Although political parties were prohibited from 1960 to 1963 and continued to be outlawed during the panchayat system under the aegis of the Associations and Organizations (Control) Act of 1963, the Nepali Congress Party persisted. The party placed great emphasis on eliminating the feudal economy and building a basis for socioeconomic development. It proposed nationalizing basic industries and instituting progressive taxes on land, urban housing, salaries, profits, and foreign investments. While in exile, the Nepali Congress Party served as the nucleus around which other opposition groups clustered and even instigated popular uprisings in the Hill and Terai regions. During this time, the Nepali Congress refused the overtures of a radical faction of the Communist Party of Nepal for a tactical alliance.
Although the Nepali Congress demonstrated its ability to endure, it was weakened over time by defection, factionalism, and external pressures. Nevertheless, it continued to be the only organized party to press for democratization. In the 1980 referendum, it supported the multiparty option in opposition to the panchayat system. In 1981 the party boycotted the Rashtriya Panchayat elections and rejected the new government. The death in 1982 of B.P. Koirala, who had consistently advocated constitutional reforms and a broad-based policy of national reconciliation, further weakened the party.
In the 1980s, the Nepali Congress abandoned its socialistic economic program in favor of a mixed economy, and a market economy in certain sectors. Its foreign policy orientation was to nonalignment and good relations with India. Although the party also boycotted the 1986 elections to the Rashtriya Panchayat, its members were allowed to run in the 1987 local elections. In defiance of the ban on demonstrations, the Nepali Congress organized mass rallies together with the different communist factions in January 1990 that ultimately triggered the prodemocracy movement.
Following the defeat of party leader K.P. Bhattarai by the communist factions in the 1991 parliamentary election, Girija Prasad (G.P.) Koirala was chosen by the Nepali Congress Party as leader of its Parliamentary Board. As Prime Minister, he formed the first elected democratic government in Nepal in thirty-two years. G. P. Koirala was the third of the Koirala brothers to become Prime Minister. Along with his elder brother, B.P. Koirala, he was arrested in 1960 and was not released until 1967. After a period of exile that began in 1971, he returned to Nepal in 1979 under a general amnesty. He was elected general secretary of the party in 1976 in a convention at Patna and played a key role in the prodemocracy movement. G.P. Koirala was known for favoring reconciliation with the left, but he also wanted to pursue national unity and Western-style democracy.
In the late 1990s a severe factional conflict emerged in the party. It led to the formation of a splinter-group, Nepali Congress (Democratic).
On 25 September 2007, Nepali Congress (Democratic) and Nepali Congress unified as a single party. The name of the party will remain Nepali Congress, and Tree will remain the election symbol of the unified party. In the unified party, Girija Prasad Koirala, Krishna Prasad Bhattarai and Sher Bahadur Deuba will remain three senior most leaders. Koirala will remain president of the party.
The party placed second—with 110 out of 575 elected seats—in the April 2008 Constituent Assembly election, winning only half as many seats as the Communist Party of Nepal (Maoist); this was generally considered a surprising outcome. Following the election, the party held extended discussions on power-sharing with the Maoists and proposed that Koirala become the first President of Nepal, but ultimately the Nepali Congress decided to go into opposition and Koirala resigned in late June 2008, clearing the way for the Maoists to form a government.
The Nepali Congress is a full member of the Socialist International.