The government will now disburse aid under India’s Small Development Project Scheme to local governments after channeling resources to the national budget.

The Cabinet on December 23 approved a proposal of the Finance Ministry about ways to implement the projects to be financed under the scheme.

The scheme had remained controversial due to its nature of direct funding to the projects through local governments from the Indian Embassy in Kathmandu without using the government’s budgetary system.

“As per the new modality, Indian grants under the scheme will be brought under the budgetary system of the central government and provided to the local governments as conditional grants,” said Tek Bahadur Khatri, under-secretary at the Finance Ministry. This is in line with the Development Cooperation Policy introduced in May this year.

Conditional grant is the type of grant provided to implement a specific project and the local government cannot spend it on other projects. Khatri said the government could allocate the budget for the local level from the fiscal year 2020-21 after the federal government gets the Indian aid.

Under the scheme, India has been providing up to Rs50 million to implement small infrastructure projects through the local governments.

After the new constitution promulgated in 2015 required foreign assistance to be channelled through the national budget to ensure transparency in aid, the Sher Bahadur Deuba-led government in November 2017 extended the tenure of the scheme with the caveat that funds pass through Nepal’s national system and Nepal government decides which agency implements the project.

In July 2018, a Cabinet meeting made it mandatory for India to sign an agreement with Nepal’s Finance Ministry to implement the projects under the scheme and route funds through the central government account.

But officials at the Finance Ministry told the Post that no new agreement has been signed between the two countries to implement the projects under this scheme since its extension so far

“Since the scheme was extended, the country got elected leadership at the local level. It took time to introduce the new Development Cooperation Policy too which defines how the local governments can get foreign aid,” said Khatri. “This is the reason why no agreement with India was signed under the scheme.”

Shreekrishna Nepal, chief of the international economic cooperation coordination division at the ministry, said that implementation of a number of projects is going on as per the agreement signed before its extension.

“As the new modality of utilising the Indian aid has just been approved, it will take some time to implement the project under the scheme,” he said.

Launched in November 2003, the projects are popularly known as “umbrella agreement”, on the basis of which the Indian Embassy had been extending assistance to various projects. Politically, it had been dubbed as an ‘instrument’ to wield Indian influence over local communities in Nepal.

Nepali officials said that bringing the Indian aid under the small grant scheme would promote transparency in the scheme. According to Finance Ministry officials, they don’t have a database on how much money has been spent under the scheme due to the direct nature of funding from the Indian embassy in the past.