Nepal Needs Federalism to Achieve Much Needed Political Decentralization or Devolution

Alok K Bohara, PhD Professor, Department of Economics, University of New Mexico, NM, USA


This paper uses various economic and political arguments to assess the Local Self-Governance Act (2055) of Nepal and finds fundamental flaws with it. The paper recommends a constitutional provision to devolve power to the regional government and reduce the functionality of the district level entity to avoid and reduce duplication, conflicts, and the coordination costs. The argument is that the regional level larger jurisdiction is much better equipped to fight for rights and responsibilities. Also, the central government will be more efficient in dealing with a set of five regional governments rather than a host of highly heterogeneous fragmented district units. In addition, provision of a direct voting mechanism ensures accountability and checks and balances. Five regional governments in a geographically challenged country like Nepal do not sound too inappropriate or out of proportion, especially in the context of growing regional sentiments vis-à-vis the center of power, Kathmandu.


Who would have thought that a decade old democracy would already be in deep trouble. With rising violence in the countryside and a political infighting in the capital, Nepal indeed is in crisis. Most importantly, Nepal is on the verse of losing its hard-earned democracy. We may blame the politicians and we may lothe the Maoists for this sorry state of the nation, but one fact remains unchanged is that we all are in it together. Equally clear in this author’s mind is that the source of much of Nepal’s current problems lies in the fact that the power—political and economic– is concentrated in the hands of a few in the capital. This author has been proposing a federal system of government to break the concentration of political and economic power and to devolve it across the Nepali landscape.

In essence, this narrow definition of Nepal is resented by many millions of Nepalis outside the valley, and the Maoists have succeeded in taking advantage of that sentiment. Nevertheless, the current political problem remains unsolved and we must find a way to dig ourselves out of this hole. That is, instead of just a military solution, the government side must adopt a three -pong strategy that should include security, economic development, and political changes. In this article, I focus on the political aspect.

The proposed federal mechanism preserves the constitutional monarchy, strengthens multiparty democracy and will not require any changes in our administratively defined geographic units such as, VDCs, district units and, the development regions. The current constitutional provision dealing with the Monarchy, legislative, executive, and judicial power and responsibility will not be affected. The proposed devolutionary change will require some additions to the existing constitution

A 1995 World Bank Study records a dramatic decentralization reform taking place worldwide in developing and transition economies. Sometimes known as the fiscal decentralization initiative, devolution, or even federalism, the idea is to transfer responsibilities and the decision making power from central to local governments to restore a spirit of self-reliance and regional economic balance. Nepal adopted two years ago its own version of decentralization mechanism through Local Self-Governance Act (2055).

The Act spells out, in detail, power and responsibilities of the two tiers of governments (village and district). The third highest de facto tier is the central government. Scholars and policy makers have already begun to argue about how best to transfer the central government apparatus to the local authorities. Despite much ambiguity and confusion, the High Level Decentralization Monitoring Committee (HLDMC) has begun to take action by giving “local bodies” some responsibilities such as, primary education, primary health, and agriculture, starting next year.

These are encouraging signs that show, on the part of the government, its willingness to embrace the notion of decentralization. The decentralization movement is one of the most important public policy issues faced by this country with far-reaching consequences. It is a very deep and vast concept, and is quite different from the traditional concept of physical planning, which broadly incorporates issues such as, geographical demarcations, administrative units, bureaucratic infrastructure, delivery and inventory system, production targets and goals. Nepal has had a long history of experience with this type of planning concept.

A true form of decentralization must take into account three essential elements: democratic process to guarantee accountability, physical planning to achieve efficiency in distribution, and free market to generate competition and incentives and to ensure an optimal allocation of resources.

For a long time, Nepal focused on the physical planning and the bureaucratic network aspects to achieve decentralization. Doing so, the central political machinery maintained a good political and economic control over the country, but the economic development dreams remained unrealized for millions of citizens. Importantly, there was no viable mechanism that allowed citizens to send signaling:(1) voting, (2) social movements, (3) citizen groups influencing lobbyists and politicians, and (4) political parties to perform advocacy. An alternate to signaling, some economic adjustments took place when the population engaged in internal mobility, in that, the people from the depressed hilly regions migrated down to the fertile plains. The pressure in the valley, Kathmandu, increased substantially too. A chronic economic depression ultimately began to lead to serious negative externalities such as, deforestation, crime, homelessness, joblessness, prostitution, health crisis, and many more socio-economic ills, including armed conflicts, an implication that was not ruled out in a controversial but highly acclaimed newly re-released book, Nepal in Crisis.

