Ethnic Nationalism and the Future of Nepal

Basu Sharma

Proceedings of Unfolding Futures: Nepalese Economy, Society, and Politics
Friday-Sunday, Octobet 5-7, 2007, Ottawa, Canada


Politicians, concerned citizens, and scholars have searched for a suitable governance system for a new Nepal. Federalism is one widely proposed model. However, there are various types of federalism, and it is important to select one in view of the ethnic, geographic, and linguistic diversity of the country. The objective of this paper is to inform decision makers about this important issue. To that end, I will examine the concept of ethnic nationalism, and analyze its role in determining an appropriate federal structure. Since the ultimate objective is to uplift the lives and living conditions of the citizenry, I outline the economic policy framework necessary to achieve this objective by drawing on insights from development economics and business strategy. I conclude with remarks about alternative futures for Nepal. Introduction

An appropriate governance system is the first requirement for bringing about a socio-economic and political transformation in Nepal. Politicians, concerned citizens, and scholars are searching for suitable systems of governance for a new Nepal. Federalism is one widely proposed model. However, it is important to consider the type of federal structure appropriate for Nepal given the ethnic, geographic, and linguistic diversity of the country. The first part of the paper will examine various types of nationalism. In the next part, I will use development economics and business strategy to outline the kind of economic policy framework necessary to achieve the objective of improved living conditions for the citizenry. Finally, I will conclude with speculations on alternative futures for Nepal.

Nationalism and Federalism

There are two main types of federalism; territorially-based and culturally-based. Political nationalism supports a territorially-based federal system while ethnic nationalism supports a culturally-based federation. Since nationalism is the key ideology behind federalism, it may be appropriate to first look at the key characteristics of nationalism.

Similar to religious fervor, nationalism is firmly rooted in emotionalism. It is a state of mind, or more broadly, a system of belief (Minogue, 1967). Like any great philosophy, it penetrates the heart and mind and ignites passion. For Rousseau, nationalism was the mirror-image of the collective will of individuals (Vaughan, 1915) – individualism realized through a community of people. In the Kantian dualistic system, nationalism was a free and autonomous will actualized by a collective consciousness for the purpose of “self-determination” (Kedourie, 1960). Meanwhile, Hegel viewed nationalism as a spiritual principle arising out of the history and nature of mankind.

Types of Nationalism

Two types of nationalism are often discussed in the context of national movements; civic and ethnic. Civic nationalism underlies the ideology of the nation as a community of equal, rights-bearing citizens. It gives sovereignty to all regardless of race, gender, language or ethnicity. On the other hand, ethnic nationalism assumes that a nation is a community of common descent. It is exclusive in comparison to civic nationalism.

The dominant form of nationalism today is ethnic rather than civic. According to Ignatieff (1994),

[The] key narrative of the new world order is the disintegration of nation states into ethnic civil war; the key architects of the order are warlords; and the key language of our age is ethnic nationalism.

Recent events in parts of the country, especially the Terai, have revealed that Nepal has not escaped this new world order.

There are forms of nationalism known as positive and negative nationalism. Civic nationalism is considered positive because it often brings people out of ethnic nationalism and bestows rights and privileges to all citizens on an equal basis. In contrast, jingoism and chauvinism, which make exaggerated claims about the superiority of one nation over another, are considered negative because they can incite parochialism. Ethnic nationalism may deteriorate to jingoism/chauvinism. Many recent open conflicts between groups or nations have the tinge of religious or ethnic conflict, with ethnic nationalism used as the ideology to define the scope of the conflict.

Articulation of the ideology of nationalism is generally related to a grievance. Civic nationalism arises when the grievance is directed against a foreign power or an institution that has outlived its importance such as colonialism, dictatorship or absolute monarchy. Ethnic nationalism arises when the grievance is directed against a dominant group. The rise of ethnic nationalism in Nepal is a result of poverty and oppression. As Gaguly (2005) puts it, many of the minority ethnic groups began to resent “their endemic poverty and underdeveloped status and became convinced that they were being deprived (deliberately or otherwise) by the majority communities.”

There are more than a dozen ethnic groups in Nepal. The dominant ethnic group is the Brahman/Chhetri group, followed by the Madhesi group. Table 1 describes the ethnic composition of the population of Nepal:

Table 1: Nepal’s population composition by caste/ethnicity in 2001.

