Carpets were the main source of earning foreign currency. Carpets were exported annually worth 13 to 14 billion. Carpets accounted for 60 to 70 percent of Nepal's export trade.

US Ambassador to Nepal Julia Chang Block said in a program organized by the Rotary Club on 50 Baisakh, "The main source of foreign exchange income can be carpet garments and tourism." At that time, the pashmina business was also flourishing. 

But when the business of carpets and garments in Nepal was flourishing, many 'issues' that made it collapse started to be publicized . Mainly, the use of child labor in factories was raised excessively by national/international organizations. Nepali carpets were exported to America and Europe. Nepali carpets were very famous in Germany. Nepali entrepreneurs were excited and thousands got jobs. But the businessmen complained that the government and non-government agencies have continuously undermined the carpet industry by using child labor and spoiling the environment .

After Germany's Panorama Television continuously aired a documentary about the use of child labor in the Nepali carpet industry, carpet orders from Europe started to be cancelled. Similarly, there was a rumor that a documentary about carpet child labor was being prepared in Nepal under the direction of Danish television director Fors Pedersen . Entrepreneurs had objected saying that foreigners had filmed audio and video in Nepal without approval. Businessmen complained that Nepal's audio visuals were being broadcast in an exaggerated manner and pushing the carpet industry downwards. 

The government believed in open and competitive markets. Therefore, the investment environment was being formed . In this background, the then Prime Minister Girija Prasad Koirala publicly said that such industries would be relocated as carpets had spoiled the environment of the valley. With this statement of his, the industrialists were in the mood of what would happen. The government's regulatory agency, the Labor Department, raided the carpet factory for using child labour. The businessmen of that time say that after the government gave the message that child labor was used, foreigners believed it.  

Entrepreneurs sought the government's role saying that even foreigners spread confusion about Nepali industry. As Europe stopped the import of carpets, the small businessmen of Nepal started selling carpets at low prices. The exporter used to buy carpets at a reduced price on the pretext that orders from abroad stopped coming. It affected small investors . Kamalsingh Karki, the then President of the Carpet Association, expressed concern that the carpet industry is about to collapse. He pleaded that he needed government protection.  

 Investors get a small amount of money, but middlemen take cheap carpets from small entrepreneurs and sell them at high prices. The Carpet Association requested the government to coordinate it by saying that the Planning Commission, related ministries, entrepreneurs, buyers, European Economic Community, UNICEF and International Labor Organization will help to solve the problem. 

The countries that buy carpets said that the Nepal government should create a situation where child labor is not used. The German Importers' Association (VVOI) and the European Economic Community have been requesting to emphasize quality products. Vivioi had submitted an estimate of collecting 130 million annually even if only 1 percent of the amount is collected from the exporters to provide children's education, health, vocational training and living allowance. 

 From June 3, 2051, the meeting of the working group on child labor in Sweden, Nepal and Pakistan have agreed on child labor  A warning was given not to take carpets from that country until a clear policy was taken. There is a lot of child labor in Nepal. Saying that, Ragmarg and other social organizations inside and outside the country made a big issue. Based on this information, labor organizations, UNICEF, industrialists, and importers in Sweden decided not to buy Nepali carpets. The Nepali entrepreneur accused the government and the carpet association of not using it to secure the future of the industry despite raising 2 percent as export duty. The industrialists complained that the carpets had spoiled the environment of the valley and that the government had spread rumors instead of fixing it. The New Zealand government sent a team to Kathmandu at that time to study the environmental damage caused by the carpet dyeing and washing industry. Although the government said that the industry should be moved out, the condition was set that the land should be purchased by itself. On the one hand, entrepreneurs complained that small industrialists could not buy land and the locals had a negative opinion about setting up a factory. He had already said that he would not allow such industries from Dhading and other districts to be brought to his place. Karki, the president of the association, said that the government should coordinate this, give 50 percent subsidy to small businessmen when they transfer their industries, and provide loans at low interest rates. At that time, there were one and a half hundred industries in the valley. Lekhnath Sharma, president of the Carpet Production Association, demanded that the government should designate a specific location for the factory outside the valley and prepare the infrastructure for it. The European Economic Community advised the government to put a trademark on the high quality of Nepali carpets and try to stop the production of fake carpets.

 At that time, Kantipur prepared a news with detailed information about the continuation of Nepal's largest foreign exchange earning industry, the issue of child labor being internationalized, the industry spoiling the environment, selling Nepali carpets with fake trademarks, etc. Mainly due to the activities of the organizations in the name of children's rights, the country from which the exports were made canceled the order of the carpets, and the future of the industry was in jeopardy. Focusing on this context, Kantipur Dainik published a news on 8th June 2051 under the title 'Galaincha Udyog Agni Pariksma'. The carpet industry, which has fallen since that time, has not recovered yet. Shambhu Bikram Thapa, an old carpet entrepreneur, narrates his experience, "At that time, there was a comprehensive attack on the carpet industry nationally/internationally". It was wrong to consider carpets as a means of earning money for a limited number of people without evaluating the benefits to the common people and the state.'' Even now, the carpet entrepreneurs say, "The way child labor was internationalized in the name of child rights without looking at the social environment of the country, that became the main weapon to destroy the carpet industry." There is no place to blame foreigners when Nepalis have given the issue.'