Nepal’s transition to federalism presents a unique opportunity in terms of the role that provincial governments can play in economic development. There is now a general acceptance that provincial governments have an important role to play in the development of any country. It is evidenced in fact from the current wave of decentralization particularly in the Asian continent. Countries like the Philippines, Indonesia, India, and China, for instance, have either taken steps towards decentralization or rolled back on their power to allow more subnational autonomy. There are, in fact, quite a handful of theories that reinforce the need for decentralization. For instance, the Oates Theorem and the Tibeout Economy model both emphasize the need for decentralization whether within a unitary structure or through the process of federalism itself. Most theories on the need for subnational autonomy are, however, grounded on certain crucial assumptions most of which have been debated quite extensively.
There are nonetheless some ground realities that reinforce the need for subnational government. Proximity to the people as an advantage in framing context specific policies and institutions appears to be a reality as evidenced from a cursory glance of literature. In recent years, globalization has also led scholars to conclude that location is very sensitive to innovation in the sense that localized institutions and policies have been known to foster innovation and development. Those countries whose goal is to foster innovation and drive economic growth have taken steps to decentralize or even rolled back on their power should come as no surprise.
Although the initial agenda for decentralization might not have been to build a robust economy which stands on variations in subnational policies linked to the demands of the territory of operation, in all instances the benefit of varying institutions and policies is undeniable. The extent of such benefit is witnessed in the form of varying degrees of economic growth across provinces within a country and also between subnational governments across countries. The crucial question thus is whether or not our own aspirations of development will be translated through territorially specific policies and institutions.
Case of Nepal
Nepal’s own federalism process, although not motivated by the rationale of building a robust economy on the back of localized institutions and policies, does nonetheless account for the proximity of subnational governments. The cabinet unbundling report that expands on Schedules 5 through 9 of the constitution list the principle of subsidiarity, interjurisdictional spillovers and externalities as guiding principles in detailing out the schedules. The powers and jurisdiction of provincial governments seem to have been carved out to take into account the proximity of the provincial governments, providing provincial governments a unique opportunity to carve out policies that respond to the needs within their own territory. In an ideal scenario this should result in differing institutions and policies across the seven provinces. A summary glance of provincial institutions and policies, however, show an absence of such variation.
The crucial question is whether or not our own aspirations of development will be translated through territorially specific policies and institutions.
All seven provinces had the same seven ministries, with the same functions and the same internal organization structure. Since the creation and function of the ministry is guided by the High-Level Restructuring Committee’s report, similarity in earlier stages is to be expected. Unlike local governments, provincial governments in Nepal are relatively new structures with very little experience to draw from in terms of its functioning. Thus during its initial stages it is likely to adhere to suggestions. Variations have arisen particularly in Bagmati and Gandaki provinces with the increase in the number of ministries. The motivation for such variation, however, remains unclear. In the future as provinces learn from their own experiences, the structure of the institution might change adjusting to local needs. Currently, however, changes are more likely a result of a need to maintain a coalition.
While institutions might vary in the future, policies that support institutions present a unique scenario in Nepal. The Schedules of the constitution enumerate both the exclusive jurisdiction and the concurrent jurisdiction of the federal government and provincial government. Provincial governments hold the power to design policies on areas that are within their exclusive jurisdiction. However, with regard to areas that fall under the concurrent jurisdiction, provincial policies need to be consistent with federal policies. There seems to be a large number of overlaps between the exclusive and concurrent jurisdiction. For example, industrialization, health service, management of land and mines, communication related activities etcetera are all included in both lists. Subject matters that are included in both lists thus pose a unique challenge in terms of what level of government is supposed to carry out what particular function. The cabinet unbundling report in this regard does very little to clarify any confusion. In fact, recent research highlights the confusion that exists on part of the provincial governments particularly their own functions when it comes to duplication of headings in the exclusive as well as concurrent list. Alternatively, policies on areas which have been duplicated in both lists have remained the same. For instance, the Industrial Enterprise Act, which is a part of the Industrial Policy, has been duplicated in all provinces based on the federal act. Subject matters that fall under both lists provide very little opportunity for provinces to highlight regional needs because of the hierarchy of policies that has been established by the constitution of Nepal.
What is witnessed across the world in the form of subnational governments taking charge relies on a clear delimitation of power. Often it also relies on the center rolling back its power. Our federalism which is very much in its earlier stages has neither of those two. Harnessing the potential of demand-based policies and institutions might take a long time—at the least it might require provincial governments to bargain as they build their own capacity. Perhaps, the puzzling situation of inappropriately defined roles might find its answers on the roots of federalism and the process itself. One thing, however, remains certain: A large number of policies are going to remain the same across all provinces and our development aspirations for the time being will be determined more by federal policies and institutions than by provincial institutions and policies.
Yatindra KC is a researcher at Samriddhi Foundation, an economic policy think tank based in Kathmandu. Views expressed in this article are the author’s own and do not represent the views of the organization.