In my previous articles, I explored the perspectives of chief ministers from all seven provinces during programmes organised by the 'Federalism and Localisation Centre' in provincial capitals. While those pieces focused on federalism's progress and challenges from the current leaders' views, this article broadens the discussion by incorporating insights from former Chief Ministers—Dormani Paudel (Bagmati Province), Raj Kumar Sharma (Karnali Province), Rajendra Rawal and Dirga Sodari (Sudurpaschim Province)—as well as political party leaders, provincial speakers and other key stakeholders. Their collective experiences offer deeper insights into the structural issues, power dynamics and opportunities within Nepal's federal system. This piece examines the complexities of devolving authority to the provinces and identifies the key challenges that must be addressed to seize their full potential.

Nepal's 2015 Constitution established a framework for decentralising power to provincial and local governments. However, its implementation has been marked by significant challenges. A major issue is the unclear division of powers between the federal, provincial and local levels. While the Constitution provides provinces with substantial authority, provincial leaders often express frustration over ambiguities in their responsibilities. This lack of clarity leads to administrative delays, governance inefficiencies and legal overlaps. For example, provincial land and forest management laws often mirror federal regulations, creating unnecessary duplication. To overcome this, laws should be aligned across all levels of government and provide clear guidelines on the separation of powers. Additionally, empowering provinces to tailor laws to their specific contexts is critical to enhancing their ability to govern effectively without interference from federal authorities.

A significant challenge for provinces is their fiscal dependence on the federal government. The fiscal purse framework has created imbalances, with provinces heavily reliant on federal transfers to fund their budgets. Fiscal equalisation grants, intended to reduce disparities between provinces, are often uneven, leaving some provinces underfunded and unable to execute their development plans. Moreover, these transfers are frequently tied to federal priorities, limiting provincial autonomy. Delays in disbursements and bureaucratic hurdles further exacerbate these challenges. To address this, the fiscal transfer system should be reformed to ensure a more transparent and equitable distribution of resources. Provinces also need to develop internal revenue-generating capacities, enabling them to reduce dependence on federal transfers and invest in key areas like infrastructure, education and healthcare.

Fiscal imbalances have also deepened inequalities between provinces. Wealthier provinces receive more resources, while less developed provinces struggle to meet even basic needs. The uneven distribution of grants and transfer delays hinder provinces from planning and implementing long-term development projects. The fiscal transfer system must be transparent, timely, and fair to rectify this. Equitable resource allocation will empower provinces to address their unique needs. This will help reduce provincial disparities and promote balanced development across the country.

Another challenge is the limited authority provinces have over key sectors. Provincial governments are constitutionally empowered to manage areas like forestry, yet district forest officers still report to the federal government, restricting provincial control over natural resources. Similarly, delays in transferring police responsibilities to provincial governments have hampered their autonomy in maintaining law and order. Strengthening provincial authority in these areas is essential to ensure effective governance under the federal system.

Political instability remains a recurring issue, weakening provincial governance. Frequent leadership changes, political interference and a lack of continuity in administration disrupt policy implementation and delay development projects. One solution to this instability could be the direct election of chief ministers, which would increase accountability and provide more stable leadership. Direct elections would also grant provincial leaders greater legitimacy, reducing the likelihood of frequent leadership changes. Additionally, extending proportional representation to the executive branch could promote inclusivity, ensuring that provincial governments reflect the diversity of the population.

Bureaucratic inefficiencies further complicate provincial governance. Currently, provincial secretaries are posted for short one-year terms, which limits their ability to address local concerns effectively. Extending their tenure to at least two years would allow for more consistent administration and better policy implementation. Another issue is the reliance on federal employees temporarily assigned to provincial roles. These officials often lack the long-term commitment needed to address provincial issues effectively. Reforming the bureaucratic system to attract skilled professionals to provincial administrations is key to enhancing provincial governance.

Infrastructure development remains a critical area where provinces, especially remote regions like Karnali, have fallen short. Despite their mandate to spearhead infrastructure projects, provincial governments face logistical constraints, financial shortages and political interference. Delays in procurement processes and restrictions on natural resource extraction have significantly hindered infrastructure development. Provinces must prioritise transformative projects and work closely with federal authorities to overcome these challenges. Streamlining procurement processes and addressing federal restrictions will enable provinces to accelerate infrastructure development, driving economic growth and improving access to services.

Effective federal, provincial and local coordination is another area requiring urgent attention. While platforms like the Inter-Provincial Council and National Coordination Council exist to facilitate intergovernmental relations, these bodies meet infrequently and often fail to implement decisions. This lack of communication leads to inefficiencies, with provinces and local governments working in silos. Improving coordination and ensuring regular engagement between government tiers is essential for the smooth functioning of the federal system and for aligning provincial development plans with national priorities.

Public-private partnerships (PPPs) allow provinces to enhance economic development, particularly in agroforestry, tourism and local product commercialisation. Provinces such as Karnali, which have vast potential in these areas, could benefit significantly from increased collaboration with the private sector. By fostering PPPs, provincial governments can attract investment, create jobs, and promote sustainable economic growth. Cross-border cooperation with neighbouring countries like India and China also holds immense potential for expanding trade and developing infrastructure, further boosting provincial economies.

Finally, effective budget formulation and execution are critical for provincial governments to address local development priorities. Provincial assemblies should be more active in budgeting, ensuring that resources are allocated based on each province's specific needs. Nepal could draw inspiration from international examples, such as California’s Legislative Analyst’s Office and the US Congressional Budget Office, which provide direction and ensure that budgets align with provincial priorities. Strengthening provincial authority, fostering better coordination and ensuring equitable resource distribution will enable provinces to play a more effective role in national development, ultimately leading to a more prosperous and inclusive Nepal.