Nepal's crackdown on business: is it costing the economy?
Seven months of arrests and raids have put the private sector on edge. The data is mixed, but the long-term stakes are clear: either cleaner markets, or a lasting chill on investment.
Within a week of taking office in late March 2026, Nepal's new government had made eight high-profile arrests, from a former prime minister to a former minister and a CPN-UML provincial lawmaker. The businessmen followed. On 2 April 2026 the police's Central Investigation Bureau arrested Deepak Bhatta, a businessman long described as one of Kathmandu's most influential power brokers, in a money-laundering investigation. Within weeks Sulav Agrawal of Shanker Group, Shankar Agrawal and Shekhar Golchha, the immediate past president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), had been taken into custody as well.
Seven months on, the question in boardrooms is no longer whether Prime Minister Balendra Shah's government is serious about business-politician collusion. It plainly is. The question is whether the way it is going about it is now costing an economy that badly needs private investment, and what that cost could look like in five or ten years.
A government with a mandate, and a method
The government came to power after the uprising of September 2025 with a two-thirds majority and a campaign it calls good governance. Its targets have widened since. A new Asset Investigation Commission, set up to examine politicians and bureaucrats, has pulled in private board members over their roles at the Securities Board of Nepal (SEBON) and Nepal Telecom. The anti-graft body's new strategic plan extends anti-corruption law to private companies, cooperatives and banks, The Kathmandu Post reported in August 2026.
The cases are large. The Department of Money Laundering Investigation has filed four cases against Bhatta, the largest claiming nearly Rs 27bn, and prosecutors added a sixth insurance-related case in October 2026, The Kathmandu Post reported. Bhatta denies wrongdoing. "I am being targeted for revenge. I will be released by the court," he told the paper. In a separate case the bureau has recommended prosecuting 22 executives and board members of Nepal Investment Mega Bank and Ncell over the auction of Smart Telecom's collateral, which it says caused a loss of Rs 95bn, The Kathmandu Post reported. Three former central bank governors have said the matter belongs to Nepal Rastra Bank, the regulator, not the police. None of these cases has reached a verdict, and an arrest or a charge is not a finding of guilt.
- Police arrest businessman Deepak Bhatta in a money-laundering probe
- FNCCI, CNI and the Nepal Chamber of Commerce issue a rare joint statement: listen first, arrest later
- Supreme Court finds Shekhar Golchha's detention illegal; he is rearrested in a separate case within hours
- FNCCI says nearly 700 industries in 10 industrial areas face administrative pressure and power cuts
- Chief executives of 20 banks tell the finance minister their staff are afraid to lend
- FNCCI condemns the industry minister's call for industrialists to be disciplined
Source: Ratopati, The Kathmandu Post, ShareSansar, Nepal News
What alarms business is less the targets than the method. In early May 2026 the Supreme Court found Golchha's detention illegal, saying due process had been bypassed. Within hours of his release the bureau arrested him again on a separate insurance-fraud allegation; he was freed on Rs 10m bail in July 2026. In Biratnagar a raid on a prominent businessman's home found no evidence of wrongdoing, The Himalayan Times reported. In September 2026 the industry minister, Gauri Kumari Yadav, told a parliamentary committee that LPG supply would not improve until industrialists were "disciplined", remarks the FNCCI called irresponsible.
Business pushes back
The response has been unusually united. In April 2026 the FNCCI, the Confederation of Nepalese Industries (CNI) and the Nepal Chamber of Commerce issued a rare joint statement. "The government's practice of arresting people in a raid-like style and keeping them in custody has created distrust in the entire system. The private sector has no objection to guilty individuals facing action once the offense is proven," the statement said. Their demand, in four words: listen first, arrest later.
The language has hardened since. "Private sector morale remains weak and businesses continue to operate in an atmosphere of fear and uncertainty," Bhawani Rana, a former FNCCI president, said in June 2026. "Business people do not want to take loans and invest because there is no conducive environment for business," Bhim Ghimire, vice president of the CNI, told The Himalayan Times in August 2026.
The government says it has heard them. Finance Minister Swarnim Wagle promised a "listen first, then detain" approach and an end to handcuffing people accused of white-collar crime, the cabinet has adopted a strategy to protect and promote private enterprise, and the prime minister met capital market figures as the NEPSE index fell. Business leaders say the test is implementation. "The real test is how they are implemented," said Birendra Raj Pandey, the CNI's president.