Now, the current multi-party system of government and the spirit of free market have presented us with an opportunity to truly move forward with a new doctrine in our decentralization effort. Our experienced bureaucracy and its physical and administrative network will also be able to play an important role in this decentralization effort. The traditional way must be abandoned in favor of the new thinking. A scant set of ideas is presented as follows.


There are various forms of decentralization. Under de-concentration, responsibilities are transferred, but the chain of command runs from the top to the bottom. Much of the effort of the Panchayat regime was spent on de-concentration. Delegation, on the other hand, gives some decision making power as well, but the central authority expects the local units to fulfill certain prescribed tasks and goals, keeping the direction of accountability running from the local units to the top.

A much preferred devolved form of decentralization requires local governments with well-defined geographical boundaries and independent political decision-making power, which is accountable to the voting public, to exercise financial and management authority to perform well-matched public functions.

The challenging task is to design a tiered structure so that the interests and incentives of the local units can be non-frictionally mapped and aligned with that of the central power, to the extent possible, and it should also be flexible enough to be evolutionary over time. Intergovernmental relations based on such a system, which is accountable to the respective public constituency, will be healthy and efficient.

This article will argue that neither the Act nor the current government structure (village and district) is even remotely devolutionary, and it will critically assess the Act through institutional economics and public-choice angles and raise some serious concerns.

Economics of decentralization, an overview:

There are two types of goods –private and public. Goods that are bought and sold in the market for private consumption are called private goods (e.g., houses and factories). National defense, clean air, parks, local ponds and gardens, shrines, law and order, clean streets, and roads are considered public goods. When the public goods are produced, the public cannot be excluded from consuming them. As a result, there will be a score of others ready to free ride. In the absence of a collective mechanism (e.g., government), many of these goods will be under produced.

On the other hand, if unchecked, public bads (negative externalities) such as, pollution, crime, flooding due to excessive deforestation, bank-failure, and economic recession, affecting a large section of the society, will tend to glut the market. The role of governmental public policy is to produce and provide public goods for people to enjoy, and limit the production of the public bads.

Different governmental layers are matched with different public policy responsibilities based on their ability and efficiency. In addition, governments look after other responsibilities mainly in the area of basic needs and public utilities as well (e.g., drinking water, fire safety, healthcare, irrigation, dams, manpower training, communication, and energy production). But, most importantly, good governance does not shun autonomous bodies and private sectors from getting involved in many of these endeavors, because these sectors are quite capable of enhancing production and job opportunities.

The idea behind a decentralization mechanism is to create an efficient structure so that various levels of governments engage in the provision of public goods, so that the resources are allocated optimally for the benefit of the society at large. Thus, while creating an institutional mechanism, numerous political and economic arguments must be taken into account such as: efficiency; voting and decision making mechanism; checks and balances and accountability; co-ordination and transaction costs; scope of the goods and externalities; redistribution; and socio- economic and political history of the country. But, within the context of the Act, a closer examination of these features gives rise to numerous contradictions, making the task of decentralization hard to implement.

This article uses political and economic arguments to point out two major elements as sources of the problem, economy of scale and accountability: (1) the size of the midlevel jurisdiction is too fragmented(75 districts), and(2) the checks and balances are not properly implemented at the local levels (e.g., a lack of direct voting mechanism). So, this article strongly argues in favor of a regional setup for Nepal; a set of ten point recommendations is presented at the end of this article.

A streamlined government structure is just a part of the story. Efforts must also be made to eliminate redundant control and formalities (e.g., eliminating development committee and replacing it with a cabinet type executive branch at the local level units), institute deregulation, promote accountability and transparency, and transfer certain government functions to the private sector.


Governments produce different activities with varying degrees of optimal scales and effects. Economic efficiency argument will prevail if the scale of the government units match the scope of the goods and services they provide. For example, fire, village roads, public libraries, safety, small-scale irrigation, garbage collection, drinking water should be provided at the local levels. National defense, international relations, immigration, macro stabilization policies, international trade and commerce, consumer safety standard, fiscal and monetary policies, environmental regulations, telecommunications, science and technology labs, postal service, preservation of national wildlife and refuse should fall under the purview of the national government.

