Saving federalism

Growing public disenchantment may lead the country to another political ‘accident’ Saving federalism

Achyut Wagle

Published at : January 23, 2019

Updated at : January 23, 2019 09:33

The Constitutional Council last Sunday recommended Balananda Poudel as chairman of the National Natural Resource and Fiscal Commission. There were also nominations for the chiefs of four other constitutional bodies. But, due to its nature and scope of work, also in view of international best practices, the Commission is the most critical among all these to effectively implement the federal polity in Nepal. In federalism, the Commission is not merely ‘another’ constitutional entity, as the government perhaps wants to see it.

After putting the constitutional and political frames of federalism in place, the implementation of fiscal federalism is the sole and cardinal imperative to ensure that the new system proves to be an economically welfare-enhancing dispensation. The Commission, at least in theory, is central among the agencies in managing fiscal affairs in the layered ‘self and shared’ rule.

Therefore, the Commission, ideally, should have been formed immediately after the promulgation of the new constitution in September 2015, even before the creation of provincial and local jurisdictions and elections of their political executives. This could have provided a better economic rationale in demarcating ‘separate’ provincial and local ‘economies’. That was a missed opportunity. The Commission secretariat was created some two years ago; but the appointment of its office bearers, as per Article 250 of the constitution, took a year even after the formation of the incumbent powerful government at the centre.

Due to this undue delay, a number of unwanted distortions on several fronts of public financial management, in clear detriment to the norms, practices and expectations of fiscal federalism, have now surfaced and raised rather precarious apprehensions about the very functionality and viability of federalism in Nepal.

The leadership across all ideological divisions seemed to have largely failed to take unflinching political ownership of the federal system. The leadership in the Ministry of Finance that believes in a unitary-style public financial management appeared unwilling to give up its sole authority—either by devolving power to formulate fiscal policy to sub-national and local governments or by complying with the directives to be formulated by constitutional authorities like the Commission.

The disgruntlement of both provincial and local governments is now at its peak. In the absence of a pragmatic legal procurement framework for the lower government units, the funds appropriated for these jurisdictions are also lying idle or draining out as unproductive expenses.

Averting accident

Thus, it now looks as though the entire burden of saving the federal system from being dysfunctional is on the shoulders of the Commission. It might sound a bit hyperbolic, but the truth is this: If the general public is not assuaged, sooner than later, that the federal system is capable of augmenting service delivery, akin to the political platitude of ‘taking Singha Durbar at the doorsteps of the citizens’, growing public disenchantment may, in the not so distant future, lead the country to another political ‘accident’.

Then, can the Commission (help) avert this accident by leading fiscal federalism to smooth operation? It should have been able to serve its purpose, given the raison d’être of its very creation as a quintessential constitutional commission expected to streamline and optimise the use of both natural and fiscal resources of the country. But there are caveats, of course, of a very serious nature, as the cumulative resultant effect of faulty constitutional designand political apathy to bureaucratic machinations. This assertion could be perhaps better understood through a comparable example. The Finance Commission of India, which shoulders a similar constitutional responsibility as the Commission, pursuant to Article 280 (3) of the Indian constitution, directly reports to the president of India. But the Commission has been castrated at the very outset by making it constitutionally subservient to the government which, except in a couple of instances to be able to ‘determine’, can only ‘recommend’ or ‘suggest’ fiscal measures to the government.

This has huge implications in its autonomy, impartiality and conscientious operation. Similarly, Section 8 (1) of the Finance Commission (Miscellaneous Provisions) Act, 1951 (India) states, “The Commission shall determine their procedure and in the performance of their functions shall have all the powers of a civil court under the Code of Civil Procedure...” This provision has two important aspects: the Act gives full power to define its own procedure and the provision makes the Commission unquestionably a quasi-judicial body.

But, in Nepal’s case, the Commission is not only deprived of setting its own procedures, the ensuing law, the National Natural Resources and Fiscal Commission Act, 2017, unfortunately, has further diluted the Commission’s authority supposedly given by the constitution. Just to cite an abhorrent example, Section 3 (e) of the act has the temerity to state that the Commission would ‘provide necessary suggestion relating to revenue distribution as per the demand of the Government of Nepal or the State’.

It has many very inchoate provisions with regards to natural resources and their economic utilisation by the governments of the respective jurisdictions. As such, the Commission is no longer a ‘referee’ in the tug-of-war of financial and natural resources, but it could give its ‘opinion’, not a verdict, only if the players ‘demanded’ it.

Its potential quasi-judicial authority has been so unequivocally thwarted. Ironically, this act was enacted when the now main opposition was in government which is now claiming to be the custodian of the federal system if the communist government falters. Apparently, the central bureaucracy ruled the roost and has been tacitly conspiring against devolution by exploiting the long window of three and a half years since the constitution came into force.

Acumen and vision

Though, not to be too pessimistic, there are avenues to correct the course provided the new leadership in the Commission demonstrates acumen and vision. The Intergovernmental Fiscal Arrangement Act, 2017 is far better than the National Natural Resources and Fiscal Commission Act. The by-laws (rules) related to these two and the Local Government Operations Act, 2017 are yet to be drafted which can substantially plug the holes in those laws through interpretations and explanations.

But, it must also be noted here that it will not be enough, and the Commission should take the initiative without delay to amend provisions detrimental to the federal spirit in these laws. For federalism to work, an amendment to Article 251 of the constitution is also inevitable, but nobody perhaps dares to stir that hornet’s nest right now.

Also, the constitution proposes to make the Commission an extensive research organisation related to economic and development policy as well as natural resource mobilisation and sustainable development. It is indeed unique for the constitution to so elaborately deal with economic research. The Commission should be able to translate this constitutional leverage into a culture of evidenced-based policy formulation and plan executions. One of the strengths of the proposed Commission chairman Poudel is that he brings the extensive experience of heading the Local Level Restructuring Commission that delineated the local units under the federal structure. He must be able to capitalise on this strength to convince the political leadership that federalism is a system which actually works for the betterment of the country and the people.

Wagle tweets at @DrAchyutWagle

Achyut Wagle
Achyut Wagle holds PhD in economics and is currently a professor at the Kathmandu University School of Management. He is an econo-political analyst, writing for The Kathmandu Post for many years.