5.1 Federal System and Federalism in Nepal

Federalism in Nepal: System, Implementation, and Inter-Governmental Relations

Introduction to Federalism

Federalism is a governance system where a single country operates through multiple tiers of government established by the constitution. It balances self-rule (autonomy for sub-units) and shared rule (joint decision-making), with the constitution defining authority, jurisdiction, and inter-governmental relations. Known as a multi-government system, federalism ensures central governments handle defense, military, currency, and foreign affairs, while other powers are shared across tiers. Nepal’s Constitution adopts cooperative federalism based on collaboration, coordination, and coexistence, emphasizing governance transformation, diversity management, decentralization, and local autonomy.

Example: In Nepal, the federal government oversees national security, while provinces manage regional health services, ensuring coordinated yet autonomous governance.

Conceptual Evolution of Federalism

Modern federalism began in the United States with the 1789 Constitution. In Nepal, the Interim Constitution of 2063 BS (2007) committed to federalism, and the current Constitution of 2072 BS (2015) operationalized it. Globally, 29 countries, including Nepal, practice federalism. Initially a centralizing mechanism (uniting states), it has evolved into a decentralized system for self-governance and diversity management.

Key Features of Federalism

Minimum two tiers of government (national and sub-national).
Constitutional division of powers.
Autonomy within defined jurisdictions.
Self-rule (exclusive powers) and shared rule (concurrent powers).
Multi-level governance in the same territory.
Central government for national issues; sub-units for local matters.
Legislative, executive, and judicial powers at multiple levels.
Constitutionally defined inter-governmental relations.
Provincial involvement in constitutional amendments.
Horizontal and vertical checks and balances.
Direct accountability to citizens at each level.
Dispute resolution mechanisms.
Constitutional supremacy and independent judiciary.

Types of Federalism

Based on Formation Process

Coming Together: Independent states unite for collective strength (e.g., USA, Australia). Residual powers remain with states.
Holding Together: A unitary state restructures into tiers for diversity management (e.g., Nepal, India). Residual powers vest with the center.

Based on Power Dynamics

Competitive Federalism: Rivalry between units (e.g., early USA).
Cooperative Federalism: Collaboration and coordination (e.g., Nepal, South Africa).

Based on Power Distribution

Symmetric Federalism: Equal powers across similar tiers (e.g., Nepal’s provinces).
Asymmetric Federalism: Varied powers based on geography or population (e.g., Canada).
Centripetal vs. Centrifugal: Central-dominant vs. state-dominant systems.

Example: Nepal’s symmetric federalism ensures all seven provinces have equal legislative powers, unlike Canada, where Quebec has unique cultural autonomy.

Principles of Federalism

Shared federation for unified state-building.
Decentralization and local autonomy.
Self-rule and shared rule balance.
Proximity: Governance closest to citizens.
Coordination, cooperation, and coexistence.
Identity and capacity-based structures.
Diversity management and inclusive governance.
Dispute resolution mechanisms.
Equitable power distribution.
Residual powers allocation.
Self-reliance and interdependence.
Local leadership development.

Why Federalism?

Address self-governance demands.
Promote balanced regional development.
Strengthen democracy through decentralization.
Manage conflicts and ensure peace.
Prevent disintegration or external dominance.
Enhance citizen participation and ownership.
Preserve diverse identities.
Improve service delivery and development.
Foster local resource mobilization.
Ensure equitable resource distribution.

Federalism in Nepal’s Context

Nepal adopted federalism through the Interim Constitution (2063 BS, 2007) and implemented it via the Constitution of 2072 BS (2015), defining Nepal as a federal democratic republic. It emphasizes cooperative federalism based on collaboration, coordination, and coexistence, addressing governance transformation, diversity management, and local autonomy.

Need for Federalism in Nepal

Fulfill political demands for self-governance.
Strengthen democracy.
Manage conflicts and build peace.
Address dissatisfaction with unitary governance.
Manage diversity and reinforce national unity.
Enhance decentralization and local autonomy.
Promote balanced regional development.
Mobilize local resources and communities.
Increase citizen ownership of the state.
Strengthen nation and state-building.
Improve citizen-centric service delivery.
Promote good governance and rights.
Ensure equitable resource distribution.

Key Features of Nepal’s Federalism

Formed through state restructuring (holding-together model).
Cooperative, not competitive, federalism.
Three tiers: federal, provincial (7 provinces), local (753 units).
Central-dominant power division; residual powers with the center.
Unified judiciary and single citizenship.
Local autonomy with direct accountability.
Symmetric powers across provinces and local units.
Proportional representation across tiers.
Provincial role in National Assembly elections (8 members per province).
Combination of self-rule and shared rule.
Focus on national unity.
Single legal system with inclusive representation.
Clear dispute resolution mechanisms.

Basis for Federal Unit Formation

Based on the 2066 BS (2010) State Restructuring Committee report, Nepal’s federal structure was designed considering:

Identity: Ethnicity, language, culture, historical continuity, geography.
Capacity: Infrastructure, natural resources, economic potential, administrative feasibility.
Other Factors: Geographical balance, national unity, population balance.