There are many tasks that are more suitable for a mid-level administrative unit. Consequently, many countries have adopted a three-level decentralization system, and the Act also follows a similar format.

The following examples are presented for an illustrative purpose. At the village level unit (VDC), the SLG Act lists numerous tasks and responsibilities that seem appropriate for that level except for the fact that the village level unit has also been assigned to generate and distribute electricity. The local authorities at that level are not quite equipped to handle such a responsibility. More appropriately, the private sector should be involved in generating electricity. Actually, the larger hydropower system, spanning several districts, must fall under a larger administrative unit (e.g., regional level governments; more about it later).

The SLG Act outlines a litany of similar tasks to be carried out by the district unit. This duplication and ambiguity will be the source of economic inefficiency and conflict while generating and delivering goods and services. Similarly, expensive and complex health and education initiatives are also thrown in at the VDC level without much thought and rationality.

Competition and representative government:

Efficiently run independent local units can compete with each other to attract households and businesses to improve their tax base. This is called horizontal competition. Similarly, a vertical competition among different layers of governments (national, regional, and local) can only be beneficial to the public, as voters can effectively control the influence of these different governments in their ability to tax and spend.

As such, it is important not to overlap the administrative structure of these three layers of government, so that the voters can send a clear signal as distinctly as possible. That is, the three legislative bodies must be elected based on direct voting, and should be separated in their function by defining distinct tasks based on their ability and the scope of the goods they can provide. The rationality follows.

The voters may vote for a party at the national level for its political philosophy, SAARC/SAFTA, and immigration policy. But, at the same time, they may choose to be totally apolitical in the selection of the village level local leaders.

Similarly, a regional level voting preference may be based on the completely different issues such as, the nature of the regional universities, exploitation of water resources, sales tax, income tax, business tax, emission standards, public school systems, industrial parks, and the regional level transportation network. These political-economic arguments should also be the driving force behind any meaningful decentralization effort. The newly implemented LSG Act is incoherent and has many flaws.

For instance, incorporating the influence of the national parliamentary members in the district level units, the Act looks more like a controlled decentralization and a breeding ground for corruption. Given the fact that the creation of the mid-level district level government has a lesser degree of direct involvement of the voters, it lacks checks and balances. The same village level individuals move on and/or give input to also form the group of the district level policy makers. This is against the spirit of representative democracy, and the current system is a breeding ground for conflict of interest and corruption.

Matching scale of goods with scale of governments:

In any decentralization effort, a greater attention must be paid in matching the ability of a governmental jurisdiction and the scale of the public good. For example, a county or village level unit will not be able to produce highways, irrigation network, or hydropower because of the lack of economy of scale of the local units, but they can produce street lights. At the same time, a large-scale public good–national defense– goes under the purview of the national government. If the local units do not get any responsibility, then they are also less likely to get any financial power and resources.

Under the current Act, even the midlevel government (district) will not have any economy of scale to engage in these types of activities, including many other such as, manpower training, higher education, and energy production. Thus, given the weakness of the midlevel governmental entity, the public policy debate will always be dominated by the central authority and its concentrated powerful political leadership.

It is more than likely that the central government will try then to keep the local units as fragmented as possible (e.g., keeping the 75 DDC level units), and not support the regionalism, so that they can continue to dominate the economic decision making scene. Such a patronizing behavior of the central government will continue under the Act.

Of course, smaller like-minded district governments can collude and gain an upper hand in the bargaining game and perhaps get some large-scale economic gains for their constituencies. But, the lobbying process will be very costly and time consuming.

Over time, all-powerful central government acts more like a monopolist and less like a benevolent dictator. There are two ways to break the monopoly of the central government. First, it is important to allow voters to directly elect all three levels of governments to reflect the changes in their voting preferences, in case if the voters want to shift power and responsibility across different levels of governments based on their performance and cost effectiveness. In the U.S., voters have demonstrated their ability to pressure on the central government to hand over some responsibilities (e.g., welfare system) down to the state level. The LSG Act lacks such flexibility, because power and responsibility are not clearly articulated for the three levels of governments.

