Nepal have someone sending them remittances from abroad.

Second, many of them also earn rent from inherited properties or properties they have built after selling inherited land. With 81% of Nepalis living in their own homes, building a property for one’s own use and renting it out is very popular. When we at Beed Management worked on the remittances study in 2023, we realised that they amounted to nearly $10 billion, or, in other words, a quarter of Nepal’s GDP. We were also startled to discover that there was an equal amount of informal remittances as well. This means the total remittance is $20 billion! For every dollar of remittances that come through formal channels like banking and money transfer agencies, there is an equal dollar that does not reach Nepal. This money is either retained in the country where it is earned or it gets to Nepal through informal channels like hundi or gold, electronics, and other goods.

Third, we were quite taken aback when we realised that social spending on festivities, events and lifestyle augmentation does not change during any crisis. Weddings and social functions continued undeterred in the aftermath of the earthquake, the blockade or the COVID-19 pandemic. An intern from the UK, who was working with us, happened to be in Nepal during the unprecedented floods in his neighbourhood in October 2024. He was shocked that the damage caused by the floods did not deter his landlord or the neighbourhood from going ahead with the festivities.

Fourth, compared to other regional markets, peer pressure from family and friends seem to drive decision making rather than individual judgment. Ujaya Shakya, an advertising professional and author of Brandsutra, has been telling companies that the Nepali consumer is different. He explains that the youth, even in smaller towns and not just in Kathmandu, are more conscious of their lifestyle. They want better things in life.

People running educational consulting businesses often share stories of students arriving in droves and making decisions based purely on peer pressure. Similarly, in our work with clients in the automobile sector, we at Beed Management have observed – backed by research – that decisions on which vehicle to purchase are more influenced by peer dynamics than by research. Our studies show that automobile companies resort to selling to social influencers and pushing their message through word of mouth.

Lastly, there is a large informal economy. A study by the Central Department of Economics and the Nepal Rastra Bank in 2024 puts the size of the informal economy at 38.6%. The study also reveals that 99% of real estate transactions happen in the informal space. Further, the study corroborates the existence of the well-known informal trade across the 1770-kilometre border with India. There is a lot of potential as parts of the informal economy transition into the formal economy and therefore become accounted for.

Excerpted with permission from Nepal 2043: The Road to Prosperity, Sujeev Shakya, Penguin India.