Nepal has made significant progress in some limited areas of information technology. In particular, there has been a lot of improvement in the last decade in information technology service exports, fiber internet and digital payments. However, many weaknesses remain in the government digital system, telecommunications innovation and the creation of an information technology-friendly legal framework. This has led to the huge potential of the IT sector remaining untapped. With the right priorities and policy clarity, it can be made the backbone of Nepal's national economy.

When examining the development story of our IT sector, neither complete success nor complete failure can be considered . This is a sector where capacity, manpower and demand are on one side, while policy, structure and long-term thinking are on the other.  This is why Nepal has achieved remarkable success in some areas, while in some areas, despite opportunities, the expected results have not been achieved . 

Out of the eight major sectors that are being transformed under the Digital Nepal Framework, namely agriculture, health, education, finance, digital foundation, urban infrastructure, tourism, and energy, progress has been seen only in finance and digital foundation . The remaining sectors have not yet been digitized .  

Today, Nepal is facing serious questions such as economic transformation, foreign exchange earnings and youth migration . In such a situation, it is time to see the information technology sector not just as an 'industry' but as a strategic solution . This sector can provide opportunities to show hope to the youth, provide employment, and sustain the country. The government and the leaders who will enter parliament through the upcoming elections should honestly create an environment for that.

3 IT successes achieved by Nepal

1. Fiber broadband, the basis of the digital economy:

The access to ‘Fiber to the Home’ (FTTH) service in Nepal has reached a level that is considered competitive in South Asia. According to the latest data from the Nepal Telecommunication Authority, the ‘subscription’ rate of FTTH service has reached 50.5 percent. In terms of digital infrastructure expansion, 51 percent of the country’s population is connected to WiFi and the internet. Broadband access has expanded significantly due to private sector investment and intense competition among service providers.

IT service exports cannot be treated as an emerging industry only. It should be clearly established as a national priority. Nepal may be landlocked in the trade of physical goods, but the message that it is not 'landlocked' in terms of data and digital service delivery should be clear from the policy level. The price of the service is relatively cheap and the quality is also good in many urban and semi-urban areas. This infrastructure has made IT service exports, fintech, digital education, e-commerce and startup ecosystems possible. The internet is no longer a luxury but a basic infrastructure for economic activity. Nepal can be considered to have made significant progress structurally in this area.

2. Digital payments, the penetration of technology into everyday life

The second major success is the rapid expansion of fintech and digital payment systems. The use of mobile wallets and QR code-based payment systems and digital platforms of banks and financial institutions has gradually shifted the cash-based economy towards digital transactions. Today, QR payments are easily accepted from small street shops to large star hotels. Looking at the data released by Nepal Rastra Bank for December-January 2025/26, it can be said that digital transactions have become mainstream financial infrastructure, rather than an alternative or auxiliary medium.

In 2019-20, mobile banking transactions in Nepal were only about Rs 5.8 million. Now, the number has reached more than Rs 6.5 million, according to the data of the Nepal Rastra Bank. This means that mobile banking has increased by more than ten times in five years. Wallet transactions seemed insignificant in the initial years, but now more than 40 million transactions are being made monthly. QR-based payments amounted to Rs 47.3 million as of December-January 2025-26. Financial technology has not only made transactions easier, it has increased the transparency of transactions, strengthened financial inclusion and helped build the financial history of small businesses.

3. IT service exports, a fast-growing industry

Perhaps the fastest growing sector is information technology service exports. In the last decade, Nepal has seen a significant increase in exports of software development, BPO, KPO, data processing and remote IT services to the global market. Currently, the industry sector is estimated to be exporting IT services worth about US$ 1 billion annually. This growth is not accidental. A young workforce skilled in English, a relatively competitive cost structure, improved internet infrastructure and a global remote-work culture after the COVID pandemic have made us superior in IT service exports.

Nepali IT professionals and companies have expanded their presence in the global market as international companies have embraced remote outsourcing after COVID-19. This sector has not only earned foreign exchange, but has also played a role in providing employment to educated youth in the country, reducing brain drain and diversifying the economy through service-based exports. However, the potential is still great. If the tax system, labor policy and foreign exchange regulations are better aligned with modern IT businesses, the industry is likely to reach US$ 5 billion in the next five years.

Missed opportunities

Nepal's information technology sector is at a critical juncture of potential. If the right priorities, sensible regulations, and a long-term approach are adopted, the IT sector can become the basis for not only the success of a few companies, but also the basis for national economic transformation. The question is, how ready are we to seize this opportunity? First, there has not been the expected level of coordination between government digital system development and the local software industry. Despite the presence of efficient and competitive local software companies in Nepal, there is a tendency to hand over government digital projects to foreign vendors. The problems of public procurement focusing on the lowest price, lack of a long-term roadmap in technology selection, and weak institutional memory in project management have prevented the systems from developing sustainably.