Is it hurting the economy?
The numbers point both ways, which is why the debate is so heated.
The case for damage starts with lending. Private sector credit had grown by only 6.5% in 2025/26 by May 2026, against Nepal Rastra Bank's target of 12%, and it has struggled to pass 6% for three years. By 11 October 2026, banks held Rs 1.56 trillion in loanable funds they had not lent, up from Rs 1.17 trillion a year earlier, and lent out only 70.79% of their deposits against a permitted 90%. In August 2026 the chief executives of 20 commercial banks told Wagle that their staff were growing afraid to lend, The Kathmandu Post reported. New industry registrations fell to 461 in the first six months of 2025/26 from 581 a year earlier, and the NEPSE index fell on 10 of the 15 trading days after the budget in May 2026.
Source: Nepal Rastra Bank, via Farsight Nepal
The case against is just as real. Lending has picked up sharply this fiscal year: banks extended Rs 133bn of new credit between 17 July and 11 October 2026, more than four times the Rs 30bn in the same period a year earlier, and letters of credit for imports rose by an average of 20% between mid-June and mid-October, according to a bank finance chief. Part of that rebound reflects a weak base, since last year's first quarter was disrupted by the September 2025 protests. And the central bank's own explanation for weak credit lists many causes: a delayed monsoon, heavy rain in October 2025, the fall in confidence after the protests, uncertainty over land plotting rules and delays in power purchase agreements. Arrests are not on its list.
Source: Nepal Rastra Bank data, via The Kathmandu Post
The honest reading is that the crackdown is one weight among several on an economy that was already slow, and that the clearest damage so far is to confidence rather than to output. That matters, because confidence is what decides the investment that will show up in the data two or three years from now.
The long-term stakes
The long-run effect depends on how the cases end, and that cuts both ways.
The risk is a lasting chill. When bankers believe a loan that goes bad could be treated as a crime, they lend less and lend safer, and capital stays parked in deposits, as more than Rs 1.5 trillion already is. A commercial decision that turns out badly "does not by itself establish a criminal offence," Anup Kaphle, group editorial director of Kantipur Media Group, wrote in August 2026. If that distinction blurs, Nepal's private sector, which business bodies say accounts for 81% of the economy and 86% of jobs, will invest less and later. Manufacturing has already shrunk from around 10% of GDP to below 6% over three decades. Foreign investors watch how a country treats its own business leaders, and it is hard to sell Nepal abroad while domestic investors say they are afraid.
The potential gain is a cleaner market. Several of the cases concern alleged influence over the very institutions that govern capital: the securities regulator, the insurance authority, and state contracts. If prosecutions through the courts break up networks that steered appointments and approvals, as the allegations suggest, Nepal could end up with fairer markets, cheaper capital for firms without political connections and more credible regulators. That is the outcome the government promises.
Which future arrives turns on process. Courts that move quickly, investigators who separate bad business from crime, written rules on when white-collar suspects are detained, and permanent leaders at regulators (SEBON went nearly two months without a chair this year, and the insurance authority and NEPSE lacked permanent leadership in June 2026) would let the government keep its anti-corruption drive while lifting the fear. Rearrests within hours of a Supreme Court ruling, public attacks on industrialists and raids that find nothing would do the opposite.
What to watch
- Verdicts in the Bhatta, Golchha and Smart Telecom cases, and whether the courts uphold the way the arrests were made.
- Whether Wagle's "listen first" promise becomes a written rule for investigators.
- Private credit growth through 2026/27 against the central bank's 11% target, and whether the Rs 1.56 trillion in idle funds starts to fall.
- New industry registrations and foreign investment approvals, the first places a lasting chill would show.
Right of reply: this article draws on published reporting, and The Nepal Standard did not contact the people named for it. Anyone named may send a response to [email protected]; we will publish relevant replies in full or in fair summary, normally within three working days. An arrest, investigation or charge is not a finding of guilt.
How this story was made: researched and written by The Standard’s desk with AI assistance, from the published reporting and official data credited below, and checked against those sources. Our standards.
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