The Price of Unrest: Nepal’s Economy in Protest

Aditya Meena Urbee Banerjee Ritvik Arora Karmanya Amolika
Oct 8, 2025
11 min read

Updated: Oct 25, 2025

A Deep Insight: The Problems That Lead To The Outburst-

Just like, how every sapling takes its roots, before it starts to spread its branches to become a large tree. The protest outburst in Nepal took its roots from various socio-political problems, the problems whose frustration had been brewing amongst the hearts of Nepalis causing this outburst.

Why Has Nepal Faltered in its Democratic Journey After the Fall of Monarchy?

Monarchy and government instability: Nepal had a transition from monarch to democracy of political instability, especially throughout the 1990s and early 2000s, through which it had a decade-long Maoist insurgency (1996-2006). Though Nepal became a democracy in 2008, it still struggled from political inefficiency, corruption. Along with the failure to meet the aspirations of the citizens in the regards of employment, social reforms.
Failure to meet the aspirations of people- The political elites in Nepal, especially the established political parties, have failed to deliver on the promises made to youth regarding economic stability, job creation, and social reforms.

The rampant corruption within Nepal’s political system was among the main reasons for which many young Nepalis grew frustrated and called for more transparency and accountability. Political leaders were often seen as prioritizing their personal interests or those of their party over national development. This has led to the widespread belief that the political system is dysfunctional and needs to be reformed.

Navigating Through the Past: Why did the Nepalese Youth Erupt?

Declared a Republic on 28 May 2008, Nepal continues to uphold the spirit of “self-rule”, “territorial integrity”, and “national unity” enshrined in its Constitution. It is best showcased in the unprecedented act of the Gen Z setting the Parliament ablaze on September 09, 2025. Before delving into the “How?” and “What now?”, it is essential to grasp the convoluted backdrop that sparked this conflagration.

Nepal’s rank on the Corruption Perceptions Index remains fresh in the memory of its youth, as the country clinched the 107th position with a score of 34/100. The social media ban, which barred 26 apps, directly sparked the protest, as citizens depended on these platforms for education and work, and took their grievances to e-platforms. Yet, the reasons are multifaceted - ranging from widespread corruption and nepotism to political instability and unemployment.

How Do SDGs and Unemployment Paint the Picture? The United Nations Sustainable Development Goals (SDGs) provide a holistic picture of Nepal’s growth trajectory. Currently, 39.4% of the Goals show limited progress, with persistent challenges in SDG 5 (Gender Equality), SDG 8 (Decent Work and Economic Growth), and SDG 16 (Peace, Justice, and Strong Institutions). The unemployment rate stands at a staggering 10.7%, far above the forecasted 2024 global average of 4.9%. Much to the dismay of the youth, their unemployment rate surpassed that of the general, and stood at about 20.8%.
Where Does the Budget Really Go? The federal budget allocated 15,462,850L NPR to the Centre, of which only 605,617L NPR, that is roughly 3.92% of the Central Budget, was vested in the Ministry of Education, Science, and Technology. The Ministry of Youth and Sports and the Ministry of Labour, Employment, and Social Security received approximately 0.37% and 0.11% respectively. While the Ministry of Health and Population operates with just 3.58% of the budget, local news outlets highlight the lavish lifestyles of politicians’ children, branding the former Health Minister’s daughter as the face of nepotism.
Why Has Political Instability Been So Severe? Since 2008, Nepal has witnessed 14 governments, none of which have completed a five-year tenure. This paints a grim picture for both the political analyst and the investor. FDI inflows plummeted to $57 million in 2024 from $185 million in 2019, accentuating the sharp decline of 69.7%. On the Press Freedom Index, Nepal ranked 74th with 60.52 points in 2024, falling in the 55-70 range considered problematic. Nine months into 2025, the score dropped further to a record low of 55.20, which is inevitable with the given socio-political turmoil brewing.

Furthermore, the Nepalese Rupee continues to steadily depreciate against the United States Dollar, with the USD/NPR exchange rate standing at 140.3-140.5 NPR per USD.

