Defendants of the rationales of federalism argue that such a system would better ameliorate the 'problems of accountability associated with traditional modes of delivery involving centralised bureaucracies [which] include cost padding, service diversion, limited responsiveness to local needs, limited access and high prices charged especially to the poor.'

But the same devolution of fiscal autonomy has often proven to be a major threat to the very fate of the federal system, as it also effectively decentralises the practices of financial defalcation, corruption and irregularity. These risks, to a large extent, are structurally embedded in the federal system itself, because corruption-related investigation, control and prosecution mechanisms—in all legal, institutional and operational aspects—are often non-existent, or a distance away from where they need to be applied. This is more so in the poor and underdeveloped countries where institutional presence, efficiency and accountability have chronically been deficit. Nepal now seems to be on the verge of summarily failing federal polity due to pervasive corruption in each level of government coupled with an alarming degree of impunity and political cronyism.

Cascading corruption

At the federal level, for example, cases like the direct intervention of Prime Minister KP Oli in awarding the unimaginably cheap lease contracts of valuable public properties to Yeti Group are now out in the open. Yeti Group has secured several prime public properties, including some belonging to Nepal Trust, worth billions of rupees in locations ranging from Kathmandu to Everest Base Camp. This is an example of the blatant violation of existing public procurement procedures. It may also constitute a case of policy corruption at its highest level, as the policy-making bodies amended several bylaws to facilitate the process in the sole interest of this company.

There are several other instances of irregularities and misuse of public properties like the capture of Lalit Niwas land by a cohort of high-level politicians, bureaucrats and businessmen. But anti-corruption investigation organisations, including the Commission for the Investigation of Abuse of Authority (CIAA), lack enough teeth and courage to question them, let alone investigate or prosecute. It is not difficult to sense that the heads of all constitutional bodies that are meant to check executive power fear retribution from the current regime, impeachment being an easy threat with a majority government in power. Needless to say, most of these appointments in investigative bodies have gone only to those who are unsuspectingly loyal to the ruling political top-hats.

At the provincial level, like the ongoing controversy in Province 2, misuse of public funds to benefit the families and friends of those in powerful public positions are now commonplace stories. The funds allocated to the lawmakers of both the federal and provincial parliaments are reported to have been widely misused almost in every constituency of the country.

At the local level, according to a study conducted by the CIAA , 46.7 percent of the people believed that collusion between the political leadership and the bureaucrats is the main cause of corruption in development projects. Two other major areas that face irregularities are service provision and in the financial administration of the local governments.

According to the recent CIAA annual report, almost half of about one thousand complaints filed to it are related to the financial misconduct or irregularities at the local level. The nature of irregularities range from multiple billing for a single procurement to the conflict of interest of the elected executives who take decisions both on awarding the contract bids and also employ their own companies and equipment for public works.

Sub-national problems

Apart from the sheer lack of political will to contain corruption at the central level, there are three main reasons that have exacerbated the corrupt practices at the provincial and local levels. One, the inadequate legal framework on public procurement and the lack of knowledge of processes among decision-makers. Two, absence and the virtual impossibility of extending the institutional network of corruption control bodies like the CIAA to every local level. And three, political patronage on the basis of ideological affiliation to local level office-bearers that often obstruct the investigation into suspected fraudulent practices.

The Public Procurement Act 2007 was adopted when Nepal was still a unitary state. After the federal restructuring of the country in 2015, the fiscal authority has been formally devolved to the provincial and local units. But a well-defined public procurement procedure for these sub-national units is yet to be formulated and enforced.

The bylaws related to the Public Procurement Act have seen nine amendments, ostensibly to accommodate the local government's needs, but has clearly failed to make the desired impact. The sub-national governments also have the legislative authority to formulate and enact such laws in their jurisdiction. But the expertise and sense of imperatives are clearly lacking there. Also, CIAA has issued separate guidelines for the local levels to process the complaints on corruption and irregularity. This too seems to have barely made any mention-worthy impact.

The extension of federal agencies like the Public Procurement Management Office, CIAA, Vigilance Centre and other regulatory and investigative bodies to every local body looks implausible. The Office of the Auditor-General claimed to have covered almost all local bodies in auditing last year's book of accounts. But that is a one-off, once a year affair; to follow up with its findings on irregularities remains another herculean endeavor.

What’s worse, corruption is no longer an issue that is publicly debated and derided—least of all in political circles. The integrity of the highest leadership in all political parties has already become questionable. The provincial or local leaders invariably emulate the central leadership and more often than not are protected by these influential corrupt leaders at the centre. The local elected executives, these days nicknamed as 'bulldozer representatives' for their dual role as owners of heavy equipment (such as bulldozers and excavators) and abusers of authority (to award themselves public contracts to plow their equipment), continue to violate even basic norms of public procurement. The quality and completeness of the infrastructure constructed by them remain unverified.

To sustain the federal system, corruption must be eradicated. One of the theoretical expositions on the matter suggests that an effective fiscal federalism is associated with lower corruption while mere constitutional federalism has higher chances of corruption. Nepal, therefore, has the challenge of executing fiscal federalism more effectively. This means making the sub-national governments less dependent on central or external funds and more reliant on their own resources.

On the practical side, extensive public hearings on budget operation at the local levels and budget management training to the elected executives may yield some desirable short term solutions on transparency and accountability. However, cleansing at the central level to halt policy as well as political corruption cannot be imagined without honest political will and commitment. 

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