Second, institutionalize the regional setup to increase the collective power of the local units. A regional setup will result in a higher economy of scale. With a larger regional jurisdiction, they will be able to produce and manage larger public projects, and the corresponding responsibility and revenue generating power will also go up. This benefit of regionalism in the context of Nepal will be discussed later.

Redistribution and equity arguments:

Another main argument for federalism or decentralization is to achieve equity across different regions in a country. While small local units (VDC) look after their own self-interest, a strong central government in theory can provide protection for the depressed areas and regions by redistributing funds.

The current setup in the Self-Governance Act, with 75 fragmented districts in a small country like Nepal, makes the task of monitoring equitable transfer of wealth rather hard for the central government. As a result, time and efforts are spent, on the part of districts, in building coalition and sending signals to gain central favor. Powerful districts with easy access to the central government and the power base will oppose policies that propose large transfers to poor districts, and they will engage in lobbying activities to gain benefits for their own districts. Poor and scattered districts are more likely to be left out of this expensive lobbying game.

In Nepali context, it does not take much to understand as to why eastern districts are so much developed as compared to the western or far western districts; it is the power of political lobbying. Just count the number of Prime Ministers and influential central leaders from the respective regions and you will get an idea of the game.

Furthermore, a fragmented voice is no match for the powerful central government. After many years of district level governance, a vast disparity still exists across districts. A regional level democratically elected government will be more efficient in looking after an average of fifteen districts within its jurisdiction. More arguments will be provided later.

The bottom line of fiscal federalism:

Under federalism or decentralization, a tiered system of governments is established for the purpose of efficiently providing goods and services to the public. And, taxing and spending powers and responsibilities are appropriately assigned to different levels of government keeping in mind to achieve two objectives: vertical balance and horizontal balance.

Vertical balance means that each level of government should be given power to raise revenue that is commensurate with its responsibility. For example, the local level of government (e.g., VDC), whose expenditure responsibility is small (e.g., garbage collection, drinking water, village roads, parks, public libraries), should only have a correspondingly small share of revenue.

Also, small local governments should not be burdened with costly administrative responsibilities, especially if the assigned activity has a spillover effect on a larger area. The vehicular related taxes should not be raised at the VDC level, since the vehicles are highly mobile and generate positive (transportation of goods and people) and negative externalities (pollution) for a much larger geographical region outside the village level.

The horizontal balance attempts to discourage a huge permanent gap across different local units. This means that a natural resource rich VDC level unit, when given a taxing right to exploit it –as has been alluded in the Act–, will have an imbalanced and undue advantage over many other not-so-fortunate local units. Thus, harnessing of the natural resources (e.g., mining, mountaineering, forest management) should be done at the regional and/or the national levels for the benefit of larger areas. These examples are given for an illustrative purpose, and the point is that the Act should be considering these types of economic rationalities.

Managing the revenue generating effort is not costless, and it requires expertise. It has been thus argued that the value added taxing (VAT) system should be given to a more resourceful and technically apt central government to handle. In addition, due to its large public responsibility, the central government should be given power to raise revenue through income taxes, custom duties, capital gains taxes, airwave, and wireless telecommunication. Large scale resources –mining, forests, hydro, mountains –should be exploited based on a mutually agreeable formula between the central and the local governments. The Act is ambiguous in this regard too.

In the Act, raising the scope of the mid-level governments from the district units to a larger regional entity will achieve three things:(1) a larger regional unit will stand a better chance in bargaining against the central power to gain rightful fiscal responsibility and power,(2)a stronger regional voice will also be more effective in fighting to retain the fruits of large scale regional resources to be shared by the local units in the region, without being at the mercy of the central power, (3) a regional unit will also be more informed of any imbalance any fiscal disparity across different districts within its domain.

The regional level government can also carve out its own comparative advantage with a very minimal intervention from the central authority (e.g., tourism initiatives, autonomous university system, vocational enterprises, business taxes, sales taxes, vehicle registration and renewals, waterways). The regional and local units should also devise a formula to share the sales and business taxes. The Act is quite weak on these issues.

Transparency and process matter, not the size:

The current debates surrounding the issue of decentralization indicate good signs, and the policy makers should be given due credit for their effort. The proposed Act does contain initiatives that are reflective of the spirit of decentralization, but it lacks a rational political and economic reasoning.