Ethnic, language and caste groups Share in total population
Brahman, Chhetri, Thakuri, Sanyasi 30.9
Total Madhesi (excluding Tharu) 22.5
Maithali speaking 12.3
Bhojpuri speaking 7.5
Awadhi speaking 2.5
Hill Dalit 7.2
Magar (hill janajati) 7.1
Tharu (terai janajati) 6.7
Tamang (hill janajati) 5.6
Newar (hill janajati) 5.5
Muslim 4.3
Rai (hill janajati) 2.8
Gurung (hill janajati) 2.4
Limbu (hill janajati) 1.6
Others 3.3
Total 100

Source: Nepal (2007)

Each of these ethnic groups has its own unique language and culture, as well as its own set of grievances. Socio-economic backwardness coupled with neglect by the old regime led them to assert their interests. The Maoist movement also provoked various ethnic groups to ask for autonomy. Both factors have led to a resurgence of ethnic nationalism in Nepal. The implication of ethnic nationalism vis-à-vis civic nationalism on models of federalism in Nepal is the question I will examine next.

Models of Federalism

Federalism is the opposite of a unitary state. It is a union of partially self-governing states or regions united by a central government, with a system of political order whereby the final authority is divided between sub-units and a centre. According to Wikipedia, “In a federation, the self-governing status of the component states is typically constitutionally entrenched and may not be altered by a unilateral decision of the central government.” Two or three levels of government rule the same land and people in a federal system. Additionally, the constitution guarantees and protects autonomous spheres of authority for each level of government (Sharma, 2007), and is the guiding document for federal policies.

The constitution is a result of negotiations among several power centers, and it outlines how power is divided and shared. Thus, changing the constitution can be very difficult because it requires an intricate system of balance among the various constituents. For example, the Swiss procedure for making a constitutional amendment requires ratification by referendum, with a majority in the federation and in a majority of cantons (Watts, 2004). A lack of balance among the constituent polities can sometimes lead to a failure of the federal system.

Federalism appears to work best in societies where the total population is made up of various ethnic cultures and linguistics profiles. This is because federation brings together citizens by confederating or uniting the interests of all groups, thereby promoting cooperation, peace, and justice among the participating parties. In a typical federal system, powers are divided and agreements are signed between central and territorial governments, with the central government interfering only when there is a breakdown in the system. The central government usually assumes the responsibilities of the nation’s defense system and its foreign affairs. Territorial governments may develop their own laws and regulations, provided they are consistent with the policies and programs of the central government. The territories build their own monitoring mechanisms and human rights codes, again consistent with the central government’s social policies. Sometimes federalism allows for territorial governments to participate in central decision-making and/or in international affairs.

Once the decision to opt for a federal system of governance has been made, the next issue is to decide on the type of federalism. In the case of Nepal, the choice is between territorial or socio-cultural subdivisions. Various proposals have already debated the merits of the two types (Acharya, 2007; Sharma, 2007; Devkota and Gautam, 2006; Bohara, 2003). These proposals offer suggestions as to the number of divisions to be made, and give rationale for one type over the other.

Those who propose socio-cultural subdivisions argue that fulfilling the aspirations of marginalized ethnic groups should be a primary consideration in the design of a federation. They believe that this humanistic approach will ensure a durable peace and lasting stability. Meanwhile, those who oppose socio-cultural division argue that this type of structure will be a veritable hornets’ nest given the large number of ethnic and linguistic groups within the country (e.g. Rai, Limbu, Tamang, Newar, Magar, Gurung, Maithili, Bhojpuri, Awadhi, Tharu, Thakuri, Sherpa, Kshechri, and Bahun). For example, some groups’ demands may make the federation unworkable, while other groups may push for separation. Thus, the possibility of country disintegration is a major criticism of socio-cultural-based subdivision. In fact, the Constituent Assembly Members Election Act, 2064 recognized the ethnic dimension and propounds the principle of “First Past the Post” (FPTP) as well as a proportional representation (PR) system. Some of the details can be found in Appendix 1.

The system that can most likely serve the interests of the Nepalese people is territorially-based federalism. This is because territorially-based federalism has democracy as its underlying principle rather than ethnicity. The recent activities of various so-called revolutionary groups in Terai already depict the ills of ethnic nationalism. For example, Several pahadi teachers in Madhesh were persecuted, threatened, and forced to leave (Nepal Times, July 8, 2007). This indicates that federalism based on socio-cultural subdivisions can ignite the flame of ethnic nationalism and pose serious problems for a newly unified Nepal. There will be no democracy in such a federation, and it can become a destabilizing force in itself.

Additionally, Nepal has recently been declared a secular country. Thus, a federal system based on socio-cultural groups is contradictory because language and religion are inseparable parts of culture. As Sangroula (2007) points out, “The concept of ‘ethnic federalism’ with a sense of special privilege to a group at the cost of exclusion of others is defective on the basis of principles of democracy as well as ‘integrity’ of the nation”. Nonetheless, it is important to note that a federal system cannot ignore aspirations of minority groups. Socio-economic policies can be developed to address minority issues in an effective way within a federation. This theme will be elaborated upon later.

