The dangerous phenomenon of ongoing neo-liberalism led policy regime and its ramification in Nepal is that it is now dragging the economy into such a trap that neither the policy manipulation within that boundary of set regime may work nor the coalition formed since long for vested interest allowed to make bold decisions from the standpoint of medium to long term interest of the economy. So far the massive rise in land and real estate price is continuing not only in big cities but also in small towns and emerging market centers amidst mammoth rise in remittances inflow up to the last fiscal year. This is a classic example of no viable options for investment with confidence of returns. Now, with the rapid slowdown in the inflow of remittances coupled with some internal policy flaws, the credit crunch problem is gradually manifesting. The high lending rates of banks at 12 to 17 percent and the rising trends in inter bank interest rate at more than 9 percent in November are vivid examples of this. To make the matter worse, a big deceleration in exports has taken place by the end of first four months of this fiscal year. In sum, now both current account and BOP deficits have started to manifest at a time when there is a compulsion of selling millions of dollars to buy the Indian currency. From the policy standpoint this may intensify pressure on tightening of both monetary and fiscal policy. This may inflict extra toll on the already depressed productive investment with more pervasive adverse effects. Recent imposition of some caps on the commercial banks by the central bank on lending in the real estate sector amidst potential serious credit crunch problem is not a solution either. The isolated step without attention to promote investment in other sectors is more dangerous under the set economic rules. This may inhibit economic activities further leading to, among others, dampening of imports, government revenue and ultimately growth. For the same reason, it may lead to face a similar fate as the compulsory land ceiling limit recommendation policy declared and withdrawn. The most dangerous ramification of the ongoing policy regime is that it has deliberately accentuated the deindustrialization process in the country. As a process of continued down turn, the share of industries in total GDP reduced to 6.8 percent in the last fiscal year from 10 to 11 percent a few years back. In addition to sharp decline in cottage and small enterprises, there is also a tendency of marked deceleration in enterprises employing ten or more people. The total employment of such enterprises was reduced to 1 lakh and 69 thousand in 2007 from 2 lakh and 13 thousand in 1992. In terms of industrial structure, for instance, the share of other food products in industrial value added reduced to 4.5 percent in 2007 from 7.2 percent in 2002. More alarmingly, the share of textile and wearing apparel went down to 11.8 percent in 2007 from 38.1 percent in 1992. In terms of employment, its share decreased to 26.6 percent from 44.5 percent during the same period. No country can foster sustainable growth and development with such an opposite course as the development history of western capitalist and newly developed countries also shows. Abolition of feudalism followed by industrial revolution enabled western countries to transform their economies into highly advanced one. The mighty industrial base was one of the principle reasons of US emerging as the dominant power in the post second world war period. Unlike the distorted messages, the successful industrialization of newly advanced countries primarily depended on the state’s incentive structure and promotional policies. The financial crisis of 2008 has reinforced that development of industrial capitalism on the roots of agrarian reform and commercialization is essential in countries like Nepal. The structural, institutional and rule based problems perpetuating adverse entrepreneurial environment are deliberately ignored under the neo-liberalism led regime. This is the additional reason for augmenting de-industrialization process in Nepal. Interest rate is one example which discourages investment in productive areas. There are no especial incentives in terms of rules and institutional structures that could help industries in general and small industries in particular which are more domestic resource based. Even some facilities declared are not provided in a timely manner. The policy coordination at the institutional level is almost non-existence. The defunctness of one window system is the best example. In every step the entrepreneurs are discouraged. Under the dictate of the neo-liberalism, safeguard to the import competing industries has been hardly thought of which also demands equal priority on the agricultural sector commercialization. The pegged exchange rate system and unequal trade treaties are adding to the deindustrialization process further. Time is running out to activate the industrialization drive through complete restructuring of policies and institutional set ups coupled with new initiatives to make existing trade treaties beneficial on equal footings.