A small country like Nepal should not have a massive fragmentation: 75 districts, 4,000 counties, thousands of wards and tens of thousands of representatives. Some may falsely argue that a large representation at the local and the middle layer is the sign of a healthy democratic process. But, what should matter is the set of transparent rules and regulations, under which a well-informed group of individuals debate and make important decisions. Too many un-coordinated cells in an administrative structure breed inefficiency and lack economy of scale to make a difference in generating a strong collective voice against the central power.

Just to keep things in perspective, a vast country like the U.S. with a population of 250 million people has a three-tier system with 50 states and slightly over 3,000 counties. A typical county has just a hand full of representatives. Similarly, many other nations have taken a reasonable approach to their administrative structure to create a balance between local units and the central authority (e.g., Canada: 10 provinces, Germany: 16 states, Malaysia: 13 states, Argentina: 23 provinces, Austria: 9 provinces, South Africa: 9 provinces, and a highly populated 2 million sq. km. big Mexico with one hundred million population has 31 states).

But, what is important is not the number of provinces and states that a country gets divided into, it is the nature of legislative independence and the clarity of power and responsibilities that constitute the degree of decentralization and self-reliance. For example, South Korea had a fewer number of provincial administrative units, and yet it was very authoritative and command-like with a system where many local leaders were basically appointed by the central authority. Despite much economic progress the country suffered from political turmoil for a long time period, and now it is slowly moving towards a more devolutionary system of government. Similarly, Iran’s authoritative structure with slightly more than 20 midlevel provinces and numerous local units can be best described as a controlled decentralization.

In Nepal too, under the Panchayat regime, the intention behind the formation of 75 districts and five regions was done arguably more for the political control and the bureaucratic network to carry out administrative and development work rather than for the purpose of economic freedom and self-reliance. Existence of numerous districts kept voices fragmented and weak, and a centrally command structure of government continued its domination throughout the political and economical landscape of the country. Political turmoil continued and economic development and the better living standard remained unrealized.

Having a larger number of middle layer units (75 districts) creates what is termed as a principal agent problem too, in that, the central government will have a hard time defining a common goal (through incentives and constraints) with numerous diverse district units that have some delegation power. The administrative and co-ordination cost will also be high because of the dealing involving a large number of district units. Dealing with a fewer number of homogeneously grouped democratically elected regional powers is much more efficient and cost effective. Many other nations such as South Africa, Mexico, and numerous western democracies (Canada, U.S., Australia etc.) have followed this type of rationality to solve the principal agent problem while creating their government structure.

A Flow Diagram

The proposed devolved system of decentralization, where power, responsibilities, and accountability are distinctly defined for all three levels of governments, is more parallel in nature than hierarchical. The following flow diagram tries to capture the basic elements of the arguments presented above.

Size of public goods, power, & responsibility:

For an illustrative purpose, the oval circles represent the size of the power, responsibility, and the scope of the public goods. The central government’s set A encompasses bigger responsibilities and power such as, national defense, income taxes, VAT, macro stabilization, national highways, and dams, whereas B roughly outlines duties for the regional level government: education, health, roads, vehicle registration, energy, tourism. The overlapping between A and B indicate that some responsibilities and power have to be shared by the two levels of governments (e.g., communication, education, energy, gas taxes, and mining rights). The set C represents assignments given to the village level units –e.g., property taxes– with an overlapping domain between them and the regional unit (e.g., road maintenance, sales taxes, and immunization)

The arrows show the direction of accountability, all flowing from the each government entity down to the voters, which implies that the direct voting mechanism is a must. The parallel placement of the ovals (power and responsibility) with the overlapping features is to indicate that the voters have the ultimate power to shift around the size of A, B, and C. That is, the politicians have to compete and be efficient to keep their respective sets A, B, and C, or else face the risk of getting voted out of office.

Why regional setup in Nepal?:

Decentralization is a very complex issue and one should avoid using the one –size-fits-all approach. What may work for one country may not be appropriate for everywhere else. It inherently is a political process that requires a thorough assessment of political, institutional, and economic elements of a country in question. In addition to economic rationality, the structure and the degree of federalism sometimes depend on several other factors such as, ethnicity, language, population, and political geography.

