Nepal’s Urban Dilemma: Rapid Growth Amid Persistent Gaps

Just a few hours of heavy rain are enough to paralyze Kathmandu. In late September 2024, three consecutive days of downpours inundated major roads, stranded commuters, and flooded neighbourhoods along the Bagmati and Dhobikhola river corridors. The deluge exposed the capital’s chronic weaknesses: clogged drainage, unmanaged overhead wires, shrinking open spaces and unplanned construction.

Kathmandu’s recurring struggle is more than a local inconvenience. It reflects a national dilemma: Nepal is urbanizing rapidly but without proper planning and infrastructure. Instead of driving prosperity, this transition risks becoming a liability for the country.

Nearly two-thirds of Nepalis now live in municipalities, according to official data. The transformation looks staggering on paper. In 2011, Nepal had just 58 municipalities covering 17.1% of the population. But the 2015 federal restructuring redrew the map, merging over 3,900 Village Development Committees into 293 municipalities and 460 rural municipalities. The share of people in “urban” jurisdictions surged to 66.2% by 2021. The “urban” label, however, often misleads. More than two-thirds of municipalities have fewer than five residents per hectare. In practice, many function more like rural settlements, with livelihoods rooted in agriculture and weak service provision. This raises a pressing question: what truly qualifies as urban in Nepal?

Urban planner Kishore Thapa said Nepal is urbanizing in terms of consumption. "People can afford goods from India and China, but this consumption-driven urbanization limits investments that could foster economic growth and employment,” he added.

Trade data support his argument. Imports surged to Rs 1,800 billion in the previous fiscal year 2024/25, up 13% from the previous year. While goods pour in, industries, services and jobs are lagging behind. This mismatch lays bare how administrative “urbanization” has outpaced genuine urban transformation.

Uneven Growth, Persistent Gaps

Urbanization is highly uneven across provinces. Bagmati leads with 56.2% of its population urbanized, while Kathmandu Valley is a staggering 91.7% urban. By contrast, Karnali and Sudurpashchim remain sparsely urbanized with weak development indicators.

Between 2011 and 2021, urban expansion averaged just 1.84% a year. Municipalities grew by 1.36% annually, while rural municipalities barely expanded at 0.11%. A quarter of municipalities even shrank, reflecting migration to bigger cities or abroad.

Infrastructure policy expert Surya Raj Acharya said urban growth in Nepal should have been balanced. "But it didn't happen as politicians colluded with real estate developers to inflate land prices. There is no concept of proper city planning,” he added.

The imbalance is stark. Thirty of Nepal's 57 least-developed local governments are in Karnali Province. Meanwhile, Kathmandu continues to attract migrants, reinforcing capital-centric development.

“Federalism should have decentralized populations,” Thapa said. “Instead, Kathmandu remains the main magnet for employment and education.”

Migration, Mobility and Demographics

Nepali cities are youthful yet incomplete. Although two-thirds of municipal residents are of working age, many young men have migrated abroad. Provinces such as Lumbini, Madhesh and Gandaki are grappling with high out-migration rates. In Lumbini, nearly one in five residents is out of the province.

Internal migration is also becoming a serious problem. Populations from the hills and mountains are moving to the lowlands of Tarai, while smaller towns are losing residents to provincial hubs like Biratnagar, Pokhara and Janakpurdham. Highways and peri-urban belts around market towns are becoming new settlement corridors.

“Infrastructure such as sewer systems, piped water and public parks is lacking in these areas. Development is often equated with blacktopped roads rather than holistic urban growth,” Acharya said.

Employment is central to this challenge. While self-employment dominates in smaller municipalities, family-run enterprises capable of generating stable jobs remain unsupported. This pushes more Nepalis, especially young males from Dalits and indigenous nationalities, abroad, hollowing out local economies.

Infrastructure in Crisis

Progress on the infrastructure front is uneven. Although electricity access rose from 67.3% in 2011 to 92.2% in 2021, only 77.8% of households are grid-connected. Karnali lags at just 27% and Sudurpashchim at 58.9%.

Over 40 percent of households in metropolitan and sub-metropolitan cities still lack piped water. Road density is highest in Madhesh but connectivity is uneven, while Koshi struggles with rural–urban linkages. Health and education show similar disparities—Bagmati has dense hospital networks, Madhesh’s schools are overcrowded and Karnali suffers severe shortages.

According to Acharya, all this is a result of a flawed mindset. “Development should not be limited to large infrastructure alone. We need balanced projects addressing both rural and urban needs by blending conventional approaches with innovation," he said. "Big infrastructure can provide a backbone, but smaller, localized projects make cities liveable.”

