Nepal

Country Reports on Local Government Systems:
Nepal
Nepal
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1. BRIEF DESCRIPTION OF THE COUNTRY

Nepal is a small Himalayan Kingdom in South Asia. The highest peak of the
world, Mount Everest, lies in the country. It is a landlocked country with India to the
east, west and south, and the Tibetan Region of People's Republic of China in the
north. Kathmandu is the capital city. The total area of the country is 147,181 sq. km.,
with 885 km across the country (east to west) and 193 km. from north to south. The
country is situated between 80°04' and 88° 12' east, and 26° 22' and 30°27' north,
along with the southern slopes of the Himalayas (CBS, 2002:1). The climate varies
sharply with altitude, from arctic to humid sub-tropic. The availability of different
climates offers perspective for production of a variety of agricultural crops.
Ecologically, the country is divided into three broad regions: the mountains, Hills
and the Terai (a flat strip of land in the south), constituting 35, 42 and 23 per cent of
the total land area respectively. The total population is 23.4 million, with an annual
growth rate of 2.25 per cent. The population density is high, at about 600 persons per
km. of arable land. The total urban population is about 3.3 million (CBS, op.cit: 12-14).
The urban population growth rate is 4.4 per cent, whereas the rural growth rate
is 2.1 per cent. The urban population of the country is growing rapidly. However, this
growth is uneven since Kathmandu, Pokhara and some of the small towns along the
east-west highway are growing at rates of between 6 and 8 per cent per annum.
Several major factors have contributed to the rapid urbanization, such as high
natural increase (ranging from 2.6 to 3.0 per cent per annum in the last four
decades), high levels of rural to urban migration, extension of municipal boundaries,
and the designation of new municipalities (ADB, 2000).
Socio-culturally, Nepal is a multi-lingual, multi-religious, multi-ethnic and multi-

cultural country. Nepali is constitutionally recognized as the official language. Hindus
(80.6 per cent) and Buddhist (10.7 per cent) are the two predominant religious
groups, followed by Muslims, Jains and Christians.
1.1 Socio-economic profile
Nepal's overall economic performance in 2001-2002 was not satisfactory.

Nepal's real GDP growth became negative (-0.6 percent) in 2001-2002 for the first
time in nineteen years (NPC, 2003:2). This has happened due partly to the global
recession and aftereffects of September 11, 2001 and largely due to the Maoist
insurgency. These events have adversely affected every aspects of the economy –
industry, trade, agriculture, construction, tourism, export, development activities etc.
Further, following the Maoist insurgency since 1995, 15 per cent of the national
budget has been spent on security and thus reduced the budget for development
activities. Various attempts have been made to address these political problems.
Ceasefires between the government and the Maoist have been declared twice and
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various rounds of talks have been held in a bid to resolving the conflict. But the
cease-fires have broken down without any concrete results. With regard to
development issues, the government has adopted various measures such as
focusing on poverty reduction programmes, stressing the need to service the
underprivileged, promoting gender equality, improving governance and controlling
corruption. However, the Maoist problem still persists.
Although Nepal has implemented nine periodic plans, human development

indicators are very low for Nepal. Nepal ranks 143rd out of 162 countries in terms of
the Human Development Index (HDI). Similarly, Nepal's rank on the Gender-related
Development Index (GDI) is very low (119), and the GDI value is 0.479 (UNDP,
2003:312). Table 1 shows that in 2000, adult literacy was only 50.7 per cent, average
life expectancy 59.5 years, the proportion of the population having drinking water
79.9 per cent, and the overall human development indicator was 0.466. There is
large disparity among ecological regions as well as between urban and rural areas
with regard to all indicators listed. Improvements in education are the most important
since it enables the poor to improve their living standards. Access by the poor to
basic social and economic infrastructure is also important.
Table 1: Human Development Indicators (HDI) (1996 and 2000*)
Adult literacy Percentage of Human Development

