‘Capacity constraints shouldn’t be used as an excuse to retain control’

Kathmandu, January 22

Experts have alleged that the federal (central) government is using ‘capacity constraints in the lower layers of administration (state and local levels)’ as an excuse to retain control and have warned that such a move would be against the spirit of federal structure.

Former vice chairman of National Planning Commission and renowned economist Yubraj Khatiwada said that the federal government, instead of focusing on building capacity of the provincial and local governments, is holding on to the key functions that were supposed to be decentralised to the lower layers of administration.

During the discussion on ‘Regulatory framework for business cooperation, labour market and banking and financial institutions in federalism to ease doing business’ organised by the Samriddhi Foundation, Khatiwada said that the lower layers of administration face capacity constraints in planning, resource mapping, project execution, among others. However, the central government should not retain all the authority in the name of capacity constraints, he said.

“The provincial and local governments are autonomous bodies and they should enhance their capacity to enjoy the autonomy envisioned by the constitution,” Khatiwada said.

Based on the report on unbundling of authority that has been approved by the Cabinet, ministries of the federal government have been delegating authority to provincial and local levels. However, the federal ministries continue to hold on to some crucial rights.

Khatiwada also expressed strong reservations against the provision of the Intergovernmental Fiscal Management Act, which has barred the provinces and local governments from taking foreign loans.

“Even to accept grant from the development partners, the local levels need to take approval of the federal government,” said Khatiwada. “Why can’t the provincial governments develop metro rails or roadways or industrial estates by obtaining the foreign loans themselves?”

The federal government should be leaner and focus on enhancing the capacity of the provinces and local governments to smoothen the legal and institutional transitions

towards execution of federal structure, according to Khatiwada.

“The federal government should focus on facilitating key bottlenecks in growth, job generation, building external relations, managing security and defence, among others. The role of the federal government is expected to decrease in terms of providing public utility services and goods, administrative and regulatory works, as per experts. However, the federal government seems interested to take on more responsibility and delegate ‘controlled authority’ to lower layers of administration, which is not a federal structure in true sense.”

Khatiwada, who is also the former governor of the Nepal Rastra Bank, urged efficient and prudent regulatory regime under the federal structure to facilitate the businesses to grow and minimise the cost and procedures to operate business and attract investment.

He also expressed dissatisfaction at the draft Bill on Foreign Investment and Technology Transfer citing the bill has kept the rights of foreign direct investment (FDI) approval with the federal government. “The provincial governments should also be provided the rights to approve the FDI in their provinces,” he said. “There are several mechanisms to approve FDI in centre, and if we retain the authority at the central government-level, the provinces will face more hassles in luring foreign investors.”

Yam Kumari Khatiwada, secretary at Ministry of Industry (MoI), however, said the bill will be reviewed before it is tabled at the Parliament based on the report of unbundling of authority.

The MoI has formed a committee led by the Joint Secretary of the Industrial Promotion Division Gopi Krishna Khanal.

MoI Secretary Khatiwada further informed that as the intellectual property rights (IPR) and the FDI are inter-connected, the MoI has been studying how the intellectual property regime can be improved, which is a major concern among foreign investors.

“The IPR monitoring will remain with the federal government but the MoI can delegate the authority of FDI approval to the provinces,” she said.