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Mainstream, VOL 62 No 13, March 30, 2024

Nepal’s federal journey | Anindya Jena

Friday 29 March 2024


In a historic move, Nepal adopted a new constitution, beckoning for a transformative chapter in its political trajectory. The constitution was a landmark decision, which sought to recast itself as a secular, democratic and federal state subsequent to the end of the Maoist insurgency six years ago. “It was proclaimed on September 20th, 2015 by President Ram Baran Yadav, attended by the members of Parliament, members of the cabinet, members of the legislative bodies, high ranking officers from Nepal’s security forces, and diplomats.” (Phuyal) This adoption of the constitution completed a 65-year pursuit for democracy and federalism. However, the constitutional proclamation was met with both acclamation and dissent. This set the stage for a long journey of amendments, reforms for the betterment of the diverse and resilient nation.

We first need to delve into structural aspects and other key features of the country Nepal to critically analyze the implementation of the said federalism.
As we all know initially Nepal was a monarchical democracy and the adoption of federalism in 2015 has been a transformative journey to redefine the structure of the government. The federal system converted the system into three tier government, i.e. central, provincial and local. This decentralization was done with the aim of bringing the decision making closer to the citizens and ensure a more effective government. Another aspect of federalism was the delineation of power on different levels according to the responsibilities of each tier, this was aimed to prevent the overlapping of the jurisdiction and the control of all the power in one section of the governance, i.e. the central union. The adoption of federalism also created problems of how to deal with the allocation of resources across the different regions, whilst balancing the needs and ensuring equitable distribution. All of this requires effective coordination and cooperation from the government to make federalism successful, and establishment of robust mechanisms for inter-government relations has been a complex mission, but at the same time a necessary one also.

There is definitely a hold that federalism has sought in the context of Nepal and promises to address the historical inequalities and empower local communities, and while doing so definitely faces bumps in the form of impediments. Disputes over resource allocation, responsibilities of distributed power among the tiers of government, tensions amongst different ethnic and regional groups are highlights of the complexities in the transition, that create a sense of danger in the minds of the people and need to be dealt at the earliest.

The construction of the administrative capacity at the provincial and local level is just like constructing a building, without calculative measures the building wouldn’t sustain and topple. Therefore, ensuring inclusive representation, and fostering inter-governmental cooperation are the calculative measures which through sustained efforts can create a strong concrete ‘building’ of government administration at all the levels of the society to reach the full potential of federalism in Nepal.

Many countries have chosen to adopt federalism as a governance model, to manage the diversity of the societies, and empower local communities. Nepal and Myanmar are two such examples of countries, battling with ethnic and historical conflicts, and therefore have adopted federalism respectively. To understand federalism more, we need to understand it through the lenses of a comparative study.

The implementation of federalism has definitely stumbled upon significant challenges in both countries. “All key actors in Myanmar are committed principles of federalism. Which meant to ‘Establish a union based on the principles of democracy and federalism’ (Item 1.a., Government of the Republic of the Union of Myanmar and the Ethnic Armed Organizations).” (Breen) While in Nepal’s experience “The roadmap for federalisation was laid down in Nepal by the 2006 Comprehensive Peace Agreement and the 2007 Interim Constitution.” (Breen) which highlighted the importance of inclusive dialogue, transparency in governance, and the need for building a base for effective implementation of federalism.

Despite the distinct challenges, Nepal and Myanmar offer valuable lessons, showcasing the importance of capacity building and other dialogues in both the cases for federalism to grow and develop. The shaping of federalism on the basis of historical, political, and socio-cultural contexts create a leverage for better practice, for sustained peace and development.

The journey of federalism in Nepal was seen with applause, but at the same time it was also seen with much dissent from the citizens. The delineation of the provincial boundaries sparked protests among many cultural and ethnic groups as they were concerned about the so-called redressal of the administration among the different levels of governance and rightly so as the challenges for the various groups didn’t stop there.
In Nepal, the constitution was defined in such a way that the responsibilities of the resource distribution and expenditures was divided among all three tiers of the government according to their potentiality. Like most countries the union holds the majority resources and the said expenditures followed by the state and the local tiers of the government, resulting in the lack of allocation of necessary resources. This is a drawback that Nepal also suffers, “both academics and policy makers have increasingly focused on the constraints that capacity limitations in subnational governments (SNGs) place on the effectiveness of decentralisation in ensuring a provision of public services that is more efficient and reflective of citizens’ preferences, as well as addressing equity concerns.” (Ter-Minassian) This raises the concern of the excessive reliance on the union government in the matter of the financial stability of the different parts of Nepal.