Example: Province 1 was formed considering ethnic diversity (e.g., Limbu, Rai communities) and economic capacity (e.g., tea estates, hydropower potential).

Constitutional and Legal Framework

Constitutional Provisions

Preamble: Federalism for peace, governance, development, prosperity.
Article 4: Defines Nepal as a federal democratic republic.
Article 50: Cooperative federalism as a state directive.
Article 51: Policies for harmonious inter-governmental relations.
Article 56: Three-tier structure: federal, provincial, local.
Article 232: Cooperation, coordination, coexistence.
Articles 59–60: Financial powers, revenue/grant sharing.
Parts 10, 16, 19: Economic procedures.
Article 235: Federal Parliament’s coordination laws.
Part 26: National Natural Resources and Fiscal Commission.

Key Legislation

Intergovernmental Fiscal Management Act, 2074 BS (2017): Regulates revenue, grants, public debt.
National Natural Resources and Fiscal Commission Act, 2074 BS (2017): Criteria for resource allocation.
Intergovernmental Coordination Act, 2077 BS (2020): Inter-tier coordination.
Local Government Operation Act, 2074 BS (2017): Local governance framework.
Audit Act, 2075 BS (2018): Uniform auditing standards.
Financial Procedures and Fiscal Accountability Act, 2076 BS (2019): Budgeting and reporting standards.

Institutional Arrangements

National Natural Resources and Fiscal Commission: Guides resource allocation (Articles 250–251).
Inter-Provincial Council: Resolves political disputes (Article 234).
National Coordination Council: Chaired by the Prime Minister, fosters coordination (Intergovernmental Coordination Act, Section 16).
Constitutional Bench: Handles jurisdictional disputes (Article 137).
Intergovernmental Fiscal Council: Chaired by the Finance Minister, manages fiscal coordination (Intergovernmental Fiscal Management Act, Section 33).
Provincial Coordination Council: Chaired by Chief Ministers, coordinates provincial-local relations (Local Government Operation Act, Section 105).
District Coordination Committee: Aligns federal, provincial, and local activities.

Federalism in Nepal’s Five-Year Plan

The 15th Five-Year Plan (2076/77–2080/81 BS, 2019–2024) emphasizes:

Vision: Inclusive federal governance based on coordination and cooperation.
Goal: Equal access to federalism’s benefits.
Objectives:
- Equitable, inclusive, and just distribution of democratic benefits.
- Proximity-based governance.
- Political and administrative leadership development at local levels.

The 16th Plan (2081/82–2085/86 BS, 2024–2029) continues these priorities, focusing on fiscal sustainability and institutional capacity as of 2025.

Bases for Inter-Governmental Relations

Section 3 of the Intergovernmental Coordination Act, 2077 BS (2020) outlines:

National interests and unity.
State directives and fundamental rights.
Respect for national policies.
Constitutional harmony.
Socialism-oriented economy.
Mutual respect for autonomy.
Equal citizen treatment.
Coordination, consultation, and information sharing.
Resource conservation and equitable distribution.
Anti-corruption and good governance.
Mutual cooperation and inclusion.
Effective service delivery and trade expansion.

Inter-Governmental Relations in Nepal

Policy and Legal Relations

Cooperative federalism (Article 50).
Self-rule (Schedules 5, 6, 8) and shared rule (Schedules 7, 9).
Relations based on cooperation, coordination, coexistence (Article 232).
Provinces and locals align with national policies.
Subordinate laws must comply with superior laws.

Political Relations

Federal directives to provinces (Article 232).
Provincial and local leaders elect National Assembly members.
Coordination via Inter-Provincial Council, National Coordination Council, etc.
Party system fosters collaboration.

Administrative Relations

Federal coordination laws (Article 235).
Provincial Public Service Commission standards (Article 244).
Inter-service transfers (Article 243).
Local staff under provincial laws (Article 227).
Chief Secretaries and local administrative officers from federal civil service.

Economic and Financial Relations

Revenue powers for all tiers (Article 60).
Equitable revenue sharing.
Fiscal transfers via Fiscal Commission recommendations.
Uniform accounting and reporting.
Regular financial reporting to higher tiers.

Legislative Relations

Subordinate laws align with superior laws.
Federal coordination laws (Article 235).
Local laws follow provincial procedures.

Joint Management by Local Governments

Section 26 of the Local Government Operation Act, 2074 BS (2017) allows local governments to collaborate on:

Infrastructure, machinery procurement.
Disaster management.
Transport and waste management.
Fire and ambulance services.
Settlement and land use planning.
Tourism, technology, cultural promotion.
Joint ventures and technical education.
Market management and environmental protection.
Inter-local sister relations and best practice sharing.

This reduces costs and optimizes resources.

Example: Two municipalities in Province 3 jointly develop a waste treatment plant, sharing costs and improving efficiency.

National Coordination Council

Section 16 of the Intergovernmental Coordination Act, 2077 BS (2020) establishes the Council, chaired by the Prime Minister, with:

Ministers of Finance, Law, Home, Federal Affairs.
Provincial Chief Ministers.
Opposition leader or representative.
Seven local representatives (including three women).
Invited experts as needed.

