Nepal’s decision to switch from a unitary government to a federal structure was nothing less short of a drama. It’s geographical and ideological framework was designed overnight. Leaders of all hues touted federalism as the best alternative to ensure Nepal’s prosperity. But it has been three years since the local governments took office and almost two years since the provincial and federal governments have been put in place. Yet, the governments in all three tiers have been facing deep challenges to implementing federalism. They can be fundamentally based on two broad areas—the financial capacity and border security. These two factors, when looked at in connection with India, China and the US, pose significant problems to the implementation of federalism in the country.

The financial burden of federalism

A federal structure has a large setup of government institutions and staffs. Naturally then, the availability of finance plays a key role in sustaining federalism. The provincial and the local governments are assigned with primary responsibility for the delivery of basic public services. But they are not equipped with adequate resources, as the bulk of the revenue is retained by the federal government. This will act as a major impediment for fiscal federalism.

Nepal needs $8-$11 billion in the next three to five years for implementing federalism, which is a huge sum of money.

The first federal budget of Nepal (2018-19) allocated Rs845 billion under recurrent expenditure and Rs314.28 billion for capital expenditure. In the second federal budget (2019-20) the recurrent expenditure was Rs957 billion and capital expenditure is Rs408 billion. The gap between administrative expenses and the money fueled into development projects reflects our financial vulnerability. Cleary, the administrative costs, which are often non-productive in nature, have increased, at the expense of investing in development projects—something that provides a return in the long-run.

Border security

Post state restructuring, Nepal is now divided into seven provinces. These provinces touch the border of either India or China—or both in most cases. Both the Indian and Chinese establishment is quite concerned about Nepal’s land and aerial security management given the illicit activities and substances that have historically permeated out of Nepal and into the two countries. This concern has been prevalent since the days when Nepal had a unitary system of governance. But with Nepal turning to federalism, they have been even more pronounced.

For example, India is trying to increase its 25 District Soldier Board (DSB) office and 2 Pension Paying Office (PPOs) in the Tarai. China, on its part, has moved its people from Tibetan dominated Zhangmu town to a larger town, Shigatse following the 2015 Gorkha earthquake. In fact, China is planning to repopulate the area with Han settlers.

The US, too, has been showing more concern. Although Nepal and the US don’t share a land border, Nepal’s fragile airport immigration could be problematic for the world’s superpower. According to the US, Nepal’s fragile immigration security is helping to ‘breed’ Nepal as ‘safe haven’ for international terrorists. That is why the US is pressuring the Government of Nepal to establish its Personal Identification Secure Comparison and Evaluation System (PISCES) software at Tribhuwan International Airport to monitor and interrogate terrorists. Based on several reports, Nepal’s weak security apparatus poses a risk to its allies in Asia, especially India. So much so that the CIA has confirmed a loose network of the Indian Mujahideen working from Nepal.

The above-mentioned border security challenges are bound to have geopolitical implications, which ultimately could hinder the implementation of federalism in Nepal.

Way forward

Nepal should set its priorities straight in terms of challenges related to the implementation of federalism, and this must be with regard to the country’s border security and economic policy. For starters, to address the issue of border security, it is imperative to set up a Nepal-India joint Intelligence Commission to timely share information as to be aware of the trans-border crimes along the 1,751-km porous frontier the two countries share.

Most visitors also have unfettered access to Nepal owing to the country providing visas on arrival to most tourists. To enhance security, they need to be subjected to tighter laws when it comes to providing visas. What’s more, research divisions inside various ministries must be strengthened so that they are encouraged to conduct in-depth research and study the changing dynamics to help recommend policies for the government.

Also, to maintain financial stability, the government should strongly analyse the impact of ‘supply oriented’ economy. The politically motivated supply oriented economic policies put an extra burden on the economy despite the fact that Nepal’s productivity is negligible with regard to its imports. Obviously, there are no silver bullets to these problems plaguing the country. But formulating well-thought-out, effective policies will be key. If carried out successfully, it will definitely troubleshoot the complications of federalism in Nepal.

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