Once the structure of federalism is defined, the next issue is the distribution of power between the central authority and constituent zones or provinces. There are two models in practice; symmetrical and asymmetrical (Sangroula, 2007). Under the symmetrical model, division of power between the central authority and constituent provinces or states is clearly defined in the Constitution, while all residual powers remain with the central authority. In the asymmetrical model, powers and privileges of the central authority are clearly outlined in the Constitution, with remaining powers and privileges left to the constituent provinces or states. Federalism in India is an example of the symmetrical model, while federalism in the U.S.A. is asymmetrical. Canada is a mix of the two.

Determining the type of federalism cannot be an end in itself. The next issue is whether the system put in place can deliver on its promises. When the government is elected by popular vote, the people themselves determine how enlightened, efficient, morally upright or corrupt a government will be. The implication is that improving the quality of a federation depends on improving the quality of its people. This is a daunting task for a country like Nepal, one that will require resources and economic policies conducive to rapid human development in all its dimensions. The following section proposes a framework for the economic policy developments necessary to achieve this objective.

Framework for Economic Policy Development

Nepal is one of the poorest and least-developed countries in the world. Approximately 40% of the population lives below the poverty level, and 80% of the economy is still agriculture-based. Almost one quarter of the population lives on less than one dollar a day per person. While the natural beauty of the landscape and hydropower potential are tremendous assets, its small-sized economy, technological backwardness, rugged terrain, landlocked geographic location, and civilian strife are major liabilities for economic growth. However, Nepal has a growing youth population with a median age of 20 years. This is fortunate, since nation building is generally the work of young people. On the other hand, with few opportunities for meaningful economic engagement, large groups of unemployed young people are particularly liable to cause social unrest. With an estimated 50% of the workforce in Nepal falling under the category of underemployed or unemployed, this is also a tremendous waste of human resources.

Comparative cross-country statistics show how much Nepal must develop in order to join the ranks of even the most moderately developed countries. For example, recent freedom indices data indicate that Nepal scored 59.6 for business freedom, 30 for investment freedom, 30 for property rights, and 25 for freedom from corruption. Most free nations have a score of 100 for each of the dimensions measured (The Heritage Foundation, 2007). A widely used measure of development is HDI (human development index). The most recent score for Nepal is 56 out of a possible 100. Improving these measures should be a moot point for a new Nepal’s economic policy.

The objective of Nepal’s economic policy must be to transform a feudalistic economy into a modern, knowledge-based economy. This transformation requires a different model then has been previous used by policy-makers for two key reasons. First, Nepal cannot afford to travel through traditional paths (e.g. agriculture, industry, services) at the historical pace of economic development. The transformation process should be faster. Second, in view of the growing disparities among and between various ethnic and regional groups in the country, economic development should be fair across regions and for all groups. The first will require that Nepal create a telescoping effect, and the second will require that economic and social policy be grounded in terms of capability creation à la Amartya Sen.

Telescoping Effect

The new governing party of Nepal must realize the centuries of development achieved by other countries in just a few decades. It needs to leapfrog from an agrarian to a service economy. I other words, it must create a telescoping effect in the areas of economic and social development. Several Asian countries including Japan, South Korea, and Singapore have successfully transformed their economies and societies this way, and China and India are currently doing the same. The government must come up with policies to develop the infrastructure that allows for such a transformation as quickly as possible.

Political leaders of Nepal, inducing Prachanda, have given the example of Singapore as a model of economic success to be emulated. It is remarkable that Singapore, a tiny, laid-back, resource poor, British colonial outpost, could transform itself into a vibrant economic powerhouse in less than three decades. Nepalese leaders have acknowledged this fact and publicly announced that they will transform Nepal into Singapore in a decade or two. Although this is heartening, a comparison of Nepalese leaders with Singaporean ones reveals a striking contrast. Singaporean leaders have high level of integrity, morality, and competence. Nepalese leaders are said to be corrupt and incompetent. As Thapa (2007) points out,

For the sake of the country’s progress, it has become imperative to replace the old faces with new ones…The old leadership can still make good of their promise to transform Nepal into Singapore. Step down with honour, make way for the new generation of leaders, and let them engineer their “Singapore Model.