The policies that were introduced under the new constitution favoured a few indigenous groups but at the same time also created disparities among others. Unequal access to land and natural resources has created ethnic differences. The exercise of land rights has become a challenge for the indigenous populations whose livelihoods are linked with their ancestral lands. The difference in ownership of resources contributes to an economic imbalance, which has a negative effect on certain ethnic groups’ prospects. The challenge remains of the issue of racial diversity in political representation, which has an impact on decision making processes. It is common for economic policies to be formulated by individuals in power and, without enough representation of various ethnic groups, they cannot meet the needs of marginalised communities. These disparities across ethnic groups are further aggravated by the lack of representation as well.

Effectively addressing these inequities demands not just specific economic policies but also dedication to inclusive representation, calling for protection of cultural heritage, and the promotion of societal cohesion. Achieving an accord in the society in Nepal within the federal framework necessitates finding a nuanced equilibrium between economic development and the preservation of ethnic diversity. These proponents of the implementation of federalism in Nepal are also confident that decentralization and the making of adequate policies, drafting an effective budgetary framework and addressing regional disparities will be evident in the long run.

In almost a decade a lot of progress and development has been seen in the due course of federalism in the government administration of Nepal. There are some key points to note here that was seen as a developmental outlook to the introduction of federalism in Nepal and that were: -

Administrative Restructuring: The shift to a federal structure was associated with the restructuring of administrative and political system. This involved not only the establishment of provincial governments but was also seen as a step towards governance at the local level, introducing municipalities and village councils.

Strengthening the Institution: To clinch an effective implementation of federalism, the strengthening of the institutional capacity of provincial and local government was of vital importance. To implement this adequately training programmes were designed to increase the skills of officials in finance management, planning and public service delivery.

Infrastructure Development: The calibre of the state and local governments to advance developmental initiatives has been a key factor in federalism’s success. Infrastructure projects, like roads, schools, and health facilities were crucial for the improvement in life that was promised to the citizens in the different regions.

“The goal of introduction of federalism in Nepal was not just envisaged as a tool to restructure the states into provinces, but also to ensure development and fundamentally guaranteed inclusion of all groups in the society. Its main objective was sought to eliminate discrimination against the ethnic groups and other groups of the society, empower local governance.” (Satgainya) A continuous commitment to the democratic principles is required in a federal structure to ensure the process of progress and development to be perpetual.

The establishment of strong and secure institutions is essential for the efficient implementation of federalism in any democratic nation. In a country, well-established, deep-rooted institutions form the backbone of the federal structure, providing the necessary framework for governance, policy implementation and other requirements on various levels. These institutions play a central role in ensuring that the power and roles is decentralized effectively, advancing local autonomy while maintaining national unity.
“The multi-nationality of public sector governance in its multi-institutional and multi-layered avatar is also attributed to local governance for the pursuit of efficiency, effectiveness, transparency, accountability, rule-of-law and human rights.” (Acharya and Zafarullah) An effectual institutional framework presented and adopted not only to enhance administrative efficiency but also to instil confidence in the democratic regime, ensuring that people benefit from federalism and that it reaches the doorsteps of the diverse communities residing in every corner of the nation while contributing to sustainable development.

Federalism in the present is definitely tottering through its journey, “with the staggering of the regulated statues, politicians being diffident in providing leadership skills and maintaining status-quo, development partners being clamorous to get things done fast and above all people remaining cynical to the seriousness of the government’s in advancing from the grassroots.” (Acharya and Zafarullah) But still for a more developed nation the creation and strengthening of institutions, coupled with capacity-building initiatives, are a couple of fundamental steps in establishing a resilient and effective federal system in Nepal.

Nepal witnessed a seminal transformation in its fiscal landscape. The shift from the unitary form of government was met with significant changes in the allocation of funds, reshaping the financial dynamics of the country among the centre, state and local levels of the governance through the mode of fiscal federalism.

Fiscal Federalism constitutes the economic instruments used at decentralized level of governance. The key idea of fiscal federalism is that it works optimally, when the different levels of the government (union, state and local) and various units within each level are clearly defined and based on their comparative advantage. These comparative advantages are defined by the goods and services efficiently handled by the different levels of the government.

“The federal structure is defined on the basis of four types of federal transfers or grants to the provinces and Local Authorities, these are: -

Federal Equalization grants
Conditional grants
Complementary (matching) grants
Special Grants

In Nepal this was system was first implemented during 2018/19 fiscal year.” (Boex) Based on these factors, the allocation of funds in Nepal were based on the following key highlights:

Revenue Sharing Framework: The Constitution has set the preliminaries for a transparent revenue sharing framework, ensuring that grants, taxes and resources are equitably distributed among the different tiers of the government.

Vertical and Horizontal Fiscal Equalization: Vertical fiscal equalization ensures that each level of government receives the fair share of resources and grants based on their responsibilities and needs. While horizontal fiscal equalization is based on the geographical and socio-economic needs of the country and the regional disparities.

Local Autonomy in Resource Mobilization: Providing authority to the state and local government to impose specific taxes, fees and aligning fiscal policies with needs and priorities of the citizens and the ground root level.
Conditional and Unconditional Grants: In a federal structure conditional grants are allocated for specific projects, while unconditional grants are allocated to the state and provincial government with flexibility based on their circumstances, needs and priorities.

Transparency and Accountability: Recognizing the importance of transparency, the fiscal proceedings emphasize the clear mechanisms for budgeting, expenditure and auditing. These measures not only create trust among the different levels of the government but also accountability to a great extent.

The fiscal federal framework is dynamic, with regular reviews henceforth enabling adjustment to align with the evolving needs of the citizens. Thus, the ongoing process of dialogue, transparency, and resilience will play a pivotal role in the success of Nepal’s fiscal federalism model.
The Federal system in Nepal continues to grow and evolve, challenges persist and keeping them in mind amendments and adjustments are made. The complexities of the transition are undermined by boundary disputes, resource distribution, capacity-building efforts and much more. However, among all these complexities there still lies much opportunities for innovation, expansion and progress.

The concept of federalism in Nepal represents a commitment to democratic principles, social justice, and equitable development. A more resilient future can be created by empowering the state and local level government, aiding them with resources, providing them with responsibilities based on the priorities of their provinces and above all fostering a transparent government.

The intricacies of federalism like threads, which if navigated properly through the spirit of collaboration, dialogue, adaptability and political opinions can be woven into a beautiful tapestry. With this transition from a unitary form of government to adoption of federalism, Nepal and its citizens stand poised to chart a path toward prosperity, unity, and resilience in this new era of governance.

(Author:: Anindya Jena is a 1st year Law Student at O.P Jindal Global University)

Work Cited

  • Phuyal, Hari. “Nepal’s New Constitution: 65 Years in the Making.” – The Diplomat, 18 Sept. 2015,
  • Breen, Michael. “The Federalism Debates in Nepal and Myanmar: From Ethnic Conflict to Secession-Risk Management.” 50 Shades of Federalism, 25 Feb. 2019,
  • Breen, Michael. “The Federalism Debates in Nepal and Myanmar: From Ethnic Conflict to Secession-Risk Management.” 50 Shades of Federalism, 25 Feb. 2019,
  • Ter-Minassian, Teresa. “Chapter 1. Challenges of Subnational Capacity Development.” Local Public Finance and Capacity Building in Asia : Issues and Challenges | OECD iLibrary, Accessed 17 Jan. 2024.
  • Satgainya, Sanjeev. “Eight Years after the Constitution, Federalism in Nepal Continues to Have a Bumpy Ride.” The Hindu [Kathmandu], 6 Oct. 2023.
  • Acharya, Keshav Kumar, and Habib Zafarullah. “Institutionalising Federalism in Nepal: Operationalising Obstacles, Procrastinated Progress.” Public Administration and Policy, 17 Aug. 2020,
  • Acharya, Keshav Kumar, and Habib Zafarullah. “Institutionalising Federalism in Nepal: Operationalising Obstacles, Procrastinated Progress.” Public Administration and Policy, 17 Aug. 2020,
  • Boex, Jamie. “A Critical Year for Fiscal Federalism in Nepal.” Decentralization Net, 14 Jan. 2019,
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