Average life
rate (above 15 population having Indicators (index
expectancy
years) drinking water 1.00)
1996 2000 1996 2000 1996 2000 1996 2000
Ecology Zone
▪ Mountain 27.5 44.5 52.7 49.8 - 79.2 0.271 0.378
▪ Hill 40.2 55.5 58.0 65.1 - 76.2 0.357 0.51
▪ Terai 35.9 46.8 59.5 62.4 - 83.4 0.344 0.474
Urban/ Rural
▪ Urban 63.5 69.0 55.0 71.1 62.0 92.3 0.518 0.616
▪ Rural 34.5 48.0 53.7 58.7 61.0 78.1 0.306 0.446
▪ Nepal 36.7 50.7 55.0 59.5 61.0 79.9 0.325 0.466
Source: Nepal Human Development Report, 1996 and 2001
Table 2 shows the poverty incidence, poverty depth/intensity and severity of

poverty in Nepal. The national percentage of people living below poverty line is 42
per cent. Poverty in Nepal is predominantly a rural phenomenon. The percentage of
the population falling below the poverty line is 44 per cent in rural and 23 per cent in
urban areas (HMG/NPC, 2002:25). This means that poverty is much deeper and
more severe in rural in comparison to urban areas. It is much worst in the Hills and
Mountain areas in comparison to both urban and rural Terai areas.
Table 2: Income poverty indicator (1995/96)
Ecological zone Poverty incidence-percentage of Poverty gap-depth/intensity of Severity of

people living below poverty line poverty % poverty %
(%)
Mountain 56 18.5 8.2
Hill 41 13.6 6.1
Terai 42 9.9 3.4
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Rural/Urban
Urban 23 7.0 2.8
Rural 44 12.5 5.1
Nepal 42 12.1 5.0
Source: NPC, The Tenth Plan, 2003
Gender disparity is another important area to be analyzed and considered.

Table 3 reveals wide gender disparities in regard to adult literacy and school
education. Adult literacy for men is 65.8 per cent whereas that for women is only
35.4 per cent. Similarly, the average school going years for men is 4.45 compared to
only 2.25 years for women. Life expectancy is one area which seems in favor of
women, at 59.8 years for women compared to a slightly lower 59.3 years for men. As
with the earlier indicators, there is also a high disparity between rural and urban
areas, and among Mountain, Hill and Terai regions.
Table 3: Gender disparities in key human development indicators (2000)
Life expectancy (Years) Adult literacy (%) Average school going years
Male Female Male Female Male Female
Mountain 48.6 51.1 61.9 26.6 3.71 1.33
Hill 65.4 64.7 72.3 39.5 3.97 2.18
Terai 61.7 63.2 60.2 32.5 3.71 1.93
Urban 71.4 70.8 81.2 56.9 6.01 3.80
Rural 58.2 59.3 63.6 23.3 3.40 1.66
Nepal 59.3 59.8 65.8 35.4 4.45 2.25
Source: NPC, The Tenth Plan, 2003
Nepal is one of the least developed agricultural countries of the world with
annual GDP per capita of US$ 236 (UNDP, 2003:280). The per capita average
income is higher in urban than in rural areas. The GDP growth rate is about 4.4
percent per year. 60 per cent of country's labour force is engaged in the agricultural
sector, and only about 20 per cent of the rural population is employed in the non-
farm activities. About 85.8 per cent of the total population still lives in rural areas.
The industrial sector is still at an infant stage, and the share of the sector in GDP and
employment is merely 9.3 per cent and 2 per cent respectively. Economic reforms
like liberalization of the economy and privatization have been introduced for the last
12 years to speed up the industrialization process. The problem of unemployment
and underemployment is nonetheless growing rapidly. The development budget is
heavily supported by foreign aid and loans.
Table 4 provides details on the urban population in five of Nepal’s largest cities.
As can be seen from the table, Kathmandu Municipal Corporation has the largest
population (671,848). In comparison to other cities of South Asia, Kathmandu is very
thinly populated. However, Kathmandu city is growing very fast.
Table 4: Population by households, area, density for large municipalities (2001)
Population Area in Pop. density

Municipalities Household Total
Male Female sq. km per sq. km
Kathmandu Municipal 152155 671846 360,103 311,743 49.45 13,586.37
Corporation
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Biratnagar Sub Municipal 33,678 166,674 87,664 79,010 58.48 2,850.1

