I. Introduction: The Promise and Peril of a Federal Republic
Nepal’s transition to a federal democratic republic, formally institutionalized by the promulgation of its seventh constitution in September 2015, represents one of the most ambitious state-restructuring projects in recent South Asian history. This shift was not merely an administrative reform but the culmination of over six decades of tumultuous political struggle, including a decade-long armed insurgency, aimed at dismantling a deeply entrenched feudal, autocratic, and centralized unitary state. The 2015 Constitution, the first in the nation’s history to be drafted by a popularly elected Constituent Assembly, enshrined the aspirations of millions for an inclusive, equitable, and decentralized polity. Its core promise was to end centuries of discrimination based on class, caste, ethnicity, language, gender, and region by bringing governance closer to the people and empowering historically marginalized communities.
The historical impetus for federalism grew from the failures of the previous unitary system, which had concentrated power in Kathmandu and perpetuated vast regional and social inequalities. The Maoist insurgency, in particular, capitalized on these grievances, advocating for local autonomy to address the stark development divide between rural and urban Nepal and to remedy the historical exclusion of various ethnic and regional groups. The Comprehensive Peace Agreement of 2006 explicitly envisioned “deconstructing the current centralized and unitary structure,” making federalism a cornerstone of the post-conflict political consensus. The constitution’s preamble reflects this transformative goal, resolving to build an egalitarian society “founded on the proportional inclusive and participatory principles in order to ensure economic equality, prosperity and social justice”.
This report argues that while Nepal’s federal experiment has yielded notable successes, particularly in empowering local governance and advancing political inclusion, its long-term viability is threatened by a trifecta of deeply interconnected challenges: ambiguous power-sharing arrangements, severe fiscal and administrative capacity deficits at the sub-national level, and a political elite unwilling to fully relinquish centralized control. The gap between the constitution’s ambitious vision and the persistent realities of a centralist political culture, weak institutional capacity, and unresolved identity politics remains vast. The path forward requires not just technical fixes but a fundamental shift in political culture, supported by robust inter-governmental institutions and, crucially, a decisive judiciary willing to enforce the constitutional compact.
A central factor shaping Nepal’s federal journey is its origin as a “holding-together” federation. Unlike “coming-together” federations formed by the voluntary union of sovereign states, Nepal’s federalism was adopted as a political necessity to manage profound ethno-regional conflicts and prevent state fragmentation. The primary demand for a federal structure came from marginalized groups, particularly the Madhesi and Janajati communities, who sought identity-based provinces as a means of securing self-rule and political recognition. However, this demand was met with significant resistance from the dominant Khas Arya political elite, who feared a dilution of their historical control over the state apparatus. This fundamental disagreement led to the dissolution of the first Constituent Assembly without a constitution. The second Constituent Assembly, in which the political forces advocating for identity-based federalism were weaker, ultimately adopted a model with seven provinces delineated primarily along geographical and administrative lines. This outcome was immediately and violently contested by Madhesi and Tharu communities, who felt their core demands for autonomy and recognition had been ignored. This contested genesis has created a foundational legitimacy deficit for the federal structure, fueling ongoing political instability and demands for constitutional amendment. The system was, in effect, a compromise imposed by the dominant political parties to resolve a political impasse, but it failed to secure the full ownership of the very communities that had been the most ardent champions of the federalist cause.
II. The Constitutional Architecture of Nepal’s Federalism
The 2015 Constitution provides a detailed and progressive legal framework for Nepal’s federal state. It not only establishes the structures of governance but also embeds principles of inclusion, social justice, and fundamental rights that are intended to guide the nation’s political transformation.
Foundational Principles and State Structure
Article 4 of the Constitution declares Nepal to be an “independent, indivisible, sovereign, secular, inclusive, democratic, socialism-oriented, federal democratic republican state”. This declaration is legally significant, as it sets the fundamental character of the state and provides the interpretive lens through which all other constitutional provisions should be viewed. The commitment to being “inclusive” and ending “all forms of discrimination and oppression created by the feudalistic, autocratic, centralized, unitary system of governance” is a direct response to the country’s conflict-ridden history and serves as the primary justification for the federal arrangement.
The Three-Tiered Governance System
The constitution establishes a three-tiered structure of government, comprising federal, provincial, and local levels, each with its own distinct legislative, executive, and, to a limited extent, judicial functions.
- Federal Government: At the center is a bicameral Federal Parliament. The House of Representatives, or lower house, consists of 275 members, with 165 elected through a first-past-the-post (FPTP) system and 110 through a proportional representation (PR) system. The National Assembly, or upper house, is a permanent body of 59 members elected by an electoral college of provincial and local representatives. This mixed electoral model was a deliberate choice to ensure both geographic representation and the inclusion of various political parties and marginalized communities, a key objective in a post-conflict society. The executive power is vested in a Council of Ministers headed by a Prime Minister elected by the parliament, with a ceremonial President as the head of state.
- Provincial Governments: The constitution creates seven provinces, each with a unicameral Provincial Assembly whose members are also elected through a mixed FPTP and PR system. The provincial executive is led by a Chief Minister, who is the leader of the majority party in the Provincial Assembly and is appointed by the provincially-appointed Governor.