Functions:

Coordinate concurrent power laws.
Resolve implementation issues.
Harmonize service delivery.
Manage cross-provincial projects.
Review policies and plans.
Advise on legislation.

Meets annually, with quorum requiring the Chair and majority members.

Strengths of Federalism

Strong central government (e.g., USA).
Decentralized governance brings government closer to citizens.
Supports conflict and diversity management.
Addresses self-governance demands, fostering peace.
Strengthens democracy through decentralized power.
Promotes balanced regional development.
Increases citizen participation and ownership.
Manages diversity effectively (e.g., Switzerland).
Reduces central workload and develops local leadership.
Prevents authoritarianism through power distribution.
Facilitates local resource mobilization.
Enhances inclusion and competition for development.

Weaknesses of Federalism

Reduced state autonomy in coming-together models.
High operational costs due to multiple structures.
Risk of ethnic or regional divisions weakening national unity.
Potential for inter-tier conflicts over resources.
Duplication of functions and institutions.
Weaker units may lag without redistributive justice.
Coordination challenges and governance inefficiencies.
Double taxation burden on citizens.
Inconsistent policy and service delivery.
Delays in decision-making (e.g., constitutional amendments).
Risk of corruption due to dispersed resources.

Federalism vs. Decentralization

Aspect	Federalism	Decentralization
Definition	Multi-tier governance with constitutional powers	Power transfer to local units via laws
Power Source	Constitution	Central laws/regulations
Power Flow	Center to states or vice versa	Center to local units
Principles	State-building, restructuring	Proximity, local autonomy
Autonomy Level	High, constitutionally guaranteed	Lower, dependent on central decisions

Challenges in Federalism Implementation

Delays in enacting key laws (e.g., Federal Civil Service Act).
Ineffective policy and law implementation.
Weak coordination mechanisms.
Costly administrative structures.
Failure to rationalize administrative units.
Jurisdictional disputes.
Over-reliance on federal grants.
Weak collaborative culture.
Lack of real-time data systems.
Unmet citizen expectations.
Local capacity gaps.
Duplication of functions.

Recommendations for Effective Federalism

Recommendations:

Enact pending laws like the Federal Civil Service Act promptly.
Strengthen implementation of existing policies.
Enhance coordination mechanisms’ functionality.
Rationalize administrative structures to reduce costs.
Restructure administrative units for efficiency.
Conduct training for jurisdictional clarity.
Promote local resource mobilization.
Foster collaboration and coexistence culture.
Develop real-time data management systems.
Intensify inter-tier interactions.
Ensure uniform governance standards.
Strengthen institutional capacity across tiers.
Pursue continuous administrative reforms.
Link grants to performance indicators.
Control corruption and promote good governance.

Roles and Responsibilities of the Three Tiers

Tier	Key Roles
Federal	National unity, international relations, peace, monetary policy, constitutional implementation, judiciary
Provincial	Regional development, service delivery, federal support, local coordination, law-making
Local	Local development, service delivery, inter-local collaboration, law-making, administration

Federal and Provincial Support to Local Governments

The Local Government Operation Act, 2074 BS (2017) mandates federal and provincial support for:

Providing budget ceilings and priorities before planning.
Eliminating parallel structures and building local capacities.
Coordinating on projects.
Delegating projects with resources.
Offering model laws for legislation.
Assisting in decision implementation.
Providing technical/managerial support.

Future Agenda for Federalism (2025 and Beyond)

As of September 2025, Nepal’s federalism priorities include:

Consistent constitutional implementation.
Addressing rising citizen expectations.
Enhancing fiscal self-reliance of provinces and locals.
Promoting collaboration over competition.
Driving economic and social transformation.
Ensuring inclusive benefits.
Sustainable resource use.
Localizing development and capital.
Preserving cultural pluralism.
Administrative restructuring.

Example: In 2025, Province 2 launched a digital platform for real-time financial reporting, reducing dependency on federal grants.

Comparison of Federalism Models

Model	Characteristics	Examples
Coming Together	States unite, residual powers with states	USA, Australia
Holding Together	Unitary state restructured, residual powers with center	Nepal, India
Cooperative	Collaboration-focused, central coordination	Nepal, South Africa
Competitive	Rivalry-driven, less coordination	Early USA

Conclusion

Nepal’s federalism, rooted in cooperation and decentralization, aims to foster inclusive governance, equitable development, and national unity. Addressing challenges like jurisdictional disputes, weak coordination, and capacity gaps through robust legal frameworks, institutional reforms, and collaborative mechanisms will ensure its success. As of 2025, ongoing efforts focus on fiscal sustainability and citizen-centric governance.

References

Constitution of Nepal, 2072 BS (2015)
Interim Constitution of Nepal, 2063 BS (2007)
Intergovernmental Fiscal Management Act, 2074 BS (2017)
Local Government Operation Act, 2074 BS (2017)
Intergovernmental Coordination Act, 2077 BS (2020)
15th Five-Year Plan, National Planning Commission