Corporation
Lalitpur Sub Municipal 34,996 162,991 84,502 78,489 15.15 10,758.48
Corporation
Pokhara Sub Municipal 37,305 156,312 79,563 76,749 55.22 2,830.71
Corporation
Birgunj Sub Municipal 19,910 112,484 60,956 51,528 21.17 5,313.37
Corporation
Total 278,044 1,270,307 672,788 597,519 199.47 6368.41
Source: Central Bureau of Statistics, Population Census 2001.
In order to bring changes in Nepal’s existing socio-economic situation, the tenth

plan has adopted a Poverty Reduction Strategy, which is based on four pillars:
achieving sustained high and broad based economic growth, acceleration human
development, ensuring social and economic inclusion of the poor; and pursuing good
governance. It is expected that the tenth plan will achieve the goals producing
desirable results.
1.2 Political and administrative structure

After the restoration of the multi-party democratic political system in Nepal in
1990, many efforts were made to strengthen democracy. The Constitution of the
Kingdom of Nepal (1990) was promulgated, which has vested the sovereignty in the
people of Nepal and accepted the four basic elements of modern democracy:
sovereignty of the people, multiparty system, constitutional monarchy and fundamental
rights of the people. It brought about fundamental changes in system of governance.
According to the Constitution, Nepal has the provision of an elected parliament and
an executive formed by the parliament that is headed by a Prime Minister and an
independent Judiciary and a number of other constitutional bodies (such as the Public
Service Commission, Election Commission etc). The parliament is bicameral, constituting
a National Assembly (Rajya Sabha) and House of Representative (Pratinidhi Sabha).
The central organizational structure is summarized in Figure 1 below. The king

is at the apex; the Council of Ministers is the executive of the country. The House of
Representatives forms the Council of Ministers, who is responsible to the House.
The Ministries are under the Council of Ministers, and Departments as well as five
Development Regional Offices are under the Ministries. Similarly, District Offices are
accountable to Departments. Other Constitutional bodies include an Election
Commission, Public Service Commission, Commission for Investigation and Abuse
of Authority, Attorney General, Auditor General and Raj Parishad. Besides, these,
the Supreme Court and Parliament are the main constitutional bodies.
Administratively, Nepal is divided into five development regions namely Eastern

Development Region, Central Development Region, Western Development Region,
Mid Western Development Region and Far Western Development Region. Further it
is divided into 14 zones and 75 districts. Each district is further subdivided into small
"Ilakas" (areas) ranging from 9 to 17.
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Figure 1: Central organisation chart of Nepal

The King
Parliament Supreme Council of Other Constitutional

Court Ministries Bodies
House of National
Representatives Assembly (60)
(205)
Ministries National Planning
Commission
Development Regional Departments

Offices (5)
District Offices
Village/Ilaka Office
Source: LDTA 2003 updated from, General Administration
Nepal has a unitary system of governance. The head of the state is the king.
The king is constitutional. As the head of the state at the apex the Prime Minister
leading “Council of Minister" is the head of the government and performs as the
Chief Executive of the country. The Prime Minister and Ministers are individually and
collectively responsible to the parliament directly elected by the people. The Council
Ministers takes all major decisions on national issues. A Minister heads each
Ministry. Powers are delegated at different layers of administration. The Secretariat
of council of Ministers coordinates the activities of different Ministries and facilitates
them in carrying out day-to-day activities. The National Planning Commission
facilitates to prepare national plans.
Almost all Ministries have their own offices at regional and district levels. The
chief district officer (CDO) who belongs to the Ministry of Home is the chief
administrator of the district. The Local Development Officer (LDO) who belongs to
Ministry of Local Development (MLD) is the development officer in the district. The
role of the CDO is to maintain law and order and deal with corruption cases. The
LDO who serves as secretary to the DDC, plays a crucial role in planning and
development of the district. In addition, a number of public corporations have their
own offices at regional and district level to deliver services.
In 2002, the king, with recommendation of the then Prime Minister, dissolved
the House of Representative. On account of Maoist insurgency and the security
situation, the election of a House of Representatives could not be held. The present
Prime Minister and Ministers are therefore not Members of Parliament but appointed
directly through the king.
2. EVOLUTION OF LOCAL GOVERNMENT
Major events that has shaped the development of local governance in the Nepal
over the last fifty years can be categorized into five phases: the first phase (1951-
1960), second phase (1960-1981), third phase (1982-1991), fourth phase (1992-
1998) and fifth phase (1999 onwards).
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2.1 The First Phase (1951-1960)

