Decline in the carpet industry, businesspersons complain

Nepal’s carpet industry, a leading source of employment and foreign currency, has been in decline, drawing increasing complaints from business owners. Statistics confirm the downturn in this key sector.

In its prime, Nepal exported carpets worth Rs 35bn annually to international markets. However, over the past five years, exports have dropped significantly, ranging from Rs 6bn to Rs 11.5bn annually. According to the Department of Customs, carpet exports for the fiscal year 2023/24 amounted to approximately Rs 11.4bn, representing 8 percent of total exports. During this period, Nepal exported goods worth Rs 1.52bn in total.

Once the top export, carpets are now ranked fourth, with iron, steel, coffee, tea, and spices dominating Nepal’s exports. Business owners attribute this decline to the removal of exemptions previously provided under the 1995/96 Act, making it harder to sustain operations in the carpet and wool industry. On Sunday, over 100 carpet business owners met with Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel, urging the government to remove value-added tax (VAT) on the import of carpets and raw materials. They presented a six-point list of demands to address the industry’s challenges.

The Nepali Carpet Producers and Exporters’ Association, along with the Nepal Exporters’ Federation, highlighted to Finance Minister Paudel that the carpet industry has long been a top job provider and foreign currency earner. They stressed that the recent reduction in government support has had a severe impact on the sector. “The production cost of Nepali carpets has risen, and the application of VAT complicates the process,” one representative stated. He explained that while VAT is refunded after export, the lengthy seven-month production cycle has increased the financial burden on businesses.

The challenges are exacerbated by the need to carry out different stages of production, such as yarn cutting and dyeing, in separate locations, further driving up costs when VAT is applied. Balram Gurung, a carpet business owner, expressed concern that Nepal’s carpet industry has lost its competitive edge in global markets.

The Economic Act of 2023 also imposed a 13 percent duty on raw materials imported into Nepal, further increasing production costs and harming the industry’s ability to compete internationally.

In response, Deputy Prime Minister and Finance Minister Paudel acknowledged the decline in carpet production, exports, and earnings. He committed to addressing the industry's concerns and promised to engage relevant authorities in finding solutions.