While the world economy continues to advance the fourth industrial revolution with the rise of AI, blockchain technology, the journey towards technology in Nepal's economy is slow but dynamic. However, a 2024 World Bank report showed that Nepal's digital economy contributed only 2.8 percent to GDP, which is lower than India (11.4 percent), Sri Lanka (4.3 percent) and Bangladesh (4.5 percent) in South Asia.

This has made it clear that digital technology and its potential contribution to the economy have not been given full attention in Nepal.

Progress and Contradiction

According to the data of Nepal Telecommunication Authority, the number of mobile users in the country is 295 million 45 thousand 730 (the density of telephone service is 125 percent). The number of Internet users has reached 39 million 41 thousand 607 (density 150 percent). According to the data of Nepal Rastra Bank in the field of digital payments, the number of mobile banking users has exceeded 26.3 million. The number of users of digital wallet is 255 million. The number of payments through QR codes has reached 9 million per month on average, which is 30 times more than in 2020.

This growth has had a positive impact on the expansion of digital payments, e-commerce and government services. But issues such as geographical and gender inequality are still relevant and complex. Internet access in Karnali region is only 25 percent. In Bagmati it is 85 percent. According to a UNESCO study, the digital literacy of women is 30 percent lower than that of men. This gap is not only a reflection of access to technology, but also policy inefficiency, structural inequality and socio-economic conditions. Nepal needs to see this rapid development of technology as an opportunity for economic rejuvenation.

This rapid development of digital banking and technology has helped increase financial inclusion in rural areas. But mobile banking access among rural women is only 20 percent, according to a World Bank study. In 2023, there was a turnover of 30 billion rupees in the e-commerce sector. It is 100 percent more than in 2022. At present, more than seven hundred e-commerce companies have been registered. But its full potential has not been realized due to policy ambiguity, mistrust of digital infrastructure, service quality and reliability.

In the digitization of government services, 45 percent of services have been moved online under the 'Digital Nepal Framework'. The e-visa system has increased tourism income by 25 percent. But 80 percent of government processes still rely on documents. Tax revenue has increased by 22 percent due to the increase in digital transactions. This progress is insufficient when the informal economy accounts for 43 percent of GDP.

Economic mobility

Digitization has the potential to transform the economy through productivity growth, formalization of the economy, and innovation, with India being the best example. In the context of Nepal, there are great opportunities and challenges in these three areas. Lack of digital literacy (60 percent of people in rural areas still cannot use digital tools), vulnerability to cyber security (over 19,000 cyber crimes registered in the last financial year), lack of capital (venture capital is only 0.02 percent of GDP) and youth migration (55 percent of IT graduates migrate abroad) are notable. It is necessary to take concrete policy steps for its solution.

Nepal's digital transformation has the potential to empower the economy in three key dimensions – productivity growth, institutional efficiency and integration into the global market. Digital technology sustains GDP growth by revolutionizing traditional sectors such as agriculture and small and medium-sized enterprises in productivity through data-driven decision-making, smart supply chains and e-commerce. This increases tax revenue while formalizing the informal economy. which enables the government to invest in health, education and infrastructure.

Additionally, digital startups and the 'gig economy' capitalize on the demographic dividend by encouraging youth employment and entrepreneurship. Leading the competition in the world market. Digital infrastructure connects Nepali products with international quality and value chain, which increases exports and reduces trade deficit. In terms of sustainability, digitization ensures efficient use of human and other resources while reducing carbon emissions by promoting green technology and remote working. Therefore, digitization is a strategic tool to advance not only Nepal's economic development, but also inclusiveness and environmental balance.

Improvements in agriculture and small enterprises 

Nepal's agriculture sector contributes 25 percent of GDP. But its productivity is low globally. Traditional farming, limited market access and lack of technology have held it back. Digital technology can be helpful in solving this problem. India's 'Kisan App' has increased yields by 20 percent by providing farmers with information on weather forecasts, market prices and irrigation techniques. Nepal also has an opportunity to implement farmer-oriented technology that can provide this kind of integrated service.