Important digital infrastructures such as national identity cards, driving licenses, immigration systems, and biometric KYC are not effectively interoperable with each other, so data is not being exchanged. The government has not yet created a data exchange platform under the ‘Digital Public Infrastructure’. This has a direct impact on the private sector because fintech, e-commerce or digital services do not get secure and excellent access to government databases when they want to expand their business.

Second, the pace of innovation in the telecommunications sector is slow. This sector, which was once seen as aggressive in expanding services from 2G to 4G, seems reluctant to develop new services in the recent phase. After the expansion of 4G, telecom companies have not shown readiness in value-added services, digital platform integration, 5G expansion or data-based service delivery. Reduced competition and the dominance of limited players in the market may also have limited innovation. While many countries have started discussing 6G, there is uncertainty among both investors and the industry as there is no clear roadmap for the implementation of 5G in our country. The stringent regulatory framework, high revenue collection expectations, and complex licensing policies have not been able to attract capital investment. As the telecommunications sector is the backbone of the digital economy, its sluggishness has directly impacted the pace of overall digital transformation.

Third, the legal and policy framework still seems to be guided by traditional industry-business-centric thinking. This does not match the nature of modern IT service exports. The IT industry is largely project-based, cross-border remote team-based, intellectual property-focused, and global client compliance-driven. However, labor laws, tax systems, and foreign exchange management regulations are still based on a framework targeting fixed physical products or traditional service industries. This has created ambiguity on issues such as payment structures, equity participation, or IP ownership.

What can be done now?

IT service exports can no longer be treated as an emerging industry. It must be clearly established as a national priority. The global BPO and KPO market has reached the trillion-dollar range. Countries like India, the Philippines, and Vietnam have established a strong presence through long-term strategies and policy clarity. In the case of Nepal, relatively low labor costs, a young and educated workforce, the ability to work in English, and expanding digital connectivity can provide a natural competitive advantage. The IT service export sector can yield quick results if a service-export-friendly tax structure, clarity in foreign exchange regulations, IT-focused special economic zones, and emphasis on skill development through industry-academic collaboration are emphasized. Nepal may be landlocked in the trade of physical goods, but the message that it is not ‘landlocked’ in terms of the flow of data and digital services should be clear from the policy level.

Similarly, the combination of green energy and data centers is seen as another strategic opportunity. With the expansion of AI and cloud computing, data centers are becoming a high-value industry based on energy. In the current context of increasing hydropower production, Nepal can use clean and renewable energy as a competitive advantage. If reasonable electricity rates, reliable grid infrastructure, data security and investment-friendly regulations can be ensured, Nepal can emerge as a regional ‘green data center hub’. This can pave the way for foreign investment, high-quality employment and long-term foreign exchange earnings.

While we can export electricity to neighboring countries through copper wires, Nepal also has the capacity to export the same energy as ‘data’ around the world through optical fibers. The data center market in neighboring India is currently estimated to be around 8-10 billion US dollars and is expected to reach over 20 billion dollars in the next 5-6 years. Similarly, even a small economy like Bhutan seems to have started initiatives towards data center projects with hundreds of megawatts of capacity, taking advantage of hydropower. In the case of Nepal, hydropower production is projected to increase significantly in the next few years. This will lead the country towards a state where clean, renewable and relatively cheap electricity is available.

Third, indigenous AI sovereignty is no longer a luxury, but a strategic necessity. Developing an AI model based on Nepali language, culture and context is directly linked to improving the quality of education, health, agriculture and public services. For this, public-private collaboration, research funding and politically impartial and stable management are indispensable. AI is no longer just a matter of technology. It has become a national and sovereign concern intertwined with language, knowledge and cultural identity. Nepal needs to build the foundation of its own ‘sovereign AI’ to preserve the original context-friendly digital intellectual infrastructure for future generations.

The tasks that Nepal must do are clear. Clear and simple arrangements for tax, foreign exchange and ‘compliance’ are needed to treat IT service exports as ‘exports’ and not ‘industries’. Digital public infrastructure such as national identity cards, KYC and secure APIs and interoperability between government services can create an environment where the local software industry can scale. Service recipients also benefit. In addition, if collaboration between universities and industry, practical technical training and investment in mid-level project and product management skills can be made, the industry can move beyond the realm of ‘freelancing’ and towards protected, scalable companies.