Nepal adopted a federal system of governance and multilingual harmony when the new constitution was promulgated in September 20, 2015. With the completion of the federal parliament and provincial assembly elections, the country must now work to practically implement a federal set up. But is Nepal ready to accept this structure? The election manifestos of the respective political parties have revealed that there is still a lack of understanding of the duties and responsibilities of the central versus state governments.

Roadblocks

First and foremost, disagreements have arisen regarding the geographical division. Since the provincial boundaries were finalised without a meaningful referendum, there is no doubt that Nepal will face the consequences of this move when concerned authorities will have to decide on the provincial capitals and their governors. Disputes will arise and lead to instability.

Now, at the initial stage post elections, the legislative, executive and judiciary bodies should be established and institutionalised so that provinces are able to deliver basic services properly. Likewise, provincial parliament buildings need to be built to house administrative offices. Similarly, various other subordinate organs need to be created at the provincial level. In order to maintain law and order at the provinces, efficient police administrations need to be set up. For financial transactions, banks, financial institutions, cooperatives, government office funds and accounting systems need to be established at the local level to mobilise allocated funds. Also, administrative offices for revenue collection and mobilisation, civil service, public utilities, universities, health care centres and hospitals need to be established.

A large budget is necessary to establish and operate these institutions, however the allocation of resources among federal states is a very challenging task. Not all states generate the same amount of revenue as they are not equally endowed with resources. Due to this reason, it is likely that new minorities may be created due to unequal resources endowments. The Tarai region of Nepal has a majority share in the total revenue generation as compared to other regions. Identification and development of possible sources of revenue generation of each state should be the prime focus at the initial stage. In addition, there can be cases of tax rivalry among the states and the centre. The tax system and tax administration will face issues sooner or later.      

Avenues to explore

Policy formation and implementation in a federal set up encourages people’s participation through a bottom-up approach. It gives people a sense of ownership over plans and policies. Likewise, participation of local bodies in governance will make them accountable for their performance and will give rise to a sense of freedom and independence. Power and authority along with duties and responsibilities will be well delegated to the state and the local bodies. Local governments will be given constitutional responsibilities. This will bridge the gap between the people and the government. It is likely that there will be a unified government of the people, for the people. Conflicts or disputes over issues may be settled at the local level. There will be a lower dependence on the centre. Even if the central government is dissolved, it will not hamper the state governments. Federal governance will ultimately induce political autonomy. A federal set up will also speed up the pace of development activities. This structure of governance might disseminate the real essence of sovereignty and democracy. There might be efficient and maximum use of the available resources. Also, natural division of labour will take place. Likewise, if there exists a healthy competition among the state governments, they can provide cost effective public services and increase the economy of scale, ultimately leading to maximum social welfare. Moreover, competition will prevent monopolisation of the market and new production and distribution institutions can enter the market. There might be positive impacts on reducing poverty and inequality. Similarly, proper and effective mobilisation of capital is likely to take place and increase the capacity of capital expenditure.

As a result of fiscal decentralisation, fiscal power will have a greater positive effect on economic activity. Increasing the state tax or spending shares limited within the stated floor and ceiling by the central government will result in an increase of GDP per capita. Likewise, productivity and human capital improvements are likely to take place. The fiscal autonomy will be better captured by the provincial revenue share because a part of provincial spending might be regulated by the central government. Income gains and revenue decentralisation will be significantly correlated. It will be interesting to see the relation between GDP and decentralisation as provincial fiscal powers might also have adverse economic effects. In addition, investment in physical and human capital as a share of government spending is likely to surge. The shape of policy decentralisation will determine whether or not these possibilities will be met. However, the values of democratic participation, efficiency, economic fairness and the protection of personal rights and liberties should also be afforded particular attention, along with the economic performance of a federal constitution.

Dhital is a graduate from the University of Delhi