Capability Creation

Economic development has moved in stages. The initial emphasis was on growth of the gross domestic product (GDP). This was followed by a shift to human development, measured in terms of HDI, which is constituted of three equally weighted outcome measures; per capita income, life expectancy, and educational attainment (UNDP, 2003). A further conceptual shift took place following the groundbreaking work of Nobel Laureate Amartya Sen’s “Development as Freedom” (1999). In this conceptualization, development can be seen as a process of expanding the real freedoms that people enjoy. However, removal of major sources of “unfreedoms” such as poverty and tyranny, lack of economic opportunity, social deprivation, and repressive power of and by states is the prerequisite for moving towards real freedoms. Nepal has many of these “unfreedoms” and must work hard to uproot their sources.

One recent empirical study on the determinants of conflict in Nepal has established that the human poverty index, rather than human empowerment index, has a more significant effect on creating conflict (Parwez, 2006). Thus, the main objective of economic policy should be how to take people out of poverty.


Productivity is a must when it comes to prosperity and competitiveness. Sharma (2004) has reported that the productivity of Nepalese labour is 20% less than that of Bangladeshi labour. Policies to develop human resources and upgrade technology are required in order to increase labour productivity. However, human resource development is not solely the responsibility of the state. Individuals and businesses are equally responsible for augmenting human capital in the vast pool of young labour available in Nepal. Standards of living cannot rise without productivity growth.

How Nepalese productivity be increased‌ In this age of a knowledge economy, human capital is the key. Development of human capital requires a solid educational infrastructure and easy access to educational institutions. Changing the existing educational infrastructure is a necessary first step towards productivity growth.


If the fruits of development and progress are not shared fairly and equitably by all interest groups then a durable peace and established social order cannot be established, regardless of improvements made on macroeconomic and societal levels. Hence, the proper balance between efficiency and equity must be obtained. This is where political will and caring leadership come into play. The aftermath of the 1990s reforms illustrates this point, for although the country made progress by establishing a multiparty parliament, there were few effective mechanisms to ensure equity and fairness in the system. This certainly helped the Maoists gain support from those who were left out.

These four considerations – telescoping effect, capability creation, productivity, and equity – should be the foundation for economic policy in a new Nepal. Planners and policy makers must internalize these considerations so that economic development can be made while ensuring social justice. However, economic plans can be viewed as national business strategies. Without proper implementation of strategies, their value is next to nothing. It is the job of political leaders to implement national business strategies so that economic objectives are fully realized. Next, a few words on the approach to national development are in order.

Nepal Inc. and the Role of Strategy

If Nepal’s leaders wish to create a new country capable of addressing the interests of its various stakeholders so that its economic progress and sustainability is improved, then this problem can be conceptualized in terms of the corporate strategies of a reengineered company. Environmental scanning, assessment of internal resources, formulation of a feasible set of strategies, and strategic decision-making are the cardinal steps in corporate strategic planning.

Several successful countries in Asia and elsewhere have used the corporate model to promote national competitive advantages. Singapore Inc., Japan Inc., and South Korea Inc. are some of the successful cases. There is evidence that these countries have been able to telescope centuries of development into decades in order to catch up with the old industrialized market economy countries. This telescoping effect has also led to a tremendous reduction in poverty, and a significant improvement in income distribution as measured by the Gini coefficient. By framing economic policies along similar lines, Nepal can replicate these countries’ achievements.

The leader of the Nepal Communist Party (Maoist) has repeatedly said that if he were to run the country he would make Nepal like Singapore in ten years. It is encouraging that he finds Singapore’s development experience relevant even though the leaders of Singapore Inc. have a very different ideology than his. It seems that economic development is really the dominant convergence factor, often more powerful than political ideology, especially at this juncture in history.

Best Practices, Benchmarking and Moving Forward

The classic work “In Search of Excellence” (Peters and Waterman, 1982) was largely responsible for developing best business practices research. It identified eight attributes of corporate excellence in America; a bias for action, closeness to the customer, autonomy and entrepreneurship, productivity through people, hands-on value driven, stick to the knitting (do what you know best), lean staff, and simultaneous loose-tight properties (centralization and decentralization at the same time). The authors explain, “More significant, both for society and for the companies, these institutions create environments in which people can blossom, develop self-esteem, and otherwise be excited participants in the business and society as a whole” (Peters and Waterman, 1982).

Another important book that examined successful business organizations was “Built to Last” (Collins and Porras, 1994). They studied “truly exceptional companies” and compared them with another set of very good companies. Their objective was to discover “timeless management principles”. The key components of these principles, were described by the authors as; becoming a clock builder not a time teller, choosing A and B rather than A or B, preserving the core and stimulating progress, and seeking consistent alignment (Collins and Porras, 1994). They also compared their findings with those of “In Search of Excellence” and found that their research supported most of the attributes of the excellent companies identified by Peters and Waterman.

