There is a demand for clean and green energy around the world and Nepal has a huge potential for the production of hydel electricity. According to estimates by an ADB study in 2020, the technical and economically feasible hydropower potential of Nepal has been estimated at 83,000 and 42,000 megawatts (MW), respectively. However, Nepal is heavily dependent on external financing for tapping or optimal utilization of its hydro-potential. In 2019, Nepal updated its Foreign Investment and Technology Transfer Act (FITTA) to attract more FDI and meet the financial gap between public investment and capital expenditure. It has been taking various investor-friendly measures to boost its economy ever since the new Constitution was adopted in 2015. Despite all this the overall economic performance of Nepal has not been satisfactory. This is reflected in the poor GDP growth, increase in labour migration due to the failure of the domestic market to absorb unemployed youths, rapid decrease in foreign currency reserves, failure of the banks to provide loans for big projects, widening trade deficit, and poor inflow of foreign investments. The present paper seeks to study the policies that Nepal has put in place and the challenges that it is facing in enabling a conducive environment for investment to bring about all round economic growth and development in the Himalayan country.