Nepal’s industrial sector is facing a sustained slowdown, with factories operating at less than half of their installed capacity, reflecting weak capital expenditure by the government, a sluggish construction sector, and declining overall consumption in the economy.

According to the Annual Report on Economic Activities published by Nepal Rastra Bank (NRB), the average industrial capacity utilization rate stood at 44.5 percent in fiscal year 2081/82, down from 48.3 percent in the previous fiscal year 2080/81. The decline highlights continued pressure on domestic industries amid weak demand and delayed public infrastructure spending.

Sector-wise data show a wide disparity in performance. Tyre and tube manufacturing industries recorded the highest capacity utilization at 90.7 percent, while vanaspati ghee producers operated at just 1.1 percent of capacity, the lowest among surveyed industries.

The report indicates an improvement in capacity utilization in several manufacturing segments, including vanaspati ghee, soybean oil, biscuits, instant noodles, beer, cigarettes, synthetic textiles, garments, raw hides, plywood, pharmaceuticals, soap, plastic products, iron and steel products, GI pipes, and transformer manufacturing.

However, capacity utilization declined in industries producing mustard oil, processed milk, rice, wheat flour, animal feed, sugar, chocolates, processed tea, alcoholic beverages, soft drinks, footwear, and electricity, indicating uneven recovery across sectors.

From a provincial perspective, Madhesh and Karnali provinces recorded an increase in average industrial capacity utilization, while Koshi, Bagmati, Gandaki, Lumbini, and Sudurpaschim provinces saw a decline, underscoring regional imbalances in industrial activity.

During the review period, 700 new industries were registered with the Department of Industry. Of these, 235 were tourism-related, 110 in services, 106 in manufacturing, 38 in energy, 185 in information technology, 12 in agriculture and forestry, two in infrastructure, and 12 in mineral-based industries. Among the total, 68 were large-scale industries, 54 medium-scale, and 578 small-scale enterprises.

The registered industries accounted for total capital mobilization of NPR 25.81 trillion, while 35,141 employment opportunities were proposed. A significant concentration of new registrations was observed in Bagmati Province, which alone accounted for 543 industries.

Meanwhile, bank and financial institution lending to the industrial sector reached NPR 16.99 trillion by mid-July 2025 (end of Ashad 2082), representing an 11.95 percent increase year-on-year.

In terms of credit distribution, 35.27 percent of industrial loans were extended to non-food manufacturing industries, followed by 26.26 percent to electricity, gas, and water-related industries, 21.85 percent to agriculture, forestry, and beverage industries, 11.70 percent to construction-related industries, 4.23 percent to metal, machinery, and electronics, and only 0.69 percent to mining-related industries.

The NRB data signal that despite growth in industrial lending, weak demand conditions and slow execution of public investment continue to prevent Nepal’s industrial sector from operating at optimal capacity.