Thus, the long discourse on whether GDP is a good measure of welfare simmers down as the readers are confronted with the reality that while the absolute value of GDP in 2024 may have been $42.91 billion compared to the $41.05 billion USD in 2023, it is purely mathematical. The numbers boast growth, but the people seethe with discontent, widening the bridge between numerical prosperity and social well-being.

Protests, Violence and Political Fallout in Nepal-

The direct provocation occurred on 4th September 2025, when the Nepalese government imposed a ban on 26 popular social media sites (which included Facebook, Instagram, X, YouTube, WhatsApp, etc.) due to the fact that these social media organizations failed to comply with the directive of compulsory registration with the Ministry of Communication and Information Technology and failed to appoint a liaison office (representative office established in a foreign country to converse and cooperate) in Nepal. Government officials presented this action as a regulatory measure to address the imbalances in misinformation, fake accounts, and scams but the public, particularly youth (Gen Z's) perceived it as an attack on their freedom of speech. Within a matter of hours, students were expressing discontent and a mass utilization of VPNs was noted as Gen Z's managed to find ways to go around blockages.

How Did Protests Spread Across Nepal?

On September 8th, protests began from Maithighar Mandala, Kathmandu's middle area, from where the people began marching towards Parliament. According to reports, the protest is organized by an NGO called "Hami Nepal". Protestors were spotted wearing school and college uniforms. The event began with mostly peaceful demonstrations of slogans and chants regarding free speech and corruption. At this point, the protests had spread in major cities. Some of the slogans included "Stop Corruption" and "Accountability now!" and the trending hashtag "#PoliticiansNepoBabyNepal" that demonstrated frustration among the Nepalese youth. A few protestors carried the "Straw Hat Pirates" flag of the popular anime 'One Piece' which attracted several anime fans from around the globe. The Government then sent police and security personnel onto the streets to see this. When the protestors attempted to break certain barricades close to the Parliament, it initiated more force from the police and soon they were forced to use water cannons, tear gas, rubber bullets and finally, live ammunition, which killed 19 protestors and wounded more than 400 protestors that day.

What Was the Political Fallout?

In the demonstration, the demonstrators torched down the residence of Prime Minister K.P. Sharma Oli, the Parliament, the Supreme Court, Kantipur Media Group, Hyatt Regency Hotel and the residence of the former prime minister Jhala Nath Khanal which cost the life of his wife Rajyalaxmi Chitrakar. As of 9th September, the government enforced a curfew throughout the Kathmandu valley where day time prohibitory order was from 10 A.M. up to 5 P.M. and a night curfew from 7 P.M. onwards to 6 in the morning and flights at Tribhuvan International Airport were halted because of roadblockades. Panic purchase followed when border blockades with India interrupted the delivery of necessary commodities, resulting in shortages of petrol, medicines and cooking gas. Later in the day, Home Minister Ramesh Lekhak stepped down from office and lawyers also petitioned the Supreme Court calling for the ban on social media to be declared unconstitutional.

The government lifted the ban on social media on 11th September to quell tensions but protests had already escalated into a fight against nepotism and corruption. India Today published in its article "The leader's children return from abroad with Gucci bags, the people's children in coffins (referring to Nepalese citizens who went to fight in the Russia-Ukraine War for money due to 20.82% youth unemployment percentage according to sources of The Global Economy).

The political fallout peaked on 12th September when Prime Minister K.P. Sharma Oli lost support from coalition partners and resigned. Parliament was dissolved and on 13th September, former Chief Justice Sushila Karki was sworn in as Nepal’s first female interim Prime Minister, with elections scheduled for 5th March,2026.

