Nepal is in a political crisis, as Gen-Z protested against the ruling government because of the recent law brought by the Government led by K.P. Sharma Oli that bans 26 social media apps. In this widespread Nepal protest, protesters set fire to government institutions, damaged private property, and the residences of elected members of parliament. However, it’s not only about toppling the Nepal government and focusing on the political scenario; it shows the anger and outrage of Gen-Z towards social and economic conditions.
The unemployment rate (19%), nepotism, and a high level of corruption are also important factors that triggered the youth of Nepal to protest against the Government, and the hotspot was Kathmandu Nepal. This article shows the insights into the economic condition and challenges in Nepal, along with the mood of investors after this chaos.
Nepal’s Political Crisis- Impact On Nepal Economy
Inward Remittances
The driving gears in Nepal’s economy are remittances, trade, tourism, agriculture, and hydropower. Inward remittance plays a significant role in this country’s GDP, as this factor contributes around 30% to the country’s GDP, and the transaction value of the same is expected to reach $13.35 billion by the year’s end.
However, there is a slight chance that the figure may change due to the current political instability, but social and political causes might affect the country’s GDP.
Trade
Moving to the trade section, Nepal is a trade deficit country that heavily relies on its neighboring countries, like India and China. In the fiscal year 2024-25, the trade deficit was NPR 237.45 billion, accounting for NPR 144.67 billion to China and NPR 51.80 billion, where imports of goods were high compared to exports.
Due to the Nepal protests, trade with China and India will drop because all the major sources for logistics transportation are either suspended or blocked by the protesters.
Tourism
In 2023, the tourism sector in Nepal contributed 1.1% to GDP, where tourists from around the world come to this country to enjoy the scenic view of the mountain, devotees come to visit the pilgrimage, and some come for adventure purposes.
But, as per the latest news of Nepal, this violent protest has created fear among travellers, and they are hesitating to step into this land, and those who are already in this place are trying to connect with their nation’s embassies to reach their respective countries. Such chaos will hit the tourism sector and will affect the country’s GDP.
Gen-Z Revolt In Nepal Created An Atmosphere Of Fear Among Foreign Investors
Every investor wants to invest in those countries that are politically stable and offer fair FDI policies. Even in 2023, the government simplified the FDI policy by streamlining the processes through an online platform. Such a step has shown a positive impact on FDI, where a jump of 13.26% was witnessed compared to the previous year.
But as per the Nepal news, the protest in Nepal led to the stock market crisis, which created fear among investors, as more than 150 Indian companies are running their businesses from Nepal, which accounts for 35% FDI in Nepal.
The major industries covered by these companies are energy, telecom, and FMCG. Due to political turmoil, the supply chain has been disrupted because two key routes, i.e., Raxaul-Birganj and Sunauli-Bhairahawa, are blocked, and as a result, the Indian exporters are worrying about the shipment of their goods and also have a fear of financial loss.
Similarly, some of the giant Indian companies have also invested a heavy amount in hydropower projects in Nepal, and due to the Nepal economy crisis, there is uncertainty in the work. If this chaos lasts for a long time, then foreign investors will face a huge loss, and significantly, there will be a huge drop in FDI in Nepal.
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Impact On India Due To Nepal’s Political Crisis
India believes in the Neighbor-First Policy, and in the recent bilateral meeting between India and Nepal held in August 2025, both countries agreed to enhance cooperation in multiple sectors, like energy and infrastructure. But the current situation in Nepal is a short-term issue that is not going to affect trade relations between India and Nepal, and their long-term relationship.
However, India will face a significant loss in trade, because a range of goods like petroleum products, copper, sugar, vehicles, and chemical fertilizers Nepal import from India, and if there is a sudden break in the supply chain of these products, then Indian exporters and associated companies will face a major financial loss that may affect the domestic market of India, too.
Similarly, some goods, like Resins, Yarns, Handicraft items, and gold jewellery Nepal export to India. The political unrest in Nepal will affect the import of such goods, and that may hamper the Indian trade and consumers.
Moreover, if you see from a geo-political angle, there is a big role of China, as it wants to cash this opportunity to increase its influence in Nepal, and India is on the journey to balance China’s influence in the Asia-Pacific region, including Nepal. If the Chinese influence on Nepal’s energy and infrastructure increases, then it will be a big threat to India.
