Proliferation of Regulators and Policy Paralysis: When Governance Turns into Complexity

In recent years, Nepal has witnessed a rapid expansion of regulatory bodies, each introduced in the name of good governance, transparency and corruption control. While the intent appears noble on paper, the outcome on the ground has been increasingly counterproductive. As regulatory layers multiply, decision-making has become slower, more cautious and, in many cases, paralysed by fear. This growing institutional complexity is now directly affecting citizens, businesses and the overall momentum of the economy.

Within government offices, a culture of risk aversion has taken hold. Officials increasingly prefer inaction over decision-making, driven by the mindset that a steady salary is safer than the potential consequences of taking responsibility. This reluctance has weakened service delivery, delayed projects and strained coordination with the private sector. Instead of facilitating development, governance structures are inadvertently discouraging initiative and accountability.

The impact is equally visible in the financial sector. Banks and financial institutions have become excessively cautious, even when making routine commercial decisions. With the scope of anti-corruption oversight expanding to private banks, senior executives now hesitate to approve loans or investments that carry even moderate risk. This fear-driven environment threatens to slow credit flow, weaken financial dynamism and ultimately constrain economic growth.

Ironically, despite the increase in regulatory bodies, there is little evidence of significant improvement in corruption control. If the mere addition of watchdogs were enough, the state itself would already be the most transparent institution. Instead, a troubling pattern has emerged: honest officials and compliant businesses face scrutiny and procedural traps, while large-scale malpractice often goes untouched. The result is a system where compliance is penalised and bold decision-making is discouraged.

This regulatory overload has created policy contradictions. On one hand, Nepal promotes an open and market-oriented economy; on the other, it tightens control mechanisms that interfere with basic business operations. Companies are questioned for adjusting prices in response to market conditions, even when such adjustments are necessary for survival. When firms are prevented from responding to falling prices due to fear of investigation, unsold inventory accumulates and businesses face collapse. What is framed as consumer protection can, in practice, destroy legitimate enterprises.

Demographic change has compounded these challenges. Large-scale labour migration has reduced domestic consumption, shrinking the internal market. With a significant portion of the population working abroad, demand has fallen, particularly in trading and retail sectors. Yet, declining profits are often portrayed as losses, reinforcing a narrative of economic crisis. This misrepresentation has further damaged business confidence and public perception.

Before the COVID-19 pandemic, economic activity remained relatively stable. However, subsequent years were marked by high interest rates that hit small and medium enterprises, manufacturing, retail trade, real estate and the stock market. Trading businesses, once highly profitable, became less attractive, but high borrowing costs discouraged a shift toward production-based industries. As factories closed and jobs disappeared, outward migration accelerated, further weakening domestic demand.

Policy missteps aggravated the situation. Interest rates were kept high to control imports, yet the result was the opposite. Rising production costs made domestic goods less competitive, increasing reliance on imports. Had borrowing costs been lowered earlier, domestic production might have been sustained, reducing both imports and job losses.

The government formed after recent youth-led protests is now seen as a potential turning point. However, expectations are high and time is limited. Analysts argue that real change will only occur if policy focuses on job creation at the grassroots level. Agriculture, agro-forestry, tourism and information technology are widely identified as priority sectors capable of generating employment within a few years. Without decisive action, migration will continue and domestic economic capacity will erode further.

Agriculture remains a critical concern. Traditional farming of rice, maize and wheat yields low returns, often insufficient to sustain a family. Many farmers own less than a bigha of land, making subsistence unavoidable. Unless agricultural models are transformed to generate significantly higher income per unit of land, rural livelihoods will remain unviable. Local governments could play a role by leasing land to landless farmers and supporting commercial-scale farming.

Import substitution has become a strategic necessity. Reducing a significant portion of current imports through domestic production would strengthen food security, create jobs and ease pressure on foreign exchange reserves. This shift cannot rely solely on staple crops; it must include high-value products, processing industries and alternative crops that deliver better margins.

Forestry presents another overlooked opportunity. Despite forests covering the majority of Nepal’s land area, utilisation remains minimal. Valuable timber decays in forests while furniture wood is imported. Medicinal herbs and non-timber forest products have growing demand in regional and global markets, yet remain underexploited. Properly managed, forest-based industries could generate revenue, employment and exports while reducing the trade deficit.

Tourism, too, suffers from weak promotion rather than lack of potential. Nepal offers a wide range of adventure, religious and cultural destinations, but global awareness remains limited. Millions of pilgrims visit religious sites in neighbouring countries each year, often unaware of equally significant sites within Nepal. Poor branding, limited diplomatic coordination and weak international marketing have prevented Nepal from capturing this market.

Recent incidents of unrest have also damaged Nepal’s international image. Reports of violence near major hotels and urban centres have raised safety concerns among potential visitors. Restoring confidence requires coordinated diplomatic messaging, engagement with international media and proactive tourism promotion. Inviting foreign journalists and travel writers could provide a cost-effective way to reshape perceptions.

The information technology sector stands out as a rare bright spot. Nepali IT professionals already earn substantial income through remote work, but unclear tax rules and regulatory uncertainty discourage formalisation. With supportive policies, the sector could rapidly expand exports, potentially generating revenues comparable to traditional industries. Nepal’s competitive labour costs and growing talent pool position it well to attract international firms, provided the regulatory environment becomes predictable.

Meanwhile, rural hills face depopulation. Improved road access has allowed cheaper goods from the plains to flood hill markets, making local production uncompetitive. Without alternative employment, young people leave, villages empty and farmland lies abandoned. Revitalising hill agriculture requires modern techniques, intercropping and market-oriented production that significantly raises income per unit of land.

Ultimately, Nepal’s challenge is not a lack of potential but a governance model that has become overly restrictive and misaligned with economic realities. Good governance should empower institutions to act decisively, not immobilise them through fear. Rationalising regulatory bodies, restoring confidence in decision-making and aligning policy with ground realities are essential steps toward recovery.

Without these reforms, well-intentioned oversight risks becoming an obstacle rather than a safeguard. With them, Nepal could unlock dormant sectors, restore domestic confidence and chart a more sustainable path toward inclusive growth.