Signs of Recovery Emerge at State Enterprises, but Test of Sustainability Remains

Kathmandu — Several of Nepal’s long-troubled state-owned enterprises have begun reporting improvements in sales, production, revenue and debt servicing, prompting the government to argue that commercially weak public institutions can be revived through stronger management and enforcement of existing rules.

Prime Minister Balendra Shah, who took office in March 2026, presented Nepal Drugs Limited, Hetauda Textile Industry, Nepal Airlines Corporation, Dairy Development Corporation and Singha Durbar Vaidyakhana as examples of enterprises where operational improvements have begun to emerge. The Prime Minister’s Office confirms Shah as the current head of government.

The figures provide some grounds for optimism. But they do not yet establish that Nepal’s chronically troubled public enterprises have achieved a durable financial turnaround. In several cases, the reported gains cover only a few months, while some revival programmes began under previous governments rather than after the formation of the present administration.

Prime Minister Shah said the government had prioritised coordination, facilitation and enforcement to revive state enterprises and make them more competitive. He attributed recent improvements partly to stronger institutional discipline and teamwork.

Nepal Drugs returns to profit

Nepal Drugs Limited provides one of the clearer indications of operational improvement. The state-owned pharmaceutical company sold medicines worth Rs 23.8 million during the past four months and reported a profit of around Rs 30 million in the last fiscal year. It is currently producing 11 types of medicines.

The company plans to raise annual medicine sales to Rs 300 million and expand production significantly. Under the government's governance reform programme, Nepal Drugs has been assigned a longer-term target of producing 98 types of medicines distributed free through public health programmes. It aims to expand production to 37 types this year, with preparations for 25 products reported to be in advanced stages.

The significance of the profit goes beyond the Rs 30 million figure. Nepal Drugs had previously reached a point where it struggled to meet salary and administrative expenses without government support. Its management says broader production and government procurement through federal, provincial and local levels have helped strengthen operations.

However, portraying the recovery as solely a result of the current administration would be misleading. The company’s revival began years earlier. After remaining shut for roughly a decade, efforts to restart production were initiated in 2016/17, followed by successive rounds of investment and management reform under different governments. The present gains therefore represent both earlier restructuring and more recent measures.

Hetauda Textile enters trial-production phase

At Hetauda Textile Industry, the development is more preliminary.

The factory, which had remained closed for years, has begun trial production after repairs to its looms. The government has assigned the Nepal Army responsibility for the trial phase, after which a decision is expected on the industry's broader operating model.

Restarting machines, however, is different from restoring a commercially viable textile industry.

For Hetauda Textile to become sustainable, the government will eventually have to demonstrate that it can manufacture cloth at a competitive cost, maintain quality, secure a reliable market, manage staffing efficiently and finance maintenance without repeatedly requiring budgetary support.

The factory's trial production should therefore be viewed as a technical restart, not yet as evidence of a successful financial turnaround.

Past governments had also studied options for reopening the industry, meaning the current trial-production programme forms part of a much longer history of attempted revival.

Nepal Airlines reports stronger revenue and occupancy

Nepal Airlines Corporation has meanwhile reported a sharp improvement in revenue over a four-month period.

From Chaitra to Asar in the last fiscal year, the national flag carrier generated Rs 6.276 billion in revenue, an increase of roughly Rs 1.102 billion from the corresponding period a year earlier. Seat occupancy reached 86 percent, up six percentage points year-on-year.

During the same period, the corporation paid Rs 1.062 billion in instalments on loans taken from the Employees Provident Fund and Citizen Investment Trust for aircraft purchases.

Higher occupancy and revenue are important because an airline with expensive aircraft and high fixed costs needs to maximise the productive use of its fleet. An improvement from around 80 percent to 86 percent occupancy suggests stronger utilisation of available seats.

But revenue should not be confused with profit.

For Nepal Airlines, the stronger test will be whether higher passenger income can consistently cover fuel, aircraft maintenance, leasing or financing expenses, employee costs, airport charges and its substantial debt obligations. A four-month rise in revenue is positive, but it is insufficient by itself to determine whether the airline's underlying financial position has been permanently repaired.

