Kathmandu: Government of Nepal is preparing to legalize the production and sale of traditionally made local liquor through cooperative institutions.
The Ministry of Industry, Commerce, and Supplies is working on a policy framework to formally regulate the production and distribution of traditional, indigenous alcoholic beverages, granting cooperatives the right to engage in these activities legally.
A study report by the Department of Industry has recommended that cooperatives representing groups of at least 100 traditional liquor producers, with distinct geographical identities, be authorized for production, processing, blending, bottling, packaging, and distribution of such beverages.
This initiative aims to bring traditional liquor production—currently conducted informally—into the legal and regulated domain.
A task force led by Khagendra Bahadur Basnet, Director of the Department’s Technology and Environment Division, has submitted a preliminary draft of standards required to establish such an industry. The move comes in response to growing demands from various indigenous communities and lawmakers to formally recognize and regulate traditional alcohol under state policy.
According to Basnet, “Many indigenous communities in Nepal have historically and culturally produced local liquor. However, due to the lack of legal recognition, low-quality and unregulated alcohol is being sold in black markets. The current effort is to introduce legal, safe, and quality production standards.”
The initiative especially highlights kodo (millet-based) liquor, which has the highest consumption among traditional liquors in Nepal. The task force recommends starting with legalizing millet-based liquor and expanding the policy to include other varieties like aila and mohuwa based on demand and cultural significance.
Industry Minister Damodar Bhandari has affirmed that preparatory work is underway to bring domestic liquor production and marketing under legal regulations.
“We must prioritize domestic production. With structured and legal production of traditional and quality liquors, we can generate significant income and employment opportunities,” he said.
While the framework is not yet finalized, the Department has proposed that cooperatives seeking licenses should meet several conditions, including capital deposit requirements and technical documentation. Cooperatives must be legally registered under prevailing laws and consist of at least 100 members. They must demonstrate financial readiness by having 10 percent of their proposed capital in bank reserves and commitments for an additional 20 percent.
Despite the current lack of regulation, the informal liquor market in Nepal is vast. A recent study shows that about 66.3 percent of alcohol consumed in Nepal comes from unregulated sources.
Of this, 57.4 percent is traditional local liquor, and 36.7 percent is homemade beer (jaand). In fact, homemade liquor accounts for 50.9 percent of Nepal’s total alcohol consumption, followed by jaand (24.5 percent), beer (16.8 percent), spirits (5.3 percent), wine (1.7 percent), and other local drinks like aila and tongba (0.8 percent).
If brought into the legal framework, this large-scale consumption can lead to quality control, proper branding, and legal employment opportunities, says Basnet. “Legalization can transform traditional knowledge into a legitimate source of income, especially in remote and rural areas,” he added.
The government has also set criteria for where such liquor industries can be established. For instance, factories will not be allowed inside the Kathmandu Valley, within urban municipalities, or near international borders and protected areas.
Industries must be set up at least 200 metres away from sensitive areas like schools, hospitals, religious sites, and residential zones. In Lumbini, a protected heritage area, stricter location regulations apply.
The draft guidelines also outline technical requirements for setting up the industry—such as minimum land size, building standards, machinery, and in-house labs for alcohol quality testing. Labels must include health warnings and responsible consumption messages.
Each province will initially be allowed to approve two such industries—one in the hill or mountain regions and one in the Terai or inner Madhesh. If more than one applicant from a region qualifies, selection will be based on a scoring system evaluating experience, infrastructure, and commitment.
Although Nepal already has major commercial distilleries with significant investments and contributions to the economy, the cooperative model is being adopted to protect indigenous rights and ensure grassroots ownership.
“The big companies are already contributing to the economy and providing jobs,” said Basnet. “But our aim is to preserve traditional and indigenous liquors by improving quality and allowing local producers to run and own these ventures themselves.”
The initiative also aims to boost rural employment, increase state revenue, promote indigenous branding, and preserve cultural heritage. While still in draft form, the proposed framework marks a major policy shift in Nepal’s approach to alcohol regulation—balancing economic opportunity with cultural preservation and public health.
The final standards and licensing procedures will be approved by the Industrial and Investment Promotion Board following further review. Once enacted, cooperatives that meet the criteria can apply for production licenses and formally enter Nepal’s regulated liquor industry.
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