- Local Governments: A cornerstone of the new constitution is the elevation of local bodies to a constitutionally protected third tier of government. The 753 local governments—comprising municipalities and rural municipalities—are no longer mere administrative units of the central state but are autonomous entities with their own elected Village and Municipal Assemblies that hold both legislative and executive powers. This constitutional recognition of local self-rule is a significant departure from all previous governance models in Nepal.
Provisions for Inclusion and Fundamental Rights
To address historical exclusion, the Constitution guarantees 31 fundamental rights, including a wide range of civil, political, economic, social, and cultural rights. It contains extensive affirmative action provisions, or “special provisions,” for the “protection, empowerment or development” of marginalized communities, including women, Dalits, indigenous nationalities (Janajatis), Madhesis, Tharus, and Muslims. These provisions extend to ensuring proportional inclusion in all state bodies and requiring political parties to have inclusive executive committees that “reflect the diversity of Nepal”.
Despite these progressive features, the constitutional design contains elements that reinforce central authority. A notable example is the structure of the judiciary. The Constitution establishes a single, unified judicial system, described as having a “unitary nature”. The three tiers of courts—the Supreme Court, a High Court in each province, and a District Court in each district—all belong to a single federal hierarchy. This design contrasts with federal models like that of the United States, where separate state and federal court systems coexist. In Nepal, while High Courts are physically located “in each State,” they are not provincial courts; they are part of the federal judicial structure. This means provinces lack the authority to establish their own judicial systems to interpret provincial laws according to local contexts. This centralization of judicial power makes the Supreme Court the sole and final arbiter of all legal disputes, including those between the different tiers of government. In a political environment where sub-national governments are already struggling to assert their autonomy against a powerful center, a unitary judiciary can serve as another mechanism for reinforcing central authority, particularly if the Supreme Court proves reluctant to defend provincial jurisdiction in inter-governmental disputes.
III. The Division of Powers: A Contested Terrain
The heart of any federal system lies in the distribution of powers between different levels of government. In Nepal, this division is meticulously detailed in five schedules annexed to the Constitution, which outline the exclusive and concurrent competencies of the federal, provincial, and local tiers. However, the lack of clarity and significant overlap in these lists have transformed the division of powers into a primary source of jurisdictional ambiguity and inter-governmental conflict.
The Constitutional Schedules of Power
The Constitution assigns powers through a system of enumerated lists, a common feature in many federal states :
- Schedule 5 (Federal Powers): This schedule lists 35 areas of exclusive federal jurisdiction. These are matters of national importance, such as defense and military affairs, foreign policy, currency and banking, citizenship, international trade, major infrastructure projects, and the formulation of national civil and criminal laws.
- Schedule 6 (Provincial Powers): This schedule grants 21 exclusive powers to the provinces. These include establishing and managing the provincial police administration and public services, operating local media (radio, FM, television), levying certain taxes (such as on agricultural income, vehicles, and tourism), managing provincial-level development projects, and overseeing land management and archives.
- Schedule 8 (Local Powers): This schedule empowers local governments with 22 exclusive functions, bringing governance to the grassroots level. These include managing local police forces, overseeing basic and secondary education, providing basic health and sanitation services, managing local roads and markets, levying local taxes (such as property and house rent tax), and forming local courts for mediation and arbitration.
- Schedule 7 (Federal-Provincial Concurrent Powers): This list contains subjects where both the federal and provincial governments can legislate and act.
- Schedule 9 (Federal-Provincial-Local Concurrent Powers): This list outlines powers shared among all three tiers of government. Areas like cooperatives, health, agriculture, and environmental protection appear on this list, requiring complex coordination.
Any powers not enumerated in these schedules—the residual powers—are vested exclusively in the Federation under Article 58. This constitutional choice, typical of “holding-together” federations, inherently tilts the balance of power toward the central government.
Table 1: Summary of Power Distribution Across Government Tiers (Schedules 5-9)
| Tier of Government | Constitutional Schedule | Key Exclusive Powers | Key Concurrent Powers (with other tiers) |
| Federal | Schedule 5 | National defense, Foreign affairs, Currency & central banking, Citizenship & passports, Federal civil service, National-level infrastructure, Criminal & civil law formulation, Mineral exploration | Education, Health, Agriculture, Forests & environment, Social security, Cooperatives, Electricity & water supply, Taxation (VAT, income tax) |
| Provincial | Schedule 6 | Provincial police administration, Provincial public services, Provincial-level development projects, Land management & records, Operation of local media (FM/TV), Provincial highways, Provincial universities | Education, Health, Agriculture, Forests & environment, Social security, Cooperatives, Electricity & water supply, Taxation (vehicle tax) |
| Local | Schedule 8 | Local police, Basic & secondary education, Basic health & sanitation, Local roads & markets, Local taxes (property, rent), Local courts & mediation, Cooperatives, Disaster management | Education, Health, Agriculture, Forests & environment, Social security, Cooperatives, Electricity & water supply, Taxation (entertainment tax) |
Export to Sheets
Source: Compiled from data in.