However, there is a need to address barriers such as rural internet access and lack of digital literacy. Small and medium enterprises are also struggling due to lack of digital platforms. In 2024, Nepali e-commerce has transacted more than 15 billion rupees. Currently running e-commerce in Nepal has helped small and domestic enterprises to reach the national market, but due to their reliability, value chain and logistics problems, e-commerce business has not been able to flourish.

Business through social media has increased more than e-commerce platforms in urban areas. While this has made it easier for buyers and sellers, it has seen many cyber security challenges. Therefore, emphasis on e-commerce or quick commerce, where the same can be bought and sold immediately, makes it easier for agriculture and other small and medium entrepreneurs to promote business while the economy becomes digital. To solve this, the government should prioritize rural internet and conduct digital training programs for small and medium enterprises.

Financial inclusion

45 percent of Nepal's economy is informal. which deprived the state of tax revenue. Due to the informal economy, the government has not been able to increase the scope of taxation, digitization is a way to formalize it. Revenue collection has increased by 20 percent since the launch of the e-VAT system. However, 80 percent of government services are still document-based. India has increased its tax revenue by 50 percent through the GST network and collected an additional ₹1.5 lakh crore annually.

Kenya's M Pesa has reduced poverty rates by 2 percent by increasing rural financial inclusion. Mobile banking has added 20 million users in Nepal, but its impact on the tax system is negligible. A large part of the economy will be automatically formalized if an integrated system of citizen app, national identity card and personal accounting system can be implemented while improving the tax system of Nepal. For this, the government needs to increase its investment. Upgrading of government technologies is also necessary.

Startups and Gig Economy

More than 350 startups in Nepal have employed more than 100,000 youth. Digital wallets, ride-sharing, urban couriers, food and gift delivery, small and large companies have made the digital ecosystem dynamic. Young freelancers alone earn $50 million a year from foreign platforms.

However, 80 percent of freelancers work informally, which limits their social security and tax contributions. The Philippines has enacted the Freelancer Protection Act to ensure minimum wages and health insurance for gig workers. Nepal can adopt a similar policy. In Nepal, more than 60,000 youth are currently employed in IT services alone. About 15,000 young people are working as freelancers. 

Strategic reform

Nepal's digital transformation is not just a technical issue, it is also a matter of national priority. It has the potential to increase productivity, create jobs and strengthen the state. However, this requires the efforts of the government, private sector, civil society and international partners. Without policy reform, structural investment and social inclusion, Nepal may be left behind in the digital age. Nepal should not miss this opportunity of the fourth industrial revolution. The time is now—Nepal can build its digital future through strategic thinking, bold decisions and public participation. 

Steps such as extending the National Broadband Network to all 754 local levels by 2026, making digital literacy campaigns a mandatory part of primary education and implementing the Data Protection Act will help maintain trust in digital technology. A policy of investing Rs 5 billion per year through the Sovereign Tech Fund for startups and limiting foreign investment approval to 7 days can encourage innovation. 

The government announced the 'Digital Nepal Framework' in 2076, but only 30 percent of it has been implemented in four years. The main reason for this is the lack of coordination between ministries. Lack of legal framework has also increased the problem. Reform of the Data Protection Act and cyber security policy seems necessary. 

Digitizing the economy should aim for complete digitization of government services. Tax compliance should be digitized by implementing an integrated tax system like India's GST network. Tax leakage can be reduced by making e-VAT mandatory for all businesses. Also, schemes like tax breaks should be implemented to encourage digital transactions. Establishing a Sovereign Tech Fund for startups, which provides capital and training to technology-based enterprises. Foreign investment approval could be limited to 15 days, similar to Vietnam's 'one-window' system. The Nepalese diaspora can be attracted to invest in the country by providing tax incentives.