For example, the United Kingdom, originally a unitary system of government, has now slowly adopting a federal type system with regional level assemblies in its middle tier between counties and the national parliament. France, on the other hand, has four tiers, but it is a unitary system with a centralized authoritative power. Similarly, India adopted a federal system for the obvious reason of ethnic diversity, where as Mexico and Australia and, to some extent, vast Canada adopted a federal system for the reason of administrative efficiency.

In Nepal, in addition to defining power and responsibility for each level of government with minimal ambiguity and duplication, the decentralization initiative must give priority in capturing regional sentiment by allowing regional level governments. Given the current rising regional sentiment and frustration, it is very important for Nepal to move towards a regional setup. It will create a much stronger regional voice, a source of advocacy for the local units, capable of defending their rights and responsibilities.

Historically, political and economic debates in Nepal have been raised and fought from the point of view of regional sentiments (e.g., Western, Far Western, Eastern, and the Valley), and so it only makes sense to create regional governments (directly elected governors and legislative bodies) to address the problem and pride of regional self-reliance. Without a regional structure as a viable political force and direct voting mechanism at all three levels of governments, the decentralization effort in Nepal is less likely to be successful.

Further, under the devolved system of government, the regional level legislative body does not act as a bureaucratically layered nuisance between the central authority and the lower level local units, a fear that has been raised by some people. The idea that the regional setup somehow creates division in the country is also baseless. The proposed institutional mechanism and the philosophy of devolutionary decentralization imply just the opposite.

The proposed mechanism with the regional setup cuts the bureaucratic chain of command and red-tape, and provides a unique platform under which the three levels of governments:(1) compete to be efficient, (2) align their incentives and coordinate when needed, (3) perform their prescribed tasks as required by law,(4) be accountable to their respective constituencies because of direct voting, (5) stand united on the issue of national security, and (6) provide a unified stronger voice for the local units and increase their bargaining power.

It is also likely that such a proposal may fall within the intersecting negotiation domain of the battling parties –government and the Maoists-, and it may even lure the rebels back to the negotiation table. Luckily, Nepal does not suffer from an ethnically motivated regional conflict as in Sri Lanka. Conflicts and dissension in democratic Nepal have mostly emanated from economic deprivation, regional disparities, and a sense of powerlessness. A well articulated democratic regional structure of self-reliance will move the country towards a true form of decentralization process.

The north-south regional structure as envisioned by the late King Birendra will perfectly map into the proposed decentralized structure. The Paharis and the Madhesis from various districts of the region will have to work together for a common cause to develop their regions in areas of common interests such as, feeder roads, schools, university, hospitals, taxes, agriculture stations, technical education, electricity, irrigation, and water resources. The Terai basis (people from the plains) will benefit from water resources coming down from the north, and will also enjoy tourism opportunities. At the same time, the hilly people will be a part of the industrial activities that are likely to take place in the plains. The bottom line is to empower the people so that they can chart their own destiny.

Some Recommendations:

Many years of successful experiences in numerous countries have shown that a properly implemented decentralized system does work better than a command system. A set of recommendations is given below.