Housing, Digital Access and Economy

The housing market in Nepal reflects mobility pressures. Nationally, 42.6% of urban households rent, while in Kathmandu Valley the figure exceeds half. Rising demand for housing signals opportunity but also highlights affordability gaps.

Digital access is expanding, particularly in the capital. In Kathmandu Valley, 76.6% of households have internet connections. But coverage is thinner and usage more limited outside the capital.

Economically, cities are gradually diversifying. In 2011, just 35.7% of urban workers were in services or manufacturing. The number rose to 49.9% in 2021. Although agriculture still remains dominant in most provinces, it is declining in urban hubs. In Kathmandu, more than 82% of workers are now in non-agricultural sectors.

Still, the transition is incomplete. Without stronger support for small and medium enterprises (SMEs), Nepali cities will continue to produce consumers rather than producers which will only deepen dependence on imports.

Land Pressures and Climate Risks

Perhaps the most visible cost of urban expansion is the loss of farmland. Over the past decade, Nepal’s arable land shrank by 16.6%. The trend is particularly concerning in provinces such as Sudurpashchim, Gandaki and Karnali where land is already scarce.

Although the Land Use Act, 2019, introduced zoning categories such as agricultural, residential, commercial, industrial, forest and public use, its implementation has stalled. “Haphazard urbanization will continue if proper land classification is not done. Our cities risk becoming concrete landscapes,” Acharya warned.

Climate risks are even more urgent. Kathmandu and major cities are facing growing threats of floods and landslides, while extreme weather is endangering infrastructure across the country. Even under conservative projections, Nepal remains at moderate climate risk by 2030. The combination of weak planning and climate exposure makes building resilience an urgent priority for the country.

Policy Blind Spots

Nepal’s urban story reveals a gap between administrative claims and lived realities. The National Urban Policy (2007) and the National Urban Development Strategy (2017) has set clear criteria for city status: a minimum population of 5,000, a density of at least 10 people per hectare and at least half of the workforce employed outside agriculture. By these standards, many municipalities fall short.

Political pressures, however, have inflated numbers. Municipalities multiplied fivefold between 2011 and 2021, from 58 to 293. Despite the redrawing of boundaries, the expected benefits of urbanization—higher GDP, stronger human development and reduced poverty—have not materialized in many new towns.

Over the past decade, population growth has slowed in the hills and mountains, while the Tarai continues to absorb migrants. In 37 districts, local governments actually lost residents. Investments in these areas now risk going to waste, while pressure mounts on Tarai hubs.

Climate change aggravate the issue further. More frequent floods and landslides have devastated communities, particularly in urbanizing belts where density amplifies vulnerability.

Choices at the Crossroads

The challenge for Nepal is to harness urbanization as a driver of inclusive development, rather than let it deepen inequality and fragility. Addressing this challenge requires more than piecemeal fixes; it demands a rethinking of definitions, strategies and priorities.

According to experts, the first step in this direction is integrated spatial planning—one that accounts for climate risks and prevents the overconcentration of people, capital and services in the Kathmandu Valley. Alongside this, investments must prioritize basic infrastructure like piped water, roads, reliable internet and electricity. These are the foundations for both livelihoods and industries.

Equally critical is supporting micro, small, and medium enterprises (MSMEs), which can absorb local labor, particularly the country’s youth and growing female workforce. Migration pressures will intensify if such opportunities are not available. Affordable housing programs are also urgent, as more families rely on volatile rental markets in fast-growing cities.

Experts also envisage building a network of holistic urban clusters—provincial hubs and secondary cities that share the burden of growth. If nurtured properly, these centers could spread opportunity more evenly, reduce pressure on Kathmandu and foster a more resilient urban future.

The country's urban story is still in its early chapters. Only 27.3% of the population is officially urban, but nearly 40% live in peri-urban zones. Federal restructuring has redrawn maps but not necessarily realities. Infrastructure gaps, farmland loss, climate exposure and uneven growth remain formidable obstacles to Nepal's path to urbanization.

Whether Nepali cities emerge as vibrant, resilient and equitable or deepen socio-economic divides depends on policy choices made today. Thoughtful governance, equitable investment and climate-ready planning can turn urbanization into a catalyst for national progress. Without them, the risk is clear: fragile, sprawling settlements unable to support prosperity or withstand shocks.

The path chosen today will shape not just the skylines of Nepali cities, but also the future of its economy, society and environment.

This report was originally published in October 2025 issue of New Business Age magazine.