The debate whether federalism is good for Nepal or bad is perhaps over. Philosophically, no system is just good or bad. How people operate within a system helps it either succeed or fail. And, we should not at any cost be thinking of a system that fails.
We have had lots of trials in the last 60 years, the time during which countries in our ranks leapfrogged and we are still branded as one of the “least developed countries” (becoming endangered species in a few decades from now). Yes, certainly, in some cases, the system also leads people to behave in a manner that causes failure, but ultimately it is the people that make a system succeed. It is not yet clear what shape our federalism will have.
The debate currently seems to be centered on whether a structure that embodies “identity” is better or “competence”. I do not pretend to be too harsh, but this is perhaps the most insensible debate that is taking place. The debate should be on what keeps those that consider themselves subjugated (or, internally colonized) happy. “Competence” is a thing that can be acquired, but identity is another thing. You just can’t acquire it; at best, you can be a convert. There are a plenty of examples in the world where a country not so favored by the nature has turned itself into a prosperous place. The desert land of UAE is a tourist hub today, whereas naturally endowed Nepal is in a pitiful state.
Therefore, the wisdom lies in having a framework that puts off all the discontent at the outset. This is important because we should not again be debating in the future that a state or province should further be broken because the concerns of some of the groups were not properly addressed.
In the past few months, those that wanted federalism and those that didn’t both have won in the streets. The bandhs called by either side have been successful. Asserting success on a “vision” on the basis of successful bandh has now become an illusion as every bandh becomes a success, because ordinary Nepali folks do not want any more confrontation.
There is still a danger that the non-federalist can keep their arguments open for tomorrow to say that we had said so therefore the federalism didn’t succeed. This is the easiest thing to do. Everybody can have a right solution with the benefit of the hindsight.
Therefore, it is imperative that if the nation decides in favor of a certain framework of federalism, everybody comes on board. All of us must think how we can make new federal Nepal succeed and bring prosperity so that no one seeks a national passport to find the job in a foreign land. The jobs or the economic opportunities should be available in the place where one calls as his homeland or the “state”.
We can do it; only if we have the will to do it. However, one thing is certain that the “will” will not come from those who spent all of their lifetime energy in exacerbating social feud between communities. The spent energy does not produce light for the future. It must come from people who want the nation to succeed.
The question that how many states or provinces will be economically viable based on past parameters is irrelevant. The relevant question is what needs to be done to make every entity economically viable. The question is also not how other countries are doing it. Every country has a different situation. Therefore, we need to think of our own model and our own strategy of making our choice a success.
The first thing that needs to be done even before the political institution of the states or the provinces takes shape is the creation of the Provincial Statistical Bureau. We are talking of federal structure because the unitary structure led to concentration of wealth and development in certain areas and among certain communities, of course, capital city being one. If we want that to change then we need to closely monitor where we are beginning and then where we reach in a few years after the federalism is instituted. The Bureau should immediately start work and collect data on every aspect of human development and resources. It is vital that we know where our new journey begins from. Unless we keep track of the baseline and monitor changes every year then we cannot develop mechanism to overcome the problems.
The second is the delineation of rights and responsibilities among the Union, Provinces or the States and the Local Bodies. The Committee on Natural Resources, Fiscal Federalism and Revenue Sharing of the Constituent Assembly has done some work in the area of expenditure assignment, revenue sharing and the governance of natural resources. But that does not fully analyze problems that can potentially arise tomorrow. After submitting the report almost one-and-a-half year ago, the committee seems to have never thought of going over again as so much time was in fact available to them due to successive extension of the tenure of the Constituent Assembly. This indicates the seriousness of the federalists to make federalism a success.
The delineation is important for a number of reasons. This is in fact the heart of the federalism. If you make centre or the union all powerful then you are talking about a federal structure that is cosmetic at best. The fiscal devolution is far better option than this type of federal structure. If a Chief Minister or a Governor has to plea to Union National Planning Commission Vice Chair-person in a manner that is no different than begging then unitary state is far better than federal structure. If a Chief Minister of a state has to write to centre before beginning a development project whether centre would be kind enough to finance it then such a federal structure cannot solve the problems that we feel we have today.
There are different models of fiscal federalism evolved as per the needs of different countries. But the best one that gives a sense of power to the states/provinces is the one where they share the revenues with the centre. There is just one set of revenue stream that is invariably collected by the centre, that is, the customs. Most of other revenues can be collected by the states/provinces at a rate that the Union Legislature decides and then they can share with the centre at a predetermined rate. The decision-making on tariff structure of revenues that do not have any room for taking unfair advantage can be left at the sole discretion of the states/provinces. To explain this concept further, if states/provinces are allowed to fix the income tax rates themselves then some states/provinces can keep rates too low to attract more investments. As a result, businesses will move from states/provinces to those that have lower rates. But there are certain taxes where arbitrage of this sort is almost impossible. The states/provinces can be given freedom to fix their own rates only in cases where arbitrage is not possible.
Many so called federalist countries use a model where states/provinces depend upon Union grant to keep their business going. If we are thinking of this sort of federalism then it is better that we implement the fiscal devolution model that was already prepared but could not be implemented due to the absence of elected office-bearers in the local bodies.
When we are talking of federal structure, we aren’t probably thinking of sending our youths abroad to find jobs. Perhaps, we are also not thinking of sending them to places other than their own states/provinces. Creating jobs within a state/province is as important as ensuring that the jobs go to the denizens of the same state. When the nation as a whole develops, the job market can be liberalized. However, in the initial stage of federalism, it would be necessary to see that rebalancing takes place. This can possibly be done by adopting a reservation policy whereby a certain percentage of new jobs in the category of middle to lower level management can only be filled out from the residents of the concerned state/province.
In order for federalism to succeed, it is necessary that each state/province finds an economic sector that it can specialize on and be an equal partner in the union. Although used as tourism slogan and displayed in vehicle number-plates, the US states’ slogans give some economic meaning of the state. State of Idaho, for example, represents “Great Potatoes” and state of Wisconsin is up with “America’s Dairy-land”. Wisconsin accordingly has the largest number of dairy farms in the US. These types of economic slogans can help everyone in the province focus on a particular sector and achieve efficiency and competitive edge.
A slightly difficult part of implementing federalism would be the spoilt children of political parties—the Employees Unions of the central government bureaucracy. If a true federalism is to be instituted then the centre must get slim, far more than it is now. Political parties must show tenacity to send employees to places where they are needed and not to where they are seeking.