An enduring interest in learning about how pioneering companies manage people, develop products and services, foster innovative and entrepreneurial cultures, embrace new technology, and create customer satisfaction persists throughout the world. Put differently, business leaders find out the best practices of successful companies. They then benchmark the performance of their own companies against the best practices. The ultimate goal is to catch up with best practices and eventually move forward. Policy makers and planners can take cues from the business world to improve their performance. It is important to understand and internalize that in today’s borderless world, it is the “Economics, Stupid!”

A successful federal system requires human resources to competently fill public offices. The price of freedom and stability requires material resources to afford a measure of economic waste. An appropriate economic policy framework to develop human resources and create material resources is therefore a prerequisite for having a sustainable federal system in Nepal. However, a good government led by a good leader who can balance the forces of change and stability is the key to successful implementation of economic policies.

Good Governance

Good government runs like an efficient organization. It safeguards the country by developing and sharing new ideas with its citizens. It encourages creativity and innovativeness, promotes harmony and finds workable solutions to emerging issues. Most of all, a good government is trustworthy. Trust is essential in every step of the way. Trust is social capital (Fukuyama, 1995). What has happened in Nepal is the result of misuse of public trust by the governing parties.

Governing a small country like Nepal in a federalist way can be complex. The central government may find coordinating the activities of all levels of governments to be extremely challenging, especially in a society where most citizens are illiterate and political leaders are often shortsighted. Much of the federal government runs as an organization where politicians act as though they have been elected to the board of directors in a large organization. The leaders often vote to do nothing despite the potential gains from collective actions because they themselves can collect only a fraction of the gain. This, together with other problems such as agency problems, encourages both leaders and board members to turn a blind eye to unethical/unlawful behaviors. To counter this type of problem the governments of developed countries have developed a set of corporate governance principles that include disclosure of all major corporate activities, transparency, and accountability. The future government of a new Nepal should strictly follow the principle of good governance based on full disclosure, transparency and accountability. Invoking Fukuyama’s theory, we can say that the key ingredient of social prosperity is trust. Politicians in Nepal have yet to provide this key ingredient of prosperity.

Alternative Futures for Nepal

Democracy is the underlying principle of freedom. However, freedom has many dimensions, of which political and economic aspects are but two. If we wish Nepalese people to enjoy enduring democracy, we should build a solid foundation for it to rest upon. Political structure and economic strategies are the two central pillars for this architecture. Just as a fit between structure and strategy is necessary in order for an organization to be successful, a country must have a proper fit between its political structure and economic strategies.

Federalism should not be the defining characteristic of democracy in Nepal. On the other hand, democracy should be the defining characteristic of federalism. We should also note that a good federal system requires not just political democracy but economic democracy as well. What then is democracy‌ Democracy is a system where everyone has an equal opportunity to compete for resources, positions, and prizes (Simon, 1983). However, only those who win can claim the prizes. Only by following the precepts of democracy, justice, fairness, civic social order, and respect for the rights and properties of others, can Nepalese society forge ahead. In the absence of these virtues, the country will fast become a case of failed state.

Using perspectives from business economics and strategy, I have argued that Nepal needs a territorially-based federated structure and capacity creation oriented economic policy framework in order to evolve as a progressive, modern nation capable of competing regionally and globally. Needless to say, managing a country is much more complicated than managing a business or civic organization. Nonetheless, there are many parallels. Sa vvy politicians and economic planners can use these insights to create the best possible fit between political structure and economic strategy to uplift the spirit and ensure the wellbeing of Nepalese people.


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Appendix 1

Systems of Election for Constituent Assembly

In the case of Nepal, the Constituent Assembly Members Election Act, 2064 has adopted the principle of “First Past the Post “ (FPTP) and proportional representation (PR) system. There are a total of 497 seats. Of these, 240 are to be elected under the FPTP system. Another 240 are to be elected using the PR system with the following quota:

Table 1: Ethnic Groups and Quota under PR System

Ethnic Group Stipulated Quota (in %)
Madhesi 31.2
Dalit 13.0
Indigenous Group 37.8
Disadvantaged Region 4.0
Others 30.2

Source: Jha (2007).

The remaining 17 are to be nominated by the Prime Minister upon recommendation of the cabinet. However, there are two immediate problems with the distribution of quota under the PR system as stipulated by the Election Act. First, there is an arithmetic problem as the percentages add up to more than 100% (116.2% to be exact). Secondly, the first three groups are not specifically defined. Also, we do not know what is the definition of the category “Others.” This may create a situation for inter-ethnic conflicts to flare up.

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