With a focus on Nepal's Dalits, this article examines how development agencies adopt affirmative action measures that produce intended and unintended implications. The article delves into a qualitative case study of a nationwide vocational skills training project called the Employment Fund Nepal and two Swiss development agencies that are involved in its planning and implementation. In this project, economically poor members of various groups (including Dalits), who are discriminated based on social categories such as caste or ethnicity, are subsumed under the category 'Disadvantaged Groups' and treated as priority target groups. Academic literature shows that targeting based on social categories can unintentionally foster these categories and risks ignoring intra-group inequalities. Our research indicates that these pitfalls of affirmative action might also emerge in the Employment Fund. Nevertheless, the case study suggests that the breadth of the Disadvantaged Groups category also facilitates inclusivity and emphasizes commonalities, and might prevent an enforced division along traditional social boundaries. We assume that the inclusion of Dalits into broad categories such as Disadvantaged Groups reduces their traditional stigmatisation. Still, we argue that certain Dalit-specific livelihood realities should be given extra attention within development projects and that affirmative action measures need to be highly contextualized and flexibly implemented.