After the overthrow of the one hundred and four year old Rana Regime in 1951,
Nepal entered the modern era. In 1951, a democratic government system was
introduced and it continued up to 1960. During the ten-year period, some efforts
were made to promote local self-governance in the country. Particularly, the
Tribhuvan Village Development Programme was started with the aim of building
infrastructure facilities, providing agriculture, health and education development
services and promoting scientific farming, cottage industries and cooperatives. At the
district level, there was a District Development Board constituting of representatives
from the local people, related line agencies and relevant specialists (Poudyal
1994:61). The main objective was to involve the local people in planning and
implementation of local development programmes.
2.2 The second phase (1960-1981)

In 1960, King Mahendra abruptly ended the democratic government system and
introduced the Panchayat System as the main political system of the country. In
1962, the king promulgated the constitution of Nepal, which in the beginning created
three tires of Local Governance: Zonal, District and Village/Municipal. Zonal units
were called Zonal Panchayats, District units were called District Panchayats and
accordingly Municipal and Village units were called Municipal and Village
Panchayats. Separate Acts defined roles, functions, organisational structures and
horizontal and vertical relationship with government and other agencies. The Zonal
provision was abolished later on.
The objectives of the local governments embodied:
Creating local Panchayats to strengthen the system at the grassroots level;

Developing local leadership through local Panchayats;
Developing local cadres supportive to the system;
Mobilizing local people and resources for development;
Involving local people in decision-making processes and democratic practices;
and
Mainstreaming local planning and service delivery process.
2.3 The third phase (1982-1991)

The government passed the Decentralization Act (1982) and Decentralization
Regulations (1984). The Act and regulation are together known as the
Decentralization Scheme (DS) 1984. The scheme gave much focus on devolving
more functions and powers to the Local Panchayats. Its main objectives included:
Mainstreaming local plans in the form of periodic and annual plans at the
districts and villages;
Promoting participatory planning processes based on the needs of people and
local government institutions to carry out effectively both management and
implementation of developed functions; and
Promoting sectoral coordination at local levels to enhance effectiveness and
efficiency of resources and programmes.
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The scheme incorporated many features, including: devolution of wide ranging

functions in sectors such as physical infrastructure, health, education and agriculture
to the local governments; devolution of authority to district level governments to
coordinate and approve the district level plans and programmes of the line agencies;
and making the line agencies a part of District Panchayat Secretariat. Information
based planning was made mandatory, quarterly internal auditing system of the local
governments was introduced, and taxation rights including the Panchayat
Development Land Tax were granted to the local governments.
2.4 The fourth phase (1992-1998)

In 1990, the interim government dissolved the Panchayats at district, village and
municipal levels, but it gave continuity to their functions. The government appointed
officials to carry out and manage the functions. In 1992 the elected majority
government promulgated three separate Acts: the Village Development Committee
Act, Municipality Act and District Development Committee Act. The Acts mainly
changed the names of previous district, Municipal and Village Panchayat into
development committees. The Acts specified the organizational structure,
representation, and election process and defined tasks and functions of the local
governments separately. Most of previous provision/ functions were included in the
new Acts. Election at the local level uses held and the new regulations of the Acts
were enacted. However, the new arrangements could not address all the issues
raised regarding autonomy of local governments.
2.5 The fifth phase (1999 onwards)

