One-and-a-half years after federalism was implemented and provincial governments were formed, there are voices that question fiscal sustainability of federalism. Critics are also questioning the relevance of provincial governments. In this context, Roshan S Nepal of The Himalayan Times caught up with Province 5 Chief Minister Shankar Pokhrel to talk about challenges in implementing federalism. Excerpts:
How has your experience as chief minister been over the past one-and-a-half years?
We are practising federalism for the first time. Provinces are new institutions, while local governments existed before. The centre has always been there. Therefore, establishing provinces was challenging. At the same time, we have developed a Kathmandu-centric mentality. If a person is successful, s/he has to move to Kathmandu. This is true in every sector — politics, administration, economics, business and arts. Changing this mentality is in itself challenging.
You were in central-level politics until you assumed the role of chief minister of Province 5. Do you miss central-level politics?
Centre-based leaders get more space in the mass media. But if you look at politics from the development and social change perspectives, province-based leaders have an important role to play. If provinces perform well, our agenda of attaining prosperity will be possible. Only the centre’s efforts won’t ensure prosperity. We have seen the results of a centralised system. Therefore, CMs have the opportunity to contribute to nation building, which in turn will help establish them in central-level politics.
What are some of the challenges you face as CM?
The biggest challenge is to change the Kathmandu-centric social mentality. Unless we develop an environment whereby a person feels s/he can develop and achieve success outside Kathmandu, federalism will not succeed.
Second, we have to start from zero the work of laying foundation for the province. We are formulating plans, drafting provincial laws, building provincial organisational structures for the first time. We are also starting from zero the work of giving momentum to development. This is obviously a challenge. On the other hand, our bureaucracy has traditionally been directed and mobilised by the centre. So federating bureaucracy is a challenge.
What are your achievements over the past one-and-a-half years as chief minister?
Our major task was to establish provinces as the foundation of federalism, which we did by preparing the province’s situation paper, formulating periodic plan, adopting around four dozen laws, putting in place around 140 organisational structures of organisations and developing human resources. These have created a solid base. We have also presented and implemented the annual provincial budget. We have mobilised 74 per cent of the budget. Moreover, we spent Rs 2.5 billion in addition to the grant the federal government gave.
The federal government blacktopped 900km roads last fiscal, which it called a record. But in Province 5, we blacktopped 200km in six months. If every province blacktops roads at the same rate, around 1,400km roads will be blacktopped. This proves provinces play an important role in development.
This year, Province 5 and all its municipalities and rural municipalities have topped the chart in terms of budget mobilisation. Province 5 achieved economic growth of 7.7 per cent, higher than the country’s economic growth projection of 7.1 per cent.
Do you feel sandwiched between local and federal governments which are both powerful in terms of resources allocation?
Since you used the term ‘sandwiched’, let me tell you the most nutritious part of a sandwich lies between the two slices. But if you ask whether we have been able to make provinces important in terms of resources allocation, my answer is no. The federal government allocates 15 percent of Value Added Tax and Excise Duty to provinces. However, the country’s major chunk of revenue comes from customs duty and income tax. As per constitutional provision, resources should be allocated from the federal consolidated fund developing a weightage based on services to be discharged by the three tiers of government. For that, we have envisaged National Natural Resources and Fiscal Commission. The commission was formed late. It has yet to complete its study. I hope this problem will be resolved once the commission submits its report.
Many of our development projects are attached to foreign assistance and investment. The donors have signed agreements with the federal government. Rights to those projects have been handed over to provinces, but due to donors’ agreements with the federal government, the projects are still connected to the centre. I hope these issues will be resolved gradually.
Some leaders say local governments should be brought under provincial governments. What do you say?
The federal government should directly coordinate with provincial governments and provincial governments should directly coordinate with local governments. But the centre directly coordinates with local governments and coordination between the centre and provinces is not strong. We have tried to bridge the gap through the Provincial Council. But from the administrative point of view, local governments are still coordinated by the Ministry of Federal Affairs and General Administration.
You said we need to find solution to existing problems ourselves. What solutions do you suggest to strengthen provinces?
First, we need to ascertain what percentage of resources are required for federal, provincial and local governments on the basis of the rights guaranteed by the constitution. This is done by the National Natural Resources and Fiscal Commission. How those resources can be acquired should be finalised through dialogue between the three tiers.
Some resources are allocated by the constitution, but that’s not enough. As per constitutional provision, certain percentage of federal consolidated fund is allocated to provincial governments and certain percentage to local governments. The fiscal commission will guide in implementing this provision once it comes up with its report.
Second, the constitution has lists of concurrent powers — those between provinces and federal government, and those among all three tiers. The centre is connected with all concurrent powers. A central law is necessary to clarify which work the centre does, and which provinces and local governments do. The law will clarify the confusion.
Third, we have prioritised coordination among the three tiers as they are interdependent. A coordination-related act has to be formulated to streamline coordination.
Fourth, the constitution envisages two mechanisms to solve problems. The first one is chaired by the prime minister. It will work to resolve disputes between the centre and provinces. The second one is chaired by the chief minister for resolving disputes between provinces and local levels or between local levels. These mechanisms can solve problems in future.
Fifth, we need to change the Kathmandu-centric mindset.
It’s said federalism is unsustainable fiscally, fuelled by reports of exorbitant taxes. Moreover, people are questioning the relevance of provinces amid powerful local governments as executive bodies. What’s your take?
There has already been much debate on taxes. I conducted a study in Province 5 which showed none of the taxes were raised. There are only four types of taxes provinces can levy. Vehicle taxes have not changed and property registration taxes too are as they were. There’s no culture of paying advertisement and entertainment tax. So claims that taxes at provincial level has affected the general public are baseless.
At the local level, most of the issues raised were related to haat bazaar (temporary markets) culture. There, local governments tender out the job of raising taxes.
There were some duplications but they were resolved. For example, cement manufacturers are liable to pay certain amount of tax per sack to district coordination committees. Some provinces levied taxes on cement makers on top of what they paid to DCCs. But after criticism, that was rolled back.
Another issue is road toll at the local levels. After transport operators complained about such taxes imposed at every local level, we removed it. Local and provincial governments’ tax revenue stands at less than 10 per cent of their total budget. So how is it possible that exorbitant taxes have been levied?
As for claims that federalism is an expensive system, It is in terms of administrative expenses. However, social expenses decrease as a result of federalism. People have to pay less to avail government services. For example, a person from a village does not have to travel to district headquarters or may be Kathmandu to avail government services.
Another interesting fact is that development expenditure is less than administrative expenditure at the centre and local levels, but development expenditure is higher than administrative expenditure at the provincial level. This means the most important unit for development is the province.
A version of this article appears in print on September 16, 2019 of The Himalayan Times.