Global Response To Nepal’s Political Crisis
The unfolding violence in Nepal has shaken several global leaders and institutions because of the Nepal protest led by Gen Z for change in the regime, using violence as a tool.
PM Modi’s response
During the tour to Himachal Pradesh for the flood assessment, he expressed his feelings on the political and regional economic crisis in Nepal and appealed to all Nepalese citizens to maintain law and order. He also said that this incident has disturbed him because many youths have lost their lives in this protest.
Additionally, the Ministry of External Affairs has expressed sadness because of the loss of lives of youths in this protest, and they said that they are closely monitoring the situation.
China’s Response
A spokesperson from the Chinese foreign ministry broke the silence in Nepal’s Gen Z protest and said that China hopes that the Nepalese people will handle the domestic issue properly and maintain law and order.
Bangladesh Response
The Ministry of Foreign Affairs expressed condolences to the families of the deceased and hopes that a peaceful dialogue among the political parties could be held to bring stability in the region.
UN General Secretary’s Spokesperson
Stephane Dujarric, a spokesperson of UN Secretary-General António Guterres, said that all the authorities should ensure that International human rights laws are being followed in Nepal.
Amnesty International
An international NGO focused on human rights condemned the violence and called for an independent investigation. The group also supported the protesters’ rights and said that the Nepal protest should be done peacefully.
The International Federation For Human Rights & World Organization Against Torture
These two non-government organizations released a joint statement and condemned the actions of the authorities and urged them to stop all forms of violence against the protestors.
Summary - Takeaways For Investors Considering Nepal’s Political Crisis
Nepal is known to be a peaceful land where devotees come to visit the pilgrimage, and tourists love to indulge in adventurous activities. But the rise of corruption and the banning of 26 social media apps triggered youths to protest against the government and change the regime.
But the protest became violent when the authorities took charge, and as a result, 34 people were dead and 1300 people were injured. This is not only a political crisis, as it affects the economy, too, because trade, tourism, and other sectors will get severely hampered.
However, such a crisis is of a short-term form, as Nepal’s army came into the field to handle the situation, and they are paving the way for the discussion between the President of Nepal and representatives of Gen Z.
The names that have surfaced as the interim government of Nepal are former chief justice Sushila Karki, Mayor Balendra Shah, and Kul Man Ghising. Once the discussion between the parties is over, and an interim government is formed, then India Nepal trade will flourish again, which will boost the economy of both countries.
So, investors that are actively involved in the FMCG sector and looking for a way for their goods to export to Nepal from India should not panic due to this short-term violence, and they must be patient. Meanwhile, they must use advanced technology to track their shipment, monitor the border waiting time. Additionally, to keep the goods safe, they must look for a backup warehouse, and also should apply a localized strategy to prevent the disruption of the supply chain.
Frequently Asked Questions (FAQs)
Nepal is a country that provides a range of policies, like FITAA (2019), Company Act (2006), PPIA (2019), and more, to safeguard foreign direct investors in the case of a stable government. But if the condition flips, then the investors can move to an international platform, like the International Centre for Settlement of Investment Disputes, because Nepal provides only limited legal protection to foreign investors in case of a political crisis.
The duration of the political crisis in south asian countries varies because of multiple factors, and it can last from a week to years. For instance, in Bangladesh, a similar situation arose in 2024, and within two months, the interim government was formed. So, in the case of Nepal, the interim government can be formed within a month, and soon, things will be normalized.
Yes, investment insurance is available in Nepal, which is offered by multilateral agencies and private companies. MIGA (Multilateral Investment Guarantee Agency) is one such multilateral agency that is a member of the World Bank and covers the risk insurance of foreign investors. Additionally, some private companies are also there in the list that offer political risk insurance to investors.
If Nepal investment becomes too risky, then you can look for other emerging asian countries, like Indonesia, Malaysia, Vietnam, and the Philippines. Additionally, you can invest in the asian companies that are listed on the international exchanges and provide ADR (American Depository Receipts).
Credit rating agencies assign low ratings to such countries that are going through a political crisis, and in the case of Nepal, the borrowing cost will increase.