The present system of local government came into effect in 1999. The
Constitution of the Kingdom of Nepal (1990), in the directive principles and policies
of the state, stipulates that it shall be the chief responsibility of the state to maintain
conditions suitable to the enjoyment of the fruits of democracy through wider
participation of the people in the governance of the country and by way of
decentralization (HMG, 1990:16).
Although the VDC, Municipality and DDC Acts were enacted in 1992, after the
restoration of democracy in 1990, these Acts could not address some key issues.
First and farmost, these Acts failed to make institutionalized horizontal accountability
of the line agencies to the local bodies, (DDCs, Municipalities and VDCs) up to 1999.
Other problems/issues seemingly appeared were that there was no adequate
coordination while planning, programming, budgeting and implementing programmes
among line agencies and the local bodies; there was duplication of tasks and
responsibilities; centre used to send the budget and programme directly to the
district line agency offices; and there was poor resource base and weak
organizational structure of local governments. To overcome these problems and
make the local bodies powerful, the newly elected local bodies particularly
demanded authority over line agencies. Further, three Local Body Associations:
ADDCN, MuAN and NAVIN and the donor community build pressure to devolve
more authorities to local governments to make them capable of carrying out
development activities and providing services effectively as well as efficiently.
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In response to these issues and pressing demand, the government in 1996

constituted a high-level decentralization coordination committee headed by the then
Prime Minister. The committee's task was to recommend suggestions for appropriate
legislative reform and implementation strategies on different aspects of decentralization
in the light of democratic change and challenges of development experienced
by the country. The report prepared by the committee has made comprehensive
recommendations related to decentralization and local self-governance. Based on
these recommendations, the local self-governance Act was prepared and passed by
the parliament in the form of bill in 1999 and then it became effective.
The main objectives of the Act, as mentioned in the preamble are:
(i) Ensure the utmost participation of the people in the process of governance;
(ii) Institutionalize the process of development through inclusion of all segments
of the society;
(iii) Promote institutional development of local bodies capable of bearing
responsibility;
(iv) Develop local self governance system; and
(v) Develop local leadership capable of making decisions on the matters
affecting the day-to-day needs and lives of the people.
3. MAIN FEATURES AND CHARACTERISTICS OF LOCAL

GOVERNMENTS
After the restoration of multi-party democracy in 1990 the government has

invariably showed commitment towards decentralization and local self-governance.
The process got momentum after the enactment of the Local Self Governance Act
(LSGA) in 1999. This Act is the most comprehensive piece of legislation, with the
most far reaching consequence that Nepal has ever implemented in respect of
decentralization and local governance (LDTA, 2002:35). The LSGA has clearly
stated the principles and policies of local self-governance as follows:
Devolve needed powers, responsibilities and means and resources to make

local bodies capable and efficient in local self-governance;
Build and develop local bodies capable to understand and respond to the
need of people;
Devolve powers to collect and mobilize resources to local bodies to fulfil
their tasks and functions accountably;
Promote accountability, transparency, people's participation and civil
society;
Promote accountability of local leadership; and
Encourage the private sector to participate in local self-governance.
The Local Self-Governance Act (LSGA) (1999) is a unified act (opposed to

separate acts for each local body) and has statutorily recognized local self-
governance and devolution of authority. Other main features of the LSGA are listed
in the box below:
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Main features of the Local Self-Governance Act (LSGA) (1999)

• Incorporation of the principles and policies of local self-governance in the Act;
• Devolution of a wider range of function to local government at their respective levels;
• Legally prescribed participatory bottom-up planning process at all levels;
• Provision for periodic planning in local governments;
• Provision for revenue sharing between central and local governments and among local
governments themselves;
• Mandatory allocation of 20 percent seats at the ward level to women and provision of
nomination of women and disadvantaged groups n the executive committees of VDC,
municipality and DDC;
• Authority to DDC and municipality to open their own sectoral offices;
• Authority to DDC to hire professional staff;
• Creation of DIMC (Decentralization Implementation and Monitoring Committee) under the
chairmanship of the Prime Minister is as a mechanism of policy decision and conflict
resolution. The main task of DIMC is to monitor whether the objectives, policies and provisions
are followed and to ensure their implementation;
• Provision for Local Government Finance Commission (LGFC); and
• Recognition to local government associations.
Source: Joint HMGN - Donor Review on Decentralization in Nepal, 2000
3.1 Local government categories and hierarchies
Nepal has a two-tier system of local governance, with VDC and Municipality as
the lower tier and DDC as the higher tier. Municipal and Village bodies are elected
directly while the representatives of VDC and Municipality form an ex-officio
electorate for DDC elections. VDC is a rural focused local body while the Municipality
is urban focused.
There is a provision of classification of local bodies by HMG. The LSGA

