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Sustained and high economic growth has eluded Nepal. While the economy has undergone structural transformation in the last three decades the growth-enhancing effect of this structural change has had limited impacts contributing to a per-capita value added growth of 2% in the last two decades. More it is primarily the static reallocation of labor that has contributed to the value-added growth, with dynamic reallocation, where sectors receiving labor surplus experience productivity growth is in fact slightly negative for Nepal in the period, implying that, in aggregate, the sectors drawing in labor experienced negative productivity growth. Proximate causes of this includes Nepal’s premature de-industrialization which is occurring at a much lower level of income and its manufacturing shares in value added and employment have been much lower compared to the average country. The booming services sector has not generated enough decent jobs to absorb an expanding labor force. This has led to massive temporary work-related outmigration. Obstacles range from infrastructure gaps, inadequate electricity supply and realible transportation services, uncertainty surrounding reform agenda and policy implementation; labor market issues (weak industrial relations and labor market distortions caused by large outbound labor migration); lack of enabling business environment marked by cumbersome procedures associated with opening and closing businesses and paying taxes, limited access to finance, and low availability of business support services. To alleviate these constraints, a compreshensive reform agenda is proposed, which among others includes review the existing Industrial Policy to improve its design and implementation, and ensure alignment with the changing context.