Should Govt Run Businesses or Regulate Them?

The government has moved to revive loss-making and long-shuttered public enterprises. But economists and former officials say reopening them is only the first step, with commercial viability and private-sector involvement key to their survival.

Prime Minister Balendra Shah has stepped up efforts to revive state-owned industries and improve their performance. But the latest figures from the Ministry of Finance show that several of the enterprises he has highlighted remain financially weak.

Of the five enterprises recently highlighted by Shah—the Dairy Development Corporation (DDC), Nepal Aushadhi Limited, Nepal Airlines Corporation, Singha Durbar Vaidyakhana Development Committee and Hetauda Textile Industry—three reported losses in fiscal year 2024/25.

According to the Ministry of Finance's Annual Status Review of Public Enterprises 2026, DDC posted a net loss of Rs 402.2 million, Nepal Aushadhi Limited Rs 100.4 million and Nepal Airlines Corporation Rs 1.23 billion.

The government has also moved to revive the Hetauda Textile Industry, which has been shut for two-and-a-half decades. The Nepal Army has been assigned to conduct trial production after the factory's looms were repaired. The government plans to operate the factory after the trial.

Shah has pointed to recent improvements at other public enterprises as evidence that government intervention can produce results.

In a social media post on Saturday, August 8, he said the government was prioritising facilitation, incentives and coordination to make loss-making national industries competitive.

According to figures released by Shah, Nepal Aushadhi Limited sold medicines worth Rs 23.8 million in the past four months and earned around Rs 30 million in profit in the last fiscal year after obtaining the World Health Organization's Good Manufacturing Practices certification. The company has set a sales target of Rs 300 million for the current fiscal year. 

Shah claimed DDC has shortened the payment cycle for farmers, increased daily sales and saved nearly Rs 30 million annually by ending the distribution of ghee and milk benefits to employees. The corporation is also preparing to export ghee to Gulf Cooperation Council (GCC) countries and butter and chhurpi to China, he said. 

Singha Durbar Vaidyakhana produced and marketed Ayurvedic medicines worth Rs 111.6 million after the current government took office, according to Shah. Its sales reached around Rs 130 million last fiscal year, nearly four times the previous year's figure.

Nepal Airlines Corporation earned Rs 6.28 billion between Chaitra (mid-March to mid-April) and Asar (mid-June to mid-July) of the last fiscal year, with seat occupancy reaching 86 percent during the period, according to figures released by Shah.

Viability remains the key test

Economist Pushkar Bajracharya said the government's efforts were positive, but reopening an industry did not guarantee its survival.

"Public enterprises may have a service objective, but that does not mean they should continue to incur losses," he said. "They must be able to compete based on their products, technology and markets."

Bajracharya said Hetauda Textile Industry faces a major technological disadvantage. Its 34-inch looms are outdated, while global demand is largely for fabrics 80 to 90 inches wide.

"The main problem at Hetauda Textile Industry is its old 34-inch looms," he said. "The market and demand worldwide are now for fabrics that are 80 to 90 inches wide."

He said the factory could not become competitive simply by operating its existing buildings and machinery. Technology, production costs, human resources, management and market strategy must be addressed together.

"Emotional activism may work in the short term, but it will not have a lasting impact," Bajracharya said. "A strong system, employee incentives, modern technology and a market strategy are needed to keep these ailing industries running."

Experts urge private-sector involvement

Deepak Subedi, who headed a government committee formed around six years ago to study the restructuring and revival of ailing state-owned industries, said commercial viability should be assessed before deciding how each enterprise should be operated.

The government has now formed a technical team to review previous studies and determine which loss-making and defunct industries can be commercially revived, he said.

Subedi said the private sector should be involved in management and operations, while the government should focus on regulation, monitoring and setting standards.

"Except for regulation, monitoring and setting standards, the government should work alongside the private sector," he said.

He said it would be difficult for the government to operate all public enterprises itself in today's competitive market.

"Public enterprises outside the government's monopoly are also operating, but it may be difficult for them to compete in today's competitive market if the government tries to operate them alone," Subedi said. "I see no alternative to moving forward in partnership with the private sector."

Before reviving an enterprise, he said, the government should assess the availability and cost of raw materials, management capacity, market competition and production costs.