classifies Municipalities into three categories viz. Municipal Corporation, Sub-
Municipal Corporation and Municipality. While classifying the Municipalities' local
population, source of income and the availability of physical and social utilities are
considered as the basis. At present, there is 1 Municipal Corporation, 4 Sub-
Municipal Corporation and 53 Municipalities in the Kingdom.
In the case of DDCs and VDCs, there is a provision of classification on the

basis of differences in terms of transportation, communication, education and health
facilities (including population in the case of VDCs), but such classification has not
been done as yet. However, the classification does not include the functional bases
such as work responsibility, fiscal authority, fiscal attempts and discipline. Besides,
although the Municipalities have been classified, the importance of classification has
not been established for there is no difference in the amount of authority and
autonomy enjoyed by them.
3.2 Local government structures and functions
3.2.1 Structure: Framework of local self-governance
His Majesty's Government (HMG) may specify the area and boundary of any
VDC, Municipality or DDC including delimitation of wards and Ilakas, in given
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geographical area within the kingdom. HMG may in consultation with the concerned
DDC, declare any rural areas as VDC while taking into consideration of
"geographical situation, population, communal unity or diversity of inhabitants". Each
VDC is sub divided into nine wards.
A municipality may be established in any area having access to facilities such

as electricity, drinking water supply, roads and transport, education and
communication. It needs to have a population of no less than ten thousand for the
hills and mountains and twenty thousand for the rest of the kingdom. Municipalities
are divided into ten or more wards. For a Municipal Corporation, it is requires to have
a population of three hundred thousand and an annual income of minimum of four
hundred million rupees, having the necessary infrastructures as required for
international level activities and availability of adequate and advance educational
opportunities and health services and other facilities. For a Sub Municipal
Corporation, it requires to have a population of minimum one hundred thousand and
an annual income of a minimum of one hundred million rupees and other facilities.
Other urban and semi-urban areas, as declared by HMG, are called Municipalities.
DDC may be formed in each administrative district as per the Local

Administration Act (1971). Each DDC is divided into a minimum of nine and
maximum of 17 Ilakas. The VDC consists of nine wards while this number may
increase in the case of Municipality depending on the size of population. Each ward
committee consists of five members including a ward chairperson and at least one
women representative.
Each VDC and Municipality has its Council and executive. The VDC executive
consists of a total of thirteen members: Chairpersons, Vice-Chairpersons, nine
Chairpersons of the Ward Committees and two nominated members including one-
woman by the VDC among its Council members. The composition of the Municipality
executive is also the same as that of the VDC. It consists of a Mayor, Deputy Mayor,
Ward chairperson and two members, including one women representative
nominated by the municipality from amongst the members of Municipal Council.
The Village Council comprises a Chairperson and Vice-Chairperson of the

VDC, Chairperson and members of each Ward Committee and six other members,
including the woman nominated by the Village Council. The composition of the
Municipal Council is the same as that of the Village Council. The Municipal Council
consists of a Mayor, Deputy Mayor of the Municipality, Ward Chairperson, a female
Ward representative and Ward Members of each Ward Committee. It also includes 6
to 20 nominated members. The municipal council nominates these members
(including at least 40 per cent women) from amongst social workers, socially and
economically backward tribes and ethnic communities, downtrodden, and indigenous
people (living within the area of the municipality, not represented in the municipal
council, but eligible to become the member).
The DDC is the representative body of all the VDCs and Municipalities within
the district. It consists of an elected President, Vice-President, and two nominated
members. Members of Parliament of the concerned district are ex-officio members.
DDC also has its District Council, which consists of Chairperson and Deputy
Chairpersons of VDCs in the district, Mayor and Deputy Mayor of each Municipality
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in the district, members of the House of Representatives and the National Assembly
within the district, (ex officio member) and six persons, including one woman
nominated by the District Council.
The diagrammatic representation of the structure of Local Self-Governance

bodies is shown in Figure 2.
Figure 2: Structural chart of Local Self-Governance bodies