Driving Change: The Long-Term Impact of Collective Action

Impact on Nepal’s Tourism

Among the worst hit industries tourism will be facing the major portion of losses. This is the time of autumn when Nepal experiences most tourists visits. But this time, the most popular tourist attractions like Thamel, Pokhara, Bhairahawa,and Chitwan have remained quieter than usual. The economists predict that this would cost a loss of around 3 trillion in total after including the damage to both private as well as state owned buildings and infrastructure. The tourism sector has been particularly hard-hit, with arrivals falling by 30%., according to Reuters. The Hotel Association Nepal confirmed that nearly two dozen hotels suffered major damage during the protest. This huge impact on the tourism industry may take a longer duration to recover and achieve its charm back.

Impact on Markets and Businesses

This uncertainty has impacted the market as well. And in the market, this uncertainty often means the prices change very quickly and this swiftly changing prices impact the way people think about the risks and its effects on the tourists, investors and business acts. As it is said that “Uncertainty lasts a longer time”, investors may become more careful, the market and tourism may take time to come back and growth may even slow down for some period of time.
Businesses, particularly in urban areas, faced closures and damage to property. The unrest has badly affected the supply chains and led to job losses, affecting the livelihoods of many Nepali people.

Could This Crisis Spark Economic Diversification?

The unrest has highlighted the need for economic diversification beyond traditional sectors. This realization could prompt the government to invest in emerging industries like technology, renewable energy, and infrastructure, paving the way for sustainable economic growth.
The protests how the new ideas of change may shape the future socio-economic policies of the government of Nepal.

What Strengths Could Nepal Rely On for Recovery?

Nevertheless the long term strengths of the economy of Nepal could be agriculture and hydropower. Nepal has a good potential for the generation of hydropower and it has been developed over the time and may be used as a way of healing the impacts of this event. Agriculture may also add to the GDP of Nepal ‘s economy and may help in the longer run.

At last it can be concluded that GDP has been affected much in this period but will become better in the longer run. The hydropower industry ,trade of Nepal and proper reforms may help the economy of Nepal to get back on to the track. If the problems highlighted by the people are addressed effectively, Nepal can turn this crisis into an opportunity for economic diversification and long-term stability, ultimately building a stronger and more transparent system for future generations.

India and its Unruly Neighbours: What Does the Future Hold?

If the globe were an ocean, South Asia would rightfully be the droplet that sends a flurry of ripples through it. Nepal has emerged with fangs bared at the Chinese Dragon and the Indian Elephant, and this may mark a fresh dawn for diplomatic and trade ties between India and Nepal.

How Does Nepal’s Crisis Affect the Indian Soil?

In December 2024, Nepal signed the framework agreement of China’s Belt and Road Initiative under Prime Minister KP Sharma Oli’s leadership, who has implicitly aligned his interests more with China than with India. PM Oli opposed the opening of the trade route between China and India through Uttarakhand’s Lipulekh Pass, citing the 1816 Treaty of Sugauli to claim Lipulekh, Kalapani, and Limpiyadhura as Nepali territory. However, the region is an integral part of India, and this dispute signaled a potential strain between India and Nepal. The youth rebellion has added to the nation’s volatility, and Pakistan may seek to exploit this vulnerability to further threaten India’s security. Concerns along the 1,751 km porous border India shares with Nepal are rising, as ISI-affiliated rogue elements turn to the Nepal route for infiltration after failing along the Line of Control. In response, border security has been tightened by the Sashastra Seema Bal to monitor cross-border smuggling, human trafficking, and other spillover effects.

How Has the Crisis Impacted Indians in Nepal and How Do Trade and Migration Factor In?

38 Indian nationals have been evacuated from Nepal with the help of the Indian Embassy in Kathmandu, and the Ministry of External Affairs has advised Indian citizens to “defer travel” to the neighbouring country. This follows the suspension of all flights to and from Nepal by Air India, IndiGo, and Nepal Airlines on September 09 amid the ongoing crisis, unsurprising with the 30% decline in tourism.