  • Introduce five regional assemblies. Two or three directly elected representatives from each district within the region determine the size of the assemblies. The members of the village assemblies elect the governor. This avoids the conflict of interest issue between the governor and the assembly members.
  • A district officer or commissioner, a career civil servant, can be appointed by the governor for each district to coordinate the central and regional development efforts, but the district level entity will have no taxing power.
  • Reduce the size of the VDCs and the number of ward representatives.
  • The governors should be allowed to pick experts who are not the members of the assembly to form the cabinet. This avoids the conflict of interest issue between the lawmakers and the members of the executive branch (the cabinet).
  • Give the central authority (e.g., lower and upper houses based on a 2 /3 rd majority) a complete power to take over regional and local governments in case of a grave emergency situation (e.g., local and/or regional insurgency threatening national security).
  • The regional government should not be allowed to raise armed forces. It may be delegated some policing role.
  • Further, make provision in the national (also regional and local) constitution that the regional and local agencies, decision makers, and political authorities all fall under the jurisdiction of central laws and regulations. That is, the regional and local legislative bodies should not be allowed to create laws that are in direct contrast with the national ones. The Supreme Court shall settle any such disputes.
  • Taxing power and responsibilities should be based on the size and scope of each level of the government. The Planning Commission and the Monitoring Body can help in this regard. Later, any disputes among the three layers of governments about power and responsibilities
  • The current village level government (council and/or development committee) should be perhaps streamlined by reducing the number of ward-level representation from three to one from each ward. To increase administrative efficiency, West Germany took initiatives to reduce the number of local units (Gemeinde) from 25,000 in the late 60’s to 8,500 by the 90’s.The current provision of representation from women and underprivileged classes outlined in the proposed LSGA can still be accommodated. The disproportionately large number of village level administrative units (close to 4,000) for a small country like Nepal with only twenty four million people cannot be very cost effective. In the 80’s, France also adopted changes to merge many of its low-level local units to enhance efficiency.
  • Each level of government must work on a set of transparency mechanism in their decision making process to ensure that power, responsibility, and accountability go hand-in-hand.
  • Avoid duplication. For example, instead of two sets of governing groups (e.g., council and development committees), institute a system of one directly elected governing body, and allow the A chair@ of such a body (e.g., Mayors, Governors, village council Chairs) to form a cabinet of experts and administrators to manage and execute tasks. The elected members can then focus on making policies, laws, and regulations, whereas the chairs and their cabinet (perhaps non-political individuals) would be responsible for carrying out the prescribed tasks.
  • Clearly define the process of forming and amending the regional and local constitutions within the context of the national constitution.

These are just some ideas, and they do not constitute an exhaustive list; I grant you that many points may need thorough scrutiny and change. A parallel judiciary system, which is not covered here, needs to be worked on eventually to fit the proposed institutional mechanism.

Concluding Remarks:

To summarize, because we are dealing with the issue of resource allocation, there must be sound economic reasoning and arguments behind any public policy debate. One of the most important public policy debates in the country right now is the Local Self-Governance Act (2055). This paper uses various economic and political arguments to assess the Act and finds fundamental flaws with it.

The paper recommends a constitutional provision to devolve power to the regional government and reduce the functionality of the district level entity to avoid and reduce duplication, conflicts, and the coordination costs. The argument is that the regional level larger jurisdiction is much better equipped to fight for rights and responsibilities. Also, the central government will be more efficient in dealing with a set of five regional governments rather than a host of highly heterogeneous fragmented district units. In addition, provision of a direct voting mechanism ensures accountability and checks and balances. Five regional governments in a geographically challenged country like Nepal do not sound too inappropriate or out of proportion, especially in the context of growing regional sentiments vis-à-vis the center of power, Kathmandu.

These are indeed hard issues and not without any risk, and many policy makers, politicians, and intellectuals will be extremely hesitant to discuss them. But, avoiding frank and professional discussions on the topic of regional governance as a potential solution to our predicaments will not make the problem go away either. The proposed decentralization scheme with regionalism in this article is about economic freedom and economic development and not about political autonomy. Thus, a preemptive move by the central authority to initiate such a reform by forming a constituent assembly body will be strategically prudent from a bargaining point of view too.

These are not strange ideas, but they are sound ideas. Implementation of well-proven sound ideas makes democracy a successful experience. Flimsily argued quick fixes will hurt the nation in the long-run. Finally, serious problems do require serious undertakings. The question is: Does the political leadership of the country have the courage to think the unthinkable?

Biography of Dr. Bohara

Dr. Alok K. Bohara is a professor of Economics at the University of New Mexico, U.S.A. He received his Masters and Ph.D. from the University of Colorado at Boulder. His Masters degree in Statistics was from Tribhuvan University. He was honored with Mahendra Bidhya Bhusan and the Chancellor Medal.

Dr. Bohara has a distinguished publication record, and has scholarly articles in peer-reviewed professional journals published in the US and Europe. His published work covers a wide range of topics such as, inflation uncertainty, wage discrimination, environmental Kuznet(s) curve, pollution degradation, and non-market valuation of public goods.

His current research work is in the area of corruption, democracy and violence, global warming and non-market valuation, and the coastguard compliance. His pieces showing concern on the topics of higher education, corruption and democracy, and federalism and political decentralization, in the context of Nepal, have appeared in Kathmandu Post.


Source: – 2002

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