DDC
DDC
Council
Municipality VDC
Municipal
VDC Council
Council
Ward Committees Ward Committees
3.2.2 Powers, functions and responsibilities of local bodies
The Local Self Governance Act (1999) has recognized the local bodies as
autonomous and corporate bodies. The Act provides an extensive area of powers,
functions and responsibilities to the DDC, Municipality and VDC. However, the Act
does not explicitly distinguish between powers, functions and responsibilities. It
consists of a long list of functions and duties to be performed by them at their
respective levels. They are broadly classified under the following headings:
3.2.3 Powers, functions and responsibilities of the VDC
The VDC has been entrusted with the following powers, functions and
responsibilities within the village development area:
Relating to planning, administration and finance:
Formulate periodical and annual plans;

Maintain coordination with governmental, non-governmental and donor
agencies while formulating plans and service programmes;
Prepare annual budgets;
Impose taxes, charges, fees, etc. as approved by the Village Council; and
Punish those who do not pay taxes, fees, charges etc.
Relating to development:
Agriculture;
Drinking water;
Works and transport;
Education and sports;
Irrigation, soil erosion and river control;
Physical development;
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Health services;
Forest and environment;
Language and culture; and
Tourism and cottage industries.
Miscellaneous:
Develop human resources, make arrangements for generating employment;

Promote NGOs and user groups;
Keep records of population, houses, land and livestock; and
Register birth, death and other personal events.
3.2.4 Powers, functions and responsibilities of municipalities
The LSGA has classified the Municipal functions into two categories: mandatory
and optional. The mandatory functions are:
Formulate periodical and annual plans;

Prepare annual budget;
Impose taxes, charges, fees, levies etc. as approved by the Municipal
Council; and
Punish to those who do not pay taxes, fees, charges etc.
Relating to development:
Physical development;
Water resources, environment and sanitation;
Education sports and culture;
Health service;
Social welfare; and
Industry and tourism.
Miscellaneous:
Plantation on either side of the roads and other necessary places;

Determine and manage places for keeping pinfolds and animal slaughter
houses;
Determine and manage crematoriums;
Register birth, death and other personal events;
Grant approval to open cinema halls;
Update the block numbers of the houses;
Arrange for lighting on the roads and alleys; and
Arrange for markets, fairs and exhibitions etc.
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In addition to the mandatory function mentioned above, the optional functions of

the Municipality are:
Control unplanned settlements within the Municipality area;

Arrange for the aged rest houses and orphanages;
Arrange for the supply of electricity and communication facilities;
Arrange for recreational parks, playing grounds, museums, zoos, etc.;
Collect data of unemployed person and launch employment-generating
programmes;
Launch programmes to control river pollution;
Carry out preventive and relief works to lessen the loss of life and property;
and
Arrange for dead body carriers.
3.2.5 Powers, functions and responsibilities of DDC
Formulate district periodical and annual plans;