Social repercussions cannot be viewed in isolation when economics is a major factor in shaping the future. The annualized rate of trade between the two countries over the past five years has grown by 7.7%. As of June 2025, India exported $594 million worth of goods to Nepal, led by petroleum products at $175 million, followed by $51 million worth of iron and steel. Imports from Nepal stood at $159 million, with vegetable oil accounting for $98.5 million. India carries out trade with its landlocked neighbour primarily via land routes, and disruptions to transport, customs operations, or cross-border logistics affect Indian exporters and Nepali consumers alike.

Approximately 200 trucks carrying essential goods were stranded at Bahraich, with only a few permitted into Nepal under Army protection. New Delhi has adopted a “wait-and-watch” approach to assess the ongoing upheaval and its consequences for supply chains.

Nepal is known as a remittance-dependent country, with inflows recently surging nearly 30%, paired with 34% of Nepal citizens migrating to India. Throughout history, political turmoil has been a significant push factor, often leading to labour shortages in the affected country. While officials in India are confident that the Nepalese rebellion will not have an immediate impact, it is prudent to prepare before the push turns into a shove.

Youth, Reform, and the Future of Nepal

Future for Nepal’s Economy?

We see that Nepal has long wrestled with domestic turmoil. Looking ahead, the current crisis offers a chance for long-overdue stabilization and reform. The inclusion of institutions does not automatically pave the way for a democratic transition. Rather, it requires both structural and generational reforms. Central to this is the role of youth who have long been excluded from the government. This moment presents a chance for rebuilding the representation of youth in the political process and their participation in decision-making. On the economic front, reducing heavy dependence on remittances and gradually shifting toward domestic job creation in agriculture, manufacturing, and renewable energy could stabilize incomes and protect households from external fluctuations. Also greater investments in education and skill-building especially for rural youth are critical.

Trend Analysis and insights-

Real GDP growth fluctuates widely, reaching almost 9% in 2016/17 and dipping to –2.4% in 2019/20, mainly due to external shocks. Non-agricultural GDP has overall led the growth,with peaks of more than 10% in 2016/17, while agriculture demonstrates lesser but more stable variations, largely between 2–5%. Growth has decelerated in recent years, with Real GDP settling at 3–4%, which is indicative of Nepal's continuous issues of remittance dependence, political instability, and less diversification.

Reforms that may Unlock Sustainable Growth?

Unless reforms are undertaken, youth unemployment can surpass 25% by 2026, exacerbating the crisis. Remittances may stabilize GDP, but depending on it will deepen vulnerability if global demand for migrant labor falls. Inflation and currency depreciation will weaken household purchasing power unless monetary measures and import substitution are given priority.

For Nepal to convert its demographic dividend into growth, several targeted reforms are needed. This includes Employment Generation Beyond Remittances by Investments in domestic industries like agribusiness, renewable energy, and IT to reduce dependence on migration and external factors. Also Bridging the Skills Gap by Increasing vocational training, coding bootcamps, and consultancy skills (data analysis, project management, digital marketing) can match education with employer demand. Moreover ,Reducing Inequality is essential, one possible path towards the goal can be to channel more than 0.11% of the budget into youth and labour programs, ensuring rural and poor households have access to skill-building and job placements. Overall Stable Governance & Policy Reform can lead to an increase in Foreign direct investment (FDI), which has dropped by nearly 70% in five years and lower corruption. Revival of investor confidence could speed up employment growth.

What Must India Do?

Policymakers must engage diplomatically, strengthen border logistics, and support Nepal’s stability with economic & humanitarian assistance. India must step up public diplomacy and youth outreach, including scholarships, cultural exchanges, and digital collaboration, to counter anti-India narratives and build goodwill. In South Asia, neighbourhood stability is national security. For India, supporting Nepal’s stability is not just about diplomacy it’s about safeguarding trade, economic resilience, and regional leadership. India often provides aid, strengthening ties but adding fiscal pressure. While Nepal’s crises do not shake India’s trillion-dollar economy, indirect effects matter: increased border costs, disrupted projects, riskier investments, and weakened regional influence. Stability in Nepal is thus central to India’s long-term strategic and economic interests. A stable Nepal is not just a neighbor’s need but a cornerstone of India’s South Asian leadership.