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Nepal’s total foreign direct investment (FDI) stock reached approximately Rs. 340 billion by the end of fiscal year 2024/25, registering an annual growth of 2.1 per cent, according to a survey report published by Nepal Rastra Bank (NRB).

The Survey Report on Foreign Direct Investment in Nepal shows that gross FDI inflows stood at Rs. 12 billion during the review year, while net inflows amounted to Rs. 7.5 billion after accounting for Rs. 4.7 billion in investment repatriation.

The growth in FDI stock was primarily driven by additional equity investment and reinvested earnings, indicating continued foreign investor confidence and the role of FDI as a source of long-term external financing and productive investment.

Paid-up capital remained the largest component of Nepal’s FDI stock, accounting for 54.2 per cent of the total, followed by reserves at 36.9 per cent and loans at 8.9 per cent.

The share of paid-up capital increased from 50.7 per cent in 2023/24 to 54.2 per cent in 2024/25, while the share of loans declined from 12.6 per cent to 8.9 per cent. The shift indicates a gradual move towards equity-based financing in foreign investment.

According to the report, the industrial sector accounted for the largest share of both total FDI inflows and FDI stock. Manufacturing and electricity and energy were the major recipients of FDI, while financial and insurance activities accounted for the largest share within the service sector.

Despite the growth, Nepal’s FDI remains concentrated in a limited number of sectors. The report stressed the need to diversify FDI into other sectors to strengthen investment resilience and broaden its contribution to the economy.

India remains largest source of FDI

As of mid-July 2025, Nepal had received foreign investment from 60 different countries.

India remained the largest source of FDI in Nepal during FY 2024/25, followed by China, Ireland, Australia and Singapore. Overall, Asian economies continued to dominate Nepal’s FDI landscape.

In terms of total FDI stock, India accounted for 32.8 per cent, followed by China at 9.3 per cent, Ireland at 7.3 per cent, Australia at 6.5 per cent and Singapore at 5.4 per cent.

In terms of paid-up capital, India had a stake of Rs. 57.8 billion, followed by China with Rs. 30.6 billion, South Korea with Rs. 17.6 billion and Hong Kong with Rs. 13.4 billion.

The majority of India’s FDI stock remained concentrated in three sectors—manufacturing (39 per cent), electricity, gas, steam and air conditioning (31.9 per cent), and financial and insurance services (21.3 per cent).

In terms of paid-up capital, the investment in electricity, gas, steam, and air conditioning remains the highest

China's FDI stock is mostly concentrated in electricity, gas, steam, and air conditioning sector, which accounts for 79.1 per cent of total FDI stock, followed by the manufacturing sector at 34.8 per cent.

FDI realisation remains low

Despite a steady increase in the number of approved projects, the actual realisation of FDI remains significantly lower than approved commitments.

The report shows that actual net FDI inflows amounted to only around 29.6 per cent of total approved FDI between FY 1995/96 and 2024/25.

The NRB said narrowing the gap between approved and realised investment remains an important policy priority.

Firstly, FDI approval represents the intended or committed investment, which may not necessarily materialize in full.

Secondly, there are often significant time lags between approval and the actual inflow of capital.

Additionally, investments in sectors with longer gestation periods may be realised incrementally over multiple years.

These factors collectively contribute to the observed discrepancy between approved FDI and actual net inflows.

Nepal continued to liberalize and reform its investment policies and procedures, creating an ecosystem conducive to attracting FDI through promoting the ease of doing business and enhancing online/digital services.

These improvements have improved confidence among investors. However, the survey identified key constraints to a higher FDI inflows such as infrastructure bottlenecks, regulatory and procedural delays and difficulties pertaining to land acquisition.

Despite concurrent regional and global economic uncertainties, Nepal's performance in attracting FDI continued to exhibit positive trends in FY 2024/25.

The government of Nepal has implemented a number of policy and institutional reforms to meet the requirements of promoting investment, including the Foreign Investment and Technology Transfer Act (FITTA) and the establishment of the One Stop Service Centre, alongside various measures to streamline investment procedures.

The government continues to offer significant investment opportunities across hydropower, tourism, information technology, manufacturing, agriculture, and infrastructure.

Sustained policy reforms, enhanced project implementation, and broader sectoral and regional diversification will remain essential to further strengthening the contribution of FDI to Nepal's transformation agenda and broader economic growth.

Author: Laxman Kafle