Prepare annual budgets;
Impose taxes, charges, fees, levies etc. as approved by the District Council;
Establish information and record centres in the district; and
Impose punishment to those who act in contravention of LSGA or the Rules.
Relating to Development:
Agriculture;
Rural drinking water and habitation development;
Hydropower;
Land Reforms and land management;
Development of women and helpless people;
Forest and environment;
Education and sports;
Wages for labour;
Irrigation, soil erosion and river control;
Information and communications;
Language and culture
Cottage industry;
Health service; and
Tourism.
Miscellaneous:
Draft the bylaws of the DDC and submit it to the District Council;
Carry out development and construction works by entering into agreement
with any individual, governmental organization or NGO; and
Carry out such other functions as prescribed under the prevailing law.
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3.2.6 Devolution of sectoral functions
With the aim of institutionalizing decentralized local governance, the HMG has
initiated to devolve different sectors including primary education, community health
and agriculture by granting authority and responsibility to the DDC for planning and
implementation at the local level. In order to formulate, operate, monitor and
evaluate the programmes pertaining to development activities in the districts,
sectoral units have been established within the DDCs. This is one of the departures
in the context of decentralization in Nepal.
3.2.7 Legal power of the VDC and municipality
The LSGA has entrusted the VDC and the Municipality with judicial power.
There are 13 cases in which they have the power to hear and settle at first instance.
They include cases related to boundary/border of public or private land,
compensation for damage of crops, forced labor, and such other cases under the
sections of Muliki Ain (Civil Code) on Paupers, Missing and Findings of Quadrupeds,
construction of houses, Kalyan Dhan (hidden and unclaimed wealth), partition and
other cases as specified by the government notification.
However, the provision of judicial power has yet to come into operation for the
VDC, and the Municipality may enjoy this power only from such date as notified by
the government in the gazette. Although it is four years since the enactment of the
LSGA, the government has not yet published such notification. The reason for not
awarding this power to the VDC and Municipality is attributed to weak institutional
capability of these local bodies.
3.2.8 Organization of local bodies: the existing institutional provision of

DDC
There are three levels in the DDC. They are: District Council, District
Development Committee (the executive level), and Implementation/Administration
level.
District Council:
The District Council, which is the highest body of DDC works as the legislative
organ. It consists of Members (Councilors) as mentioned previously. The total
number of District Councilor is 9,734, excluding the members of the National
Council. The number of minimum and maximum Councilor is 42 and 262
respectively. The Council performs important functions like approving the
programme and budget of the DDC, formulating policies; levying tax, fee and service
charge; evaluating the programmes and holding discussions on the audit report.
District Development Committee:
Each DDC is an autonomous and corporate body with perpetual succession.

The DDC works as the executive of the District Council in each district. The number
of the DDC Board Members ranges from 14 to 28. The total number of DDC Board
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Members is 1,492. As the executive body of the District Council, the DDC
implements programmes and decisions passed by the Council and also implements
the district activities/programmes related to development in the district.
Office of the DDC:
According to the Local Self-Governance Act, there is a provision of an office of

DDC to execute day-to-day administration. Some DDCs have prepared their
organizational structure and job descriptions to improve their performance level.
Some DDCs have been following the old organizational structure prepared by the
Ministry of Local Development and no attempt has been made to adjust it on the
basis of changing time and district workload. In general, the district structure is as
illustrated in Figure 3.
Figure 3: Organization structure of DDC office
District Council
DDC
DDC President Various DDC Committees
Secretary
Technical Section Administrative

Planning Section
Section Account Section
Source: HMG, Local Authority Fiscal Commission Report, 2000, P 30
3.2.9 The existing institutional provision of lower level local bodies-

Municipality and VDC
The Municipal Council:
Like the DDC, the organization structure of municipality has three main
components. The first is the Municipal Council, which is the apex body of
Municipality. The second is the Executive Board, which implements the decisions
and directions of the Council. The third is the Office of the Municipality, which runs
the daily activities under the Executive Board.
The Municipal Council:
The Local Self-Governance Act has made provisions for the Municipal Council.
The Municipal Council consists of councilors as mentioned before (the minimum and
maximum number of the councilors being 53 and 197 respectively). In total, there are
4,262 councilors.
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The Municipal Council, as the legislative branch, controls and directs the
Municipal Board. The Council determines policies and programmes. It makes
approval of the budget and programme presented to it, approval of proposal to levy
and collect tax, fee, and charge, disposal of fixed assets, approval of proposals for
loan etc.
Municipality:
Each Municipality is an autonomous and corporate body with perpetual

succession. The Municipality performs as the Executive Body of the Municipal
Councils to implement decisions made by the Council. The Executive Body
comprises 13 to 39 Board Members. The number of total Board Members in 58
Municipalities is 1,038.
Municipality Office
Each Municipality has the provision of an office to look after the day-to-day
administration of the Municