**Nepal’s FDI Growth Hinges on Effective Implementation of Automatic Route**
Effective implementation of the simplified process known as the automatic route has significantly boosted foreign direct investment (FDI) commitments in Nepal. The recent surge in FDI commitments can be attributed to the growing effectiveness of the automatic route. Data from the Department of Industry shows that Nepal received investment pledges worth Rs57.97 billion for 480 projects during the review period. These commitments are expected to generate employment for 12,435 people. Prashant Bohara, director of the Foreign Investment and Technology Transfer Division at the Department of Industry, attributed the sharp rise in FDI commitments to investors using the automatic route. The automatic route allows foreign entities or individuals to invest in specified sectors without needing prior approval from government authorities. This system has created a more hassle-free environment, encouraging foreign entities to invest in Nepal. According to the Department of Industry, FDI commitments amounting to Rs55.07 billion were approved for 256 projects via the automatic route alone. The system saves investors considerable time and effort. Foreign investors can initiate the process by visiting the official online portal at www.imis.doind.gov.np. By submitting the necessary documents through the system, applicants receive approval notifications via email along with an application number, which is used for company registration in Nepal. The government has also introduced amendments to the Foreign Investment and Technology Transfer Act, 2019 (FITTA) through an ordinance, aiming to enhance the FDI environment. Prashant Bohara said that the legislative update may also have contributed to the recent surge in FDI commitments. Under the amended ordinance, foreign investors are allowed to make equity investments in Nepali industries by purchasing units of venture capital funds or through specialised investment funds registered under the Securities Board of Nepal. However, the ordinance still restricts foreign investment in specific agricultural sectors, including animal husbandry, fisheries, beekeeping, fruits, vegetables, oilseeds, pulses, and dairy. An exception is made for large-scale industries in these sectors that export at least 75 percent of their products. Another key amendment is the removal of the requirement for a recommendation from the provincial ministry to obtain approval for foreign investment or technology transfer in industries registered at the provincial level. Investors are now only required to obtain a certificate of industry registration. Despite the significant increase in FDI commitments, the actual inflow of foreign direct investment remains relatively low. Nepal Rastra Bank reported that the country received only Rs8.49 billion in FDI (equity only) during the first eight months of the current fiscal year. This is a modest rise compared to Rs5.63 billion during the same period in the previous fiscal year. Most of the investment commitments during the review period were for small-scale industries. Out of the 480 projects, the Department of Industry reported that 468 were small-scale, while there were only four large-scale projects and eight medium-scale projects. The service sector attracted the highest FDI commitments, totalling Rs34.92 billion for 63 projects. The tourism sector followed with Rs18.38 billion pledged for 189 projects. The manufacturing sector received Rs2.74 billion across 34 projects, while the information and communication technology sector drew Rs1.11 billion. The agro- and forestry-based sectors attracted Rs761 million in commitments. In terms of financial transactions, foreign investors repatriated Rs1.47 billion during the review period. The department also collected Rs451.79 million in service fees from FDI commitment applications over the first nine months of the fiscal year. Nepal’s primary sources of foreign investment remain China and India. By the first 11 months of the previous fiscal year, China had committed Rs224.13 billion, accounting for 45.34 percent of the total FDI share. India followed with Rs106.48 billion, accounting for 21.54 percent. Additional FDI commitments during that period also came from countries such as Hong Kong, South Korea, the United States, the United Kingdom, the British Virgin Islands, Singapore, Spain, and Australia. Despite ongoing efforts to attract more foreign direct investment, the World Bank has projected that Nepal’s FDI inflows will remain low in the current fiscal year. Nepal Development Update, published by the World Bank in April 2025, noted that net foreign direct investment accounted for less than 0.1 percent of the country’s gross domestic product in the first half of the fiscal year 2024-25. Industry experts and insiders attribute Nepal’s political instability as a significant factor discouraging long-term foreign investment. Frequent shifts in policy and governance have created uncertainty, which limits investor confidence and hinders consistent capital inflows into the country.
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