Fiscal Decentralization in Nepal: A Case Study of Achham, Darchula and Kailali Distrcts in Far-Western Development Region

Abstract

This study aims to assess the present status of fiscal decentralization in Nepal by using descriptive analytical method. For analyze of policy, primary data has been drawn from questionnaire survey by selecting purposive sampling and secondary data from literature review. For the fulfillment of the objectives, some research questions: resource bases of Local Bodies (LBs), resource generation and mobilization capability, transfer of grants, resource allocation/revenue sharing, resource utilization and sustainability of fiscal decentralization policy were developed. Problems are identified, discussed and suggestions are made. People are sovereign in the democratic system. So, they should be pivotal in every sphere of development and hence, all development endeavors should indeed be people centric (UNDP, HDI Report, 1997). Development is multi-dimensional phenomena this consists into the beneficiaries' maximum interest. Decentralization is an effective medium to achieve it, which is also the process to strengthen democracy (High Level Decentralization Commission Report, 1995). In order to realize the practice of democracy as the bottom where vast majorities of the people live, structures of local government are created and necessary powers and authorities are devolved to them. Fiscal decentralization denotes the financial autonomy and responsibility given to the LBs (Bird Richard, 2001, Kandel Pushpa, 2003). Main themes of fiscal decentralization are: developing effectiveness and efficiency of fiscal administration, delegating the authority of decision making on collection and expend the sources, developing the leadership for maximum mobilization of local resources and means and solving the local problems locally (LBFC Report, 2001). For sound fiscal decentralization, it should be designed the revenue criteria apt with country specific. In designing revenue criteria independently, the policy and administrative structure should be based on the ground of the revenue potentiality, economic efficiency, equity, administrative feasibility and political acceptability (Bahl Roy, 1998). Nepal has been exercising delegated authority model of decentralization. Two tiers of LBs i.e. DDC as a higher level and VDC and municipality as lower level are functioning for the concept of local self-governance. LBs have easy access over the natural resources within their jurisdiction. They have the greater potentialities having local resources, which needs to mobilize fir overall national development. For successful implementation of fiscal decentralization, it is essential to formulate pragmatic policy, which can identify and assign 7 the functions to LBs that can be easily adopted (LBFC Report, 2001). Local Self- government Act 1999 has developed some fiscal powers, but they are still facing grave challenges related to financing their services to the people. Fiscal decentralization is in initial stage in Nepal. On policy implementation various hindrances have appeared. In the study, major financial problems, increment of internal income and grants and its impact on the goods and services including infrastructures as well as hurdles of implementation have been defined both in policy and implementation. Accordingly, increment of internal resources and grant by the central government and mobilization of external resources, mainly of donors and its impact in development activities are also studied. Achham, Darchula and kailali districts were also studied regarding policies of fiscal decentralization and implementation status during the research work. The major problems were identified like unskilled human resource, insufficiency of resource, centralized fiscal policy, poor fiscal management and information system, over politicization, indistinct revenue collection criteria and no transparent and grant allocation system etc. Due to greater variance in geology, politics and culture, single and similar rule regarding resource provision could not exploit into practice (Khadka RB 1997). The fragmentation of political division is not scientific, neither have they had equal population nor have equal resource. Moreover, neither have basic infrastructure nor have geographic feasibility. Each segment must be self-competent and with sufficient resource base (Bahl Roy, 1998). It should focus on making LGs as the strong pillar of development with national vision. But investment in the sector of education, health, rural roads, suspended bridges and production of electricity by micro-hydropower stations is increased manifold in all districts. Among them Darchula district was the one where road from Baitadi was not connected and people had to use Indian transportation and vehicles. After restoration of democracy, due to increment of grant to VDCs and DDCs, road is constructed from both side i.e. Gokule and Marpha (DDC Darchula, Progress Report, 2008). Accordingly, production of electricity is more by different micro-hydro schemes in different VDCs than Kailash Khola small hydro power station in Achham (DDC Achham, Progress report, 2005). Achham, Darchula and Kailali districts have constructed road joining different clusters which would not be possible only by the central government. There has been increment of quantity of schools from primary to higher secondary level, campus and facilities in sub/health posts including birthing centers (MoH Progress Report, 2008). Investment in the sector of awareness raising and social 8 mobilization as well as income generation including diverse farming i.e. fruit, vegetable and herbal and seed production is also increased with collaboration of I/NGOs and donors. Although investment is increased, quality assurance, monitoring and evaluation are inevitable to fulfill the expectation of the people (LBFC Report, 2006). The research has found that the capable human resource is essential for effective fiscal decentralization. Due to adequate facilities in rural areas, attraction towards urban and Terai (southern part of Nepal) area brought the heavy problem of migration. Brain drain psychology will never die due to unemployment and unpractical education in Nepal, along with skilled manpower apt our local need never been fulfilled (Subedi Somlal, 2008). The ways and wherefores became thrusts of urban facility and such kind of imported technology. Capability of formulating and implementation of local plans was found very insignificance in general. The resource allocation system among LBs in Nepal has hardly been found practicable except some cases. Resource equalization aspect is much emphasized on social and national perspective. The central government has played the dominant role in virtually all expenditures and revenue decisions. The central government collects and spends an estimated above 95 percent of total government revenues and expenditures, while local governments spend about 5 percent only (ADDCN Analysis Report, 2008). The efficiency of resource allocation cannot be found in Nepal. Most development grants are decided on discretionary basis as part of the annual budget process. All the practices are necessary to replace by making rational grant allocation formula for certain period. This research has found that the existing policy on grant of the DDCs should revisit, municipalities should ensure to foster new resource and develop self-revenue-raising mechanism and VDCs' should utilize. Legal provision to fulfill the minimum condition and performance measures (MCPM) of DDCS, municipalities and VDCs (MC only) and allocation of grant by formula has been started recently by Local Body Fiscal Commission in Ministry of Local Development (LBFC Annual Report, 2004). The study on efficiency of resource allocation has also been found premature. Beyond doubt there have been appearing some of financial problems for smooth operation of the fiscal decentralization policies and implementation situation in Nepal. Responsibility and accountability has been found in decreasing pattern due to lack of elected representatives and without amendment of contradictory laws with the LSGA 1999. Association OF District Development Committees of Nepal (ADDCN) has proposed to amend 23 Acts which 9 contradicts with LSGA 1999 (Sthaniya Prajatantra, ADDCN; Vol 5 2001). There is the managerial efficiency in the tuff task. Management is the skill to perform any task towards finding out desired production. Fiscal decentralization seeks such kind of fiscal management to translate policy into action skillfully (Bahl Roy, 1998). Another solution of lacking of resources is either developing more resources or providing grants to recurrent cost for the certain period. For success of fiscal decentralization, capacity to increase revenue collection through local mechanism as well as resource mobilization capacity of LBs should be strengthened. Accountability and autonomy can be achieved through transparent and efficient resource utilization (LBFC Report, 2006). Balance development can be achieved making equal resource bases of LBs, which can be achieved through restructuring of LBs as local government in new constitution in the process of restructuring of the federal state in republic of Nepal (NPC, Three Year Plan, 2007 ). Any Act does not create miracles overnight. Neither does it work as a panacea for all the problems of the society in which it is to be implemented. It is only, at best, a legal framework within which a system or institution(s) could operate effectively under certain conditions. Thus one should review an act as a catalyst in the process of development of a system or institution.