DDC cuts farmer arrears as sales rise

The Dairy Development Corporation has recorded some of the most tangible improvements for suppliers.

The state-owned dairy company has reduced the payment cycle for farmers from as long as eight months to about two to three months. Outstanding payments have fallen from around Rs 720 million to Rs 350 million.

DDC also reports that daily sales have increased by around 35 percent, while average daily revenue has risen from approximately Rs 6 million to Rs 9 million. Farmers have additionally been offered a Rs 1-per-litre incentive on milk.

The corporation says ending a longstanding practice of distributing milk and ghee benefits to employees has reduced annual expenditure by nearly Rs 30 million. It has also expanded retail outlets and is preparing to explore exports of ghee to Gulf markets and butter and churpi to China.

Reducing farmer arrears is arguably more meaningful than simply reporting higher turnover. Delayed payments weaken farmers' cash flow and can ultimately discourage milk production. Shortening the payment cycle therefore improves both supplier confidence and the corporation's relationship with its production base.

But DDC still has around Rs 350 million in outstanding liabilities to farmers. The real turnaround will come only when the institution can maintain timely payments without relying on temporary support or allowing another accumulation of arrears.

Singha Durbar Vaidyakhana expands production

Singha Durbar Vaidyakhana has also reported a substantial expansion in its Ayurvedic medicine business.

Since the new government was formed, the institution says it has produced and marketed medicines worth Rs 111.6 million. Its total medicine turnover in the last fiscal year reached nearly Rs 130 million, approximately four times the previous year's level.

The institution currently produces 105 types of Ayurvedic medicines and aims to increase that number to 150 during the current fiscal year. It is also seeking Good Manufacturing Practice certification for powder and tablet production and plans to establish a processing facility for herbs and medicinal raw materials.

If sustained, the expansion could strengthen domestic production of Ayurvedic medicines and reduce dependence on some imported products. However, increasing the number of medicines produced will have limited commercial value unless demand, quality control, distribution and profitability grow alongside production.

Early progress, not yet a full turnaround

Taken together, the figures suggest that management changes and closer government attention are producing measurable improvements in several state enterprises.

Nepal Drugs has returned to reported profitability, DDC has reduced farmer arrears, Nepal Airlines has increased revenue and occupancy, Singha Durbar Vaidyakhana has expanded turnover, and Hetauda Textile has restarted limited production.

Yet these indicators measure different things. Revenue growth is not profit, trial production is not commercial viability, and reduced arrears do not mean liabilities have disappeared.

That distinction is important because Nepal's public enterprises have historically struggled with weak governance, political interference, overstaffing, ageing technology, inefficient procurement and repeated dependence on state support.

The broader question is therefore not whether individual institutions can show improvement over several months, but whether those gains can survive changes in management and government.

The debate also extends to whether the state itself should continue operating commercial industries. Nepal's private sector has argued that while reopening strategically important factories may be justified, the government should primarily create the regulatory environment and allow private operators to manage businesses where commercial competition is possible.

The government is already conducting due-diligence assessments of seven other state-owned industries—including Janakpur Cigarette Factory, Gorakhkali Rubber Industry, Udayapur Cement, Hetauda Cement, Nepal Metal Company, Butwal Spinning Mills and Nepal Orind Magnesite—to determine their assets, liabilities and possible operating models.

That process could prove more important than symbolic reopening.

Some enterprises may justify continued state ownership because of strategic, public-service or supply-security considerations. Others may be better suited to private operation, public-private partnerships, restructuring or even closure if there is no credible route to commercial sustainability.

The latest improvements therefore provide evidence that ailing state enterprises are not necessarily beyond recovery. But they do not yet prove that Nepal has solved the deeper problem of how public businesses should be governed.

The decisive indicators will come later: sustained profitability, lower liabilities, higher productivity, timely debt servicing, competitive pricing, professional management and reduced dependence on government transfers.

If those measures improve consistently over several fiscal years, the current developments could mark the beginning of a genuine revival. Until then, they are best understood as promising early results rather than a completed turnaround.