Putting Dalits back in business

The Nepal Investment Summit 2024 should probe the economic impact of caste discrimination

Residents of Bajura's Muktikot village prepare to head to India for work after failing to find jobs at home. Photo: DHANU BISHWAKARMA

"I shut down my poultry farm as the villagers did not buy fresh chicken from me,” sums up a Dalit farmer from Arghakhanchi district why he had to leave for work. 

Most people can sell fresh meat in their villages and make a good profit but Dalits still cannot because people will not buy from them due to caste stigma. Dalits have no choice but to sell their poultry to outside suppliers for lower profits. 

“Other hoteliers found out my caste and used it to push me out of competition. They informed my customers of my caste and discouraged them from staying at my hotel,” a Dalit hotelier shares. 

The hotel was close to a medical school and had earned a good reputation among hospital visitors, at least until they discovered his caste.

As ‘higher’ caste customers stopped coming, he moved his hotel to the East-West highway, where customers, in a rush, do not have time to worry about the caste of the owner. 

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“They will knock me out of the business if they know my caste,” says a Dalit who owns a pipe manufacturing business in Western Tarai. He has been in the business for several years. Due to fear of ostracisation from non-Dalits who dominate the industry, he has erased his caste name from all his documents and uses a non-Dalit surname. 

These three incidents illustrate deeply rooted caste barriers blocking Dalits from entering and thriving in business even as they make up 14% of Nepal’s 29 million population.

Yet, due to Nepal’s hierarchical caste system, Dalits continue to be looked down upon as ‘untouchable’ and of ‘lower’ rank, and non-Dalits, as per caste norms, do not eat food and beverage items touched by them. 

In a 2018 Tribhuvan University study, even seven years after anti-caste discrimination laws were passed, 34% of Hill Dalits and 28% of Madhesi Dalits reported routinely facing caste-based discrimination. 

Caste-based barriers obstruct Dalits from freely participating and thriving in business, yielding at least three distinct types of market and non-market barriers. 

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First, caste bias means ‘higher’ caste groups avoid buying goods and services from Dalits, except for menial labour. In their 2019 book Good Economics for Hard Times, Nobel laureates in economics Abhijit Banerjee and Esther Duflo show that social norms such as caste and patriarchy, and not just price, shape business decisions. 

In Nepal’s case, ‘upper’ caste customers examine not only the price and quality of what they are buying but also the social value of goods and services. 

Second, companies use caste norms to sideline Dalits out of competition. Development economists confirm that firms often deploy caste and ethnic discrimination to remove their competitors from the playing field. 

Third, Nepal’s Dalits do not have easy access to resources such as land, capital, and networks that are usually a precondition to enter and thrive in business. Impoverished by decades of exclusion and discrimination, Dalits do not have collateral for loans. They face social stigma and stereotypes and do not get access to idea-and-trust-based loans. 

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As a result, they are forced to get by with low capital and higher interest rates. Dalits also do not have strong business networks, nor do they have access to the social spaces where business decisions are made. They do not have a strong community support system, which could compensate for low capital and weak policy networks. 

These caste barriers not only block the entry of Dalits into business but also create market failures. Just like the Dalit hotelier in Bhairawa who was pushed out of the market, discriminatory practices allow only a few castes to dominate, forcing customers to buy in a market not governed by price and quality but by non-market measures. Eventually, such caste-based business practices create conditions for cartels and monopolies, blocking the free market. 

Caste-biased business practices also yield inefficient resource allocation. Caste-based preferences in recruitment mean businesses are forced to draw from smaller talent pools, and Dalits miss out on opportunities for human development. Resources such as land and capital do not move across social groups, ultimately leading to unequal income distribution and lower economic growth. 

Despite the challenges, Nepal is committed to ending discrimination in employment and business. In 1974, Nepal ratified the ILO Convention 111–Discrimination (Employment and Occupation) Convention, 1958. In 2002, the country enacted the Bonded Labour (Prohibition) Act, formally ending forced labour such as Kamaiya, Haliya and Haruwa-Charuwa. In 2020, Nepal Rastra Bank issued a guidance note to encourage loans to Dalits of up to one million rupees on concessional interest rates. 

While the commitments on paper have been swift, they have not led to tangible results. In 2023, the ILO Experts’ Committee called for Nepal to implement Convention 111 to address discrimination against Dalits and to promote their access to productive resources such as land and capital.

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Ahead of its upcoming graduation to middle-income country status in 2026, Nepal has prioritised private sector-led development, hoping to increase investment from domestic and international investors. The Nepal Investment Summit this weekend is designed to attract investments. 

While these are welcome moves, Nepal should not miss the opportunity to free itself from barriers holding back the Dalit community. By unlocking Dalits from discrimination, Nepal can add to its human capital, ensure fair income distribution, increase resource allocation efficiency, and augment economic growth. 

We need research on how caste-based discrimination has reinforced market failures. The business development capacity of Dalits needs to be enhanced by creating better access to information and business networks. Nepal’s macro and micro-economic policies should combat visible and invisible caste-based business barriers. 

Monetary policies can grant Dalits access to non-collateralised finance at concessional interest rates, and tax exemptions can create a level playing field. Finally, there could be a policy guarantee that the government, as one of the largest buyers, purchases goods and services from Dalits.

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Subhash Nepali


Subhash Nepali works as a policy economist at the United Nations in Nepal. These views are personal.