Ambiguity, Overlap, and the “Concurrent Powers Trap”
A fundamental deficiency of the constitutional design is that the schedules are mere lists of powers without additional clarification or definition. This has resulted in significant ambiguity and overlapping mandates, causing confusion and inefficiency in service delivery. Critical sectors like education, health, and forestry are listed as competencies for multiple levels of government, leading to jurisdictional battles over resources and authority.
The extensive lists of concurrent powers, which were intended to foster cooperation, have in practice become a primary instrument of federal control. In areas of concurrent jurisdiction, constitutional practice requires the federal government to first enact “umbrella” or framework laws that set national standards and delineate specific roles. Sub-national governments are then expected to legislate within this federal framework. However, the federal government has been extraordinarily slow in passing these crucial laws, including the Federal Civil Service Act, the Federal Police Act, and the Federal Education Act. This legislative inertia at the center creates a legal vacuum. Provincial and local governments are hesitant to exercise their powers in these areas, fearing that their laws and policies could be retroactively invalidated once the federal legislation is eventually passed. This paralysis allows federal ministries to maintain de facto control over these sectors, often through executive directives and budget allocations, effectively bypassing the constitutional authority of the provinces and local levels. Consequently, the principle of concurrency has morphed from a mechanism for shared rule into a “concurrent powers trap,” enabling the central government to stall the devolution process and preserve a unitary system in practice, if not in law.
IV. Inter-Governmental Relations: The Quest for “Cooperation, Coexistence, and Coordination”
The success of any federal system depends on the effectiveness of its mechanisms for managing inter-governmental relations (IGR). Recognizing this, Article 232 of Nepal’s Constitution explicitly mandates that relations among the federal, provincial, and local tiers “shall be based on the principles of cooperation, co-existence and coordination”. A number of constitutional and statutory bodies have been created to institutionalize this principle, yet in practice, IGR remains characterized more by hierarchy and conflict than by partnership.
Formal Mechanisms for IGR
The constitutional framework establishes several key institutions to facilitate dialogue, resolve disputes, and coordinate policy among the three tiers of government:
- Inter-Province Council (IPC): Chaired by the Prime Minister and including the federal Home Minister, Finance Minister, and the Chief Ministers of all seven provinces, the IPC is the highest political body for resolving disputes between the federation and provinces, and among the provinces themselves. However, its effectiveness has been severely hampered by its infrequent meetings. In the first several years of federalism’s implementation, the council met only a handful of times, and its decisions, when made, have often gone unimplemented, rendering it a largely symbolic body.
- National Natural Resources and Fiscal Commission (NNRFC): This is a constitutionally mandated independent body tasked with the critical function of recommending the distribution of revenues from the federal consolidated fund to provincial and local governments. It is meant to provide objective, formula-based recommendations for fiscal transfers and revenue sharing, thereby minimizing financial conflict. However, its formation and empowerment were significantly delayed. The failure to appoint its full membership for a considerable period weakened its independence and forced it to channel its recommendations through the Ministry of Finance, undermining its intended role as an impartial arbiter of fiscal federalism.
- Intergovernmental Relations and Coordination (IGR) Act, 2020: Passed in July 2020, this landmark legislation was designed to provide a comprehensive legal framework for IGR. The Act is arguably the most important piece of legislation on the structure of government after the constitution itself. It calls for “respect for [the] functional autonomy of the spheres of government” and explicitly limits federal power with a principle of non-interference, stating that “the federal law must not abridge or interfere [with] the exclusive competencies of subnational governments”. Crucially, the Act also empowers provincial and local governments to enact laws on concurrent subjects without waiting for federal framework legislation, a provision intended to break the legislative paralysis caused by delays in Kathmandu.
The Persistence of a Centralized Political Culture
Despite the existence of these formal mechanisms, the political and administrative culture in Nepal remains deeply rooted in the traditions of the old unitary state. The elite in Kathmandu, both in politics and the bureaucracy, have demonstrated a significant ambivalence towards devolution and often continue to view provincial and local governments as subordinate administrative units rather than as constitutionally co-equal partners. This centralized mindset manifests in the federal government’s continued encroachment on sub-national jurisdictions, the creation of parallel administrative structures, and a general reluctance to cede meaningful power and resources.
The IGR Act of 2020 was a significant legislative achievement designed to counter this very trend. It provided sub-national governments with the legal tools to assert their autonomy and defend their constitutional prerogatives. However, its impact on the ground has been limited. Reports and events since its passage continue to highlight the same persistent problems: federal ministries withholding provincial budgets, federal agencies launching projects that fall under sub-national jurisdiction without consultation, and continued delays in enacting the very framework laws the IGR Act was meant to bypass. The fact that provinces like Madhesh and Bagmati have had to resort to filing multiple writ petitions in the Supreme Court to defend their constitutional powers—over issues like police recruitment and transport management—demonstrates the profound disconnect between the law on the books and political practice. This suggests that the IGR Act, while legally potent, has become a “paper tiger.” Without the political will at the center to respect its principles and without an active judiciary to enforce them, it remains a largely aspirational document, insufficient on its own to alter the deeply ingrained power dynamics of the Nepali state.
V. Successes and Positive Outcomes of Decentralization
Despite the significant high-level challenges in implementing federalism, the devolution of power has produced tangible and transformative successes, particularly at the local level. The empowerment of 753 local governments has reinvigorated grassroots democracy, improved public service delivery in key areas, and fostered a new era of political inclusion.
Local Governance as the Vanguard of Federalism
The most significant success story of Nepal’s federal experiment has been the performance of its local governments. Constitutionally empowered and directly accountable to their communities, these local units have often proven to be more effective and responsive than their provincial and federal counterparts.
- Responsive and Agile Service Delivery: Local governments have demonstrated a remarkable capacity for agile governance, especially during national crises. During the COVID-19 pandemic, while the federal government’s response was often slow and mired in controversy, local governments across the country took the lead. They proactively established quarantine facilities, conducted contact tracing, and organized the distribution of relief materials to vulnerable populations, showcasing the benefits of decentralized decision-making.
- Increased Public Trust and Accountability: The proximity of local governments to the citizenry has fostered a stronger sense of accountability. Citizens consistently report higher levels of trust in their local elected officials—mayors, chairs, and ward representatives—than in provincial or federal politicians. This trust is built on the accessibility of local leaders and their perceived understanding of community-specific needs and priorities.
- Vibrant Local Law-Making: Exercising their 22 exclusive constitutional powers, local governments have become active legislative bodies. They have enacted thousands of local laws and regulations related to basic and secondary education, local health services, infrastructure development, and local taxation, demonstrating a genuine practice of self-rule and tailoring governance to local conditions.
Deepening Political Inclusion and Representation
Federalism was conceived as a tool to make Nepal’s political system more inclusive, and in this regard, it has achieved measurable success, particularly in enhancing the representation of women and marginalized groups.
- Transformative Impact on Women’s Representation: The constitutional requirement for political parties to field a woman for either the head or deputy head position in local elections has dramatically increased women’s presence in politics. While women hold approximately 33% of seats in the federal parliament, they constitute a remarkable 41% of all elected representatives at the local level. This has brought tens of thousands of women into formal political office for the first time, creating a new generation of female leaders at the grassroots level.
- Inclusion of Marginalized Communities: The mixed-member proportional representation system used for federal, provincial, and local elections, combined with constitutional quotas, has provided unprecedented access to political power for previously excluded communities, including Dalits, Janajatis, and Madhesis. While challenges of tokenism and elite capture within these groups remain, the formal structures of the federal system have undeniably made Nepal’s governing bodies more diverse than at any point in its history.
- Improved Health and Development Outcomes: There is emerging evidence that fiscal federalism is contributing to better development outcomes. The World Bank has highlighted improvements in the health sector since the implementation of federalism, noting that the transfer of resources and responsibilities to sub-national governments has correlated with positive trends. For instance, the rate of institutional deliveries among the poorest quintile of the population nearly doubled from 33.9% in 2016 to 65.8% in 2022. During the same period, the national under-5 mortality rate declined from 39 to 33 per 1,000 live births, and stunting in children under five fell from 36% to 25%.
The uneven nature of these achievements points to the emergence of a “two-speed federalism” in Nepal. The local tier, empowered with clear mandates and a direct link to citizens, is actively exercising its autonomy and delivering tangible results, creating a powerful “bottom-up” momentum for decentralization. In stark contrast, the provincial tier appears largely paralyzed. Lacking control over key administrative machinery like the police and civil service, facing severe fiscal constraints, and caught in jurisdictional battles with both the federal government above and assertive local units below, the seven provinces have struggled to define their role and demonstrate their value. This has fueled a public narrative that questions the very relevance of the provincial structure, with critics frequently labeling it an expensive and redundant layer of bureaucracy. This dynamic, where federalism is thriving at the micro-level but faltering at the meso-level, poses a significant long-term risk to the stability of the current three-tiered constitutional architecture.
VI. Critical Implementation Challenges
Despite the successes at the local level, the full implementation of Nepal’s federal system is being severely hampered by a set of critical and interconnected deficits in fiscal capacity, administrative machinery, and political will. These challenges have created a significant gap between the constitutional promise of federalism and its practical reality.
The Fiscal Federalism Impasse
Fiscal autonomy is the lifeblood of a functioning federal system, but sub-national governments in Nepal face a severe fiscal crisis, characterized by dependency, ambiguity, and inequity.
- Vertical Fiscal Imbalance: The most significant challenge is the profound vertical fiscal imbalance. The vast majority of revenue-generating powers, such as customs duties, value-added tax (VAT), and income tax, remain with the federal government. As a result, provincial and local governments are overwhelmingly dependent on fiscal transfers from Kathmandu to fund their budgets. This dependency undermines their autonomy, turning them into supplicants rather than self-sufficient governing bodies and allowing the central government to use fiscal levers for political control.
- Ambiguous Revenue Assignments: The constitutional schedules create overlapping and unclear jurisdictions for taxation, particularly for taxes on vehicles, entertainment, and agriculture. This ambiguity leads to inter-governmental disputes and creates an unpredictable environment for taxpayers and businesses, hindering the ability of sub-national governments to maximize their limited own-source revenue potential.
- Inequitable and Conditional Transfers: Sub-national governments have consistently complained that the federal government is reducing the share of unconditional equalization grants, which they can spend according to local priorities, while increasing the share of conditional grants. These conditional grants come with strict federal mandates and spending guidelines, effectively limiting local discretion and reinforcing a top-down approach to development. The World Bank has recommended that the transfer system be made more flexible, transparent, and performance-based to address these issues.
The Administrative Capacity Deficit
The devolution of powers has not been matched by a corresponding devolution of administrative capacity, leaving many sub-national governments without the human resources needed to perform their constitutional functions.
- Chronic Staff Shortages and High Turnover: A large percentage of sanctioned positions in provincial and local governments remain vacant. This is particularly acute for key technical and managerial roles, with around a third of local units reportedly operating without a Chief Administrative Officer (CAO). Furthermore, the turnover rate for centrally-deputed staff is exceptionally high, as many bureaucrats are reluctant to serve outside Kathmandu, leading to constant instability and a loss of institutional memory at the sub-national level.
- Lack of Technical Expertise: Many provincial and local governments lack personnel with the specialized skills required for their new responsibilities, including legal drafting, public financial management, procurement, and engineering. While capacity-building initiatives like the Provincial and Local Governance Support Program (PLGSP) are underway, the scale of the need is monumental.
- The Unresolved Civil Service Conundrum: The single greatest administrative hurdle has been the federal government’s multi-year failure to pass the Federal Civil Service Act. This crucial piece of framework legislation is a prerequisite for provinces to establish their own Public Service Commissions and recruit their own staff. The delay has created a chaotic and ad-hoc personnel administration system, effectively preventing provinces from building a stable and accountable bureaucracy responsive to the provincial executive.
Political Tensions and Federal Overreach
Underlying the fiscal and administrative challenges is a fundamental political problem: the persistence of a centralist mindset within the federal government and its unwillingness to fully embrace the spirit of federalism.
- Encroachment on Sub-national Jurisdiction: The federal government and its ministries frequently encroach upon the exclusive and concurrent powers of the provinces and local levels. This includes launching federal programs in areas constitutionally assigned to sub-national governments, creating parallel administrative offices in districts, and formulating policies without meaningful consultation with the other tiers of government. This behavior is a primary driver of political conflict and has led to a breakdown of trust between the levels of government.
These fiscal, administrative, and political challenges are not isolated problems but are locked in a self-reinforcing vicious cycle. The centralist political culture in Kathmandu leads the federal government to delay key legislation like the Civil Service Act. This legislative delay is the direct cause of the administrative capacity deficit, as it prevents provinces from recruiting their own staff. The resulting lack of skilled personnel at the sub-national level leads to weak public financial management, an inability to maximize own-source revenue, and the underspending of allocated budgets, which constitutes the fiscal challenge. This fiscal weakness, in turn, deepens the dependency on federal grants, which the central government then uses as a political lever to maintain control, thus completing the cycle. Breaking this debilitating loop requires a simultaneous and coordinated reform effort that addresses the political, administrative, and fiscal dimensions of the implementation crisis concurrently.
VII. Comparative Perspectives: Lessons from Global Federal Systems
Contextualizing Nepal’s federal experiment within the broader landscape of global federalism provides valuable insights, highlighting common challenges and offering alternative models for governance. By comparing its nascent system with established federations like India, Switzerland, Canada, and Germany, it is possible to identify potential pathways for reform and institutional strengthening.
- India: As Nepal’s neighbor and a large, diverse federation, India’s experience offers both relevant models and cautionary tales. India is often described as a “quasi-federal” system or a “union of states” with a strong central government. Its constitution provides the central government with significant powers, including the ability to dismiss state governments under certain conditions. For Nepal, India’s mechanisms for inter-governmental relations, such as the Inter-State Council and the Finance Commission, provide a long-standing example of formal institutions designed to manage federal-state dynamics. However, the history of the central government’s use of its powers to interfere in state politics serves as a warning against the over-centralization that Nepal is currently experiencing.
- Switzerland: The Swiss model of federalism presents a stark contrast to Nepal’s top-down approach. Swiss federalism is built from the “bottom-up” on the foundational principle of subsidiarity, which holds that political decisions should be made at the lowest effective level of government—commune, canton (province), or confederation. This keeps governance close to the people. Another key feature is its system of direct democracy, where citizens can directly influence laws and constitutional amendments through referendums and popular initiatives, ensuring a high degree of public accountability. Furthermore, Switzerland’s robust fiscal equalization system, funded jointly by the federal government and wealthier cantons, systematically redistributes resources to reduce regional disparities and foster national solidarity. These principles offer a powerful alternative vision for Nepal, emphasizing local empowerment, citizen participation, and equitable resource sharing.
- Canada: Canada’s federal history has been marked by intense political and legal conflicts between the federal government and the provinces, particularly over the control and revenue of natural resources. This experience is highly relevant for Nepal, where future disputes over resources like hydropower and minerals are likely to arise. Canada’s development of a comprehensive system of fiscal equalization payments, designed to ensure that all provinces can provide comparable levels of public services at comparable levels of taxation, is considered a global benchmark and offers a sophisticated model for Nepal to study as it seeks to address its own significant regional economic disparities.
- Germany: Germany’s system of “cooperative federalism” provides valuable lessons on managing concurrent powers, which is a major point of friction in Nepal. The German model emphasizes joint decision-making and features interlocking institutions where federal and state (Länder) governments must collaborate on policy formulation and implementation. This contrasts with Nepal’s more conflictual approach, suggesting that stronger institutional mechanisms for mandatory consultation and joint planning could help resolve jurisdictional ambiguities.
Table 2: Comparative Analysis of Key Federal Features
| Feature | Nepal | India | Switzerland | Canada |
| Origin of Federation | Holding-Together (devolution to manage conflict) | Holding-Together (devolution from British India) | Coming-Together (voluntary union of cantons) | Coming-Together (union of colonies) |
| Power Distribution Principle | Strong center, enumerated lists for all tiers, residual powers with federation | Strong center, detailed Union, State & Concurrent lists, residual powers with Union | Subsidiarity (bottom-up), cantonal sovereignty, residual powers with cantons | Strong provinces, enumerated federal/provincial powers, residual powers with federation |
| Fiscal Equalization Mechanism | Ad-hoc grants (equalization, conditional, special, matching); NNRFC recommendations | Formula-based transfers recommended by a constitutional Finance Commission | Constitutional system of horizontal & vertical equalization funded by federation & wealthy cantons | Constitutional commitment to equalization payments, formula-based federal transfers |
| IGR Model | Nascent; based on “cooperation, coexistence, coordination”; weak Inter-Province Council | Formalized; Inter-State Council, Zonal Councils, National Development Council | Highly institutionalized; Conference of Cantonal Governments, extensive consultation | Executive Federalism; First Ministers’ Conferences, extensive inter-provincial cooperation |
| Judicial Structure | Unitary (single federal hierarchy of courts) | Unitary (integrated judicial system with Supreme Court at the apex) | Dual system (federal and cantonal courts) | Dual system (federal and provincial courts, with Supreme Court as final arbiter for both) |
Export to Sheets
Source: Compiled from data in.
VIII. The Role of the Judiciary in Shaping Federalism
In any federal system, the judiciary plays a paramount role as the guardian of the constitution and the ultimate arbiter of disputes between different levels of government. In Nepal, the Supreme Court is explicitly assigned this function, yet its performance in this critical area has been marked by a conspicuous pattern of inaction, creating a power vacuum that has allowed political conflicts to fester and constitutional boundaries to remain dangerously undefined.
The Supreme Court’s Constitutional Mandate
Article 137(2)(a) of the Constitution unequivocally grants the Constitutional Bench of the Supreme Court the jurisdiction to resolve disputes “relating to jurisdiction between the Federation and a Province, between Provinces, between a Province and a Local level and between Local levels”. This provision positions the Court as the designated referee for the federal system, tasked with interpreting the constitutional schedules of power and ensuring that each tier of government operates within its rightful domain.
A Rising Tide of Jurisdictional Disputes
Since the implementation of federalism, there has been a clear and growing trend of sub-national governments turning to the Supreme Court to defend their constitutional authority against perceived federal overreach. A review of the Court’s docket reveals a significant number of such cases. Madhesh Province has been particularly active, filing multiple petitions against the federal government on critical issues such as the control and recruitment of the police, the deployment of civil servants, and the management of natural resources like groundwater. More recently, Bagmati Province filed a suit against the federal government seeking a declaration that the management of public transport is a provincial power. In addition to these direct inter-governmental disputes, dozens of other cases have been filed challenging the constitutionality of provincial and local laws, all of which require the Court to delineate the boundaries of legislative power.
A Pattern of Judicial Delay and Deference
Despite the constitutional urgency and the growing number of these foundational cases, a startling fact remains: the Supreme Court has not yet adjudicated a single major case on its merits that was filed under Article 137(2)(a). This consistent pattern of delay and deference has left critical constitutional questions unanswered. Who has the final authority over the police force in a province? How are civil servants to be managed in a federal system? Where does federal authority end and provincial authority begin in the management of natural resources? The Court’s silence on these issues has created a state of legal limbo, effectively allowing the status quo—which heavily favors the powerful federal government—to persist.
This inaction stands in stark contrast to the Court’s demonstrated proactivity in other areas of law that have significant implications for federal governance. For example, in a landmark ruling in June 2025, the Court issued a directive mandating that all three tiers of government—federal, provincial, and local—must create laws and policies that align with international treaties on the rights of Indigenous Peoples, such as ILO Convention No. 169. This decision creates binding obligations on all levels of government, particularly regarding the principle of Free, Prior and Informed Consent (FPIC) for development projects affecting Indigenous lands. This ruling shows the Court’s capacity and willingness to issue sweeping, transformative judgments that shape the responsibilities of all actors within the federal system when it chooses to do so.
The Court’s failure to adjudicate core jurisdictional disputes has become the single greatest institutional bottleneck preventing the maturation of Nepal’s federal system. Federalism, by its very nature, generates conflict over power; the constitution provides a legal mechanism for resolving these conflicts peacefully through the judiciary. By failing to perform this essential function, the Supreme Court is compelling inter-governmental relations to be resolved not by constitutional principle, but by raw political power. In this arena, the weaker sub-national governments are consistently at a disadvantage. This transforms the judiciary from an enforcer of the federal compact into a passive observer of its erosion, undermining the rule of law and the very essence of constitutional federalism. The stark contrast between its boldness on Indigenous rights and its timidity on inter-governmental relations makes this institutional failure all the more conspicuous and consequential.
IX. Conclusion: The Path Forward for Nepal’s Federal Experiment
Nepal’s federal experiment is at a critical juncture. The transition has unlocked significant potential, most visibly in the empowerment of local governments, which have enhanced grassroots democracy, improved service delivery, and fostered unprecedented political inclusion. These successes offer a powerful validation of the core principles of decentralization. However, this progress is overshadowed by the systemic dysfunction that plagues the relationship between the federal and provincial tiers. The persistence of a centralist political culture, enshrined in a bureaucracy and political class reluctant to cede control, has led to a state of provincial paralysis, starved of fiscal resources and administrative capacity. The gap between the 2015 Constitution’s transformative vision and the on-the-ground reality of its implementation remains vast and perilous.
The long-term success of Nepal’s federalism hinges on a concerted, multi-stakeholder effort to bridge this implementation gap. This requires moving beyond rhetoric and tackling the interlocking challenges of fiscal dependency, administrative weakness, and political overreach. The viability of the federal project depends on strengthening sub-national capacity, fostering genuine inter-governmental cooperation through empowered and respected institutions, and demanding constitutional accountability from all tiers of government, a responsibility that falls squarely on the shoulders of an active and engaged judiciary.
Recommendations
Based on the comprehensive analysis presented in this report, the following recommendations are proposed for key stakeholders:
1. For the Federal Government and Parliament:
- End Legislative Paralysis: Immediately prioritize the passage of long-delayed framework legislation, most critically the Federal Civil Service Act, the Federal Police Act, and the Federal Education Act. This is the essential first step to unblocking the administrative and functional autonomy of the provinces.
- Reform the Fiscal Transfer System: In line with recommendations from the World Bank, reform the inter-governmental fiscal transfer system to increase the proportion of unconditional equalization grants relative to conditional grants. This will enhance the fiscal autonomy of sub-national governments and allow them to address local priorities. The transfer system should be made more predictable, transparent, and increasingly performance-based.
- Empower Constitutional Bodies: Fully empower and respect the autonomy of the National Natural Resources and Fiscal Commission (NNRFC). Its recommendations on revenue sharing and fiscal transfers should be treated as authoritative and implemented transparently to build trust in the fiscal federalism framework.
- Embrace the IGR Act: The federal executive must commit to upholding the letter and spirit of the Intergovernmental Relations and Coordination Act of 2020, ceasing the practice of creating parallel structures and encroaching on sub-national jurisdictions.
2. For Provincial and Local Governments:
- Prioritize Capacity Building: Invest heavily in building administrative and fiscal capacity. This includes establishing and strengthening provincial-level training academies, modeled on successful examples like the Gandaki Province Training Academy, to provide continuous training for elected officials and civil servants in public financial management, legal drafting, and inclusive planning.
- Enhance Own-Source Revenue: Focus on strengthening the systems for levying and collecting own-source revenues in a manner that is transparent, fair, and efficient. This is crucial for reducing dependency on federal transfers and increasing fiscal autonomy.
- Utilize Legal and Institutional Channels: Make more strategic use of the available legal and institutional mechanisms to defend their autonomy. This includes actively engaging through the Inter-Province Council and systematically using the judicial system, per Article 137 of the Constitution, to challenge federal overreach and seek legal clarity on jurisdictional disputes.
3. For the Judiciary:
- Fulfill the Role of Constitutional Arbiter: The Supreme Court must end its pattern of delay and prioritize the adjudication of cases concerning inter-governmental jurisdiction filed under Article 137. By providing timely and clear jurisprudence on the division of powers, the Court can define the “rules of the game,” replace political bargaining with constitutional principle, and fulfill its role as the ultimate guardian of the federal system.
4. For Political Parties and Civil Society:
- Foster a Federal Political Culture: Political parties must undertake serious internal reforms to educate their cadres and leaders on the principles of federalism, cooperative governance, and subsidiarity. They must shift from a centralized, winner-take-all approach to one that respects sub-national autonomy.
- Strengthen Accountability Mechanisms: Civil society organizations, the media, and academic institutions must continue to monitor the implementation of federalism, advocate for transparency and accountability at all three levels of government, and ensure that the voices and rights of marginalized communities are protected and advanced within the new federal structure.
Nepal’s journey to a stable and prosperous federal republic will be a long and challenging one. The successes achieved thus far prove that the foundational principles are sound. The challenge now is to build upon them by dismantling the remnants of the old centralized state and fully empowering the new structures of shared governance.
References
Acharya, B. R. (2017). Nepal’s transition to federalism.
Adhikari, R. (2020). State of implementation, challenges, and solutions. In Nepal’s Constitution and Federalism: Vision and Implementation. The Asia Foundation.
Bahl, R., Timofeev, A., & Yilmaz, S. (2022). Budgetary practices in federal Nepal.
Bell, T. (2015). Nepal’s new constitution: 65 years in the making.
Bhattacharyya, H. (2018). Federalism in Asia: India, Pakistan, Malaysia, Nepal and Myanmar. Routledge.
Bhusal, T. (2019, March 13). Long read: Nepal’s federalist ambiguities. South Asia@LSE.
Cheema, G. S. (2007). Decentralization in developing countries.
Cultural Survival. (2025, June). Historic victory: Nepal’s Supreme Court mandates nationwide implementation of treaties for Indigenous Peoples’ rights.
Dahal, S. (2024, January 20). Provinces versus Kathmandu. The Kathmandu Post.
Desouza, P. R. (2015). Nepal’s constitution: A flawed document.
Devkota, K. (2022). Law-making in federal Nepal.
Devkota, K. (2025, September 2). Swiss lessons for Nepal’s federal journey. The Kathmandu Post.
Dol Raj Kafle, Tara Nath Ghimire, & Jagat Nepal. (2024). Arguments against federalism in Nepal: A discussion on state structure reform. Asian Research Journal of Arts & Social Sciences, 22(11), 56–65.
Elazar, D. J. (1987). Exploring federalism. University of Alabama Press.
Forum of Federations. (2009). Nepal’s federalism: A new experiment.
Gallant, K. (1991). The constitution of Nepal.
Government of Nepal. (2015). The Constitution of Nepal.
Government of Nepal. (2017). Unbundling of powers. Office of the Prime Minister and Council of Ministers.
Hamilton, A. (2019). The Federalist Papers.
Harrison, G. (2013). The politics of the Alberta oil sands.
Hutt, M. (1991). Drafting the Nepal constitution.
International Crisis Group (ICG). (2016). Nepal’s divisive new constitution: An existential crisis.
Jero Rai, R. K. (2025). Issues of federalism in Nepal: A political analysis of success factors. NPRC Journal of Multidisciplinary Research, 2(6), 180–192.
Jha, H. B. (2016). Federalism in Nepal: A contested idea.
Kaufman, S. J., et al. (2025). Federalism and conflict management.
Khanal, K. (2021). Federalism in Nepal: A critical review.
Kharel, S. (2022). Federalism in Nepal: A study.
Kulhari, D. (2022). A comparative study of the constitutions of Nepal and India. The Law Brigade.
Kumar, A. (2018). The National Development Council of India.
Kuikel, A. (2025). Resource federalism and conflict: An analysis of federal and provincial government relations in Nepal. Prashasan: The Nepalese Journal of Public Administration.
Lake, D. A. (2001). The state and international relations.
Le Roy, K. (2009). Federalism in Nepal. Forum of Federations.
Lessmann, C. (2009). Regional inequality and decentralization.
Mallik, V. (2012). Local governance in Nepal.
Mishra, B. K. (2023). Origins of federalism: A case of Nepal. International Journal of Applied Research.
Nembang, S. C. (2020). Nepal’s constitution: A document of understanding and agreement. In Nepal’s Constitution and Federalism: Vision and Implementation. The Asia Foundation.
Nepal Rastra Bank. (2016). Nepal’s fiscal federalism model in the new constitution: Agenda for amendments.
Richard, P. (2013). Federalism and good governance.
Saferworld. (2020). Federalism, conflict and peace in Nepal.
Samriddhi Foundation. (2020). Study of agricultural income tax in federal Nepal.
Shrestha, U. (2023). Federalism in Nepal: Achievements, challenges, and the road ahead. Sol Conferences, Kathmandu University.
Singh, M. P. (2021). Indian federalism: An introduction.
Svara, J. H., & Watson, D. J. (2020). Intergovernmental relations in the United States.
The Asia Foundation. (2020). Nepal’s Constitution and Federalism: Vision and Implementation.
The Asia Foundation. (2021). Planning and budgeting in the provinces of federal Nepal.
The World Bank. (2019). Nepal capacity needs assessment for the transition to federalism.
The World Bank. (2023, September 26). Towards improved service delivery: Four ways Nepal can strengthen fiscal federalism.
Thornhill, C. (2002). Intergovernmental relations: A South African perspective.
Tushnet, M. (2016). Advanced introduction to comparative constitutional law.
UNDP. (1998). Decentralized governance monograph.
Upadhyay Dina, M. (2020). Women’s rights in the constitution. In Nepal’s Constitution and Federalism: Vision and Implementation. The Asia Foundation.
Vollan, B. (2025). Constitutional design and federal stability.
Watts, R. L. (1989). Executive federalism: A comparative analysis.
Wheare, K. C. (1964). Federal government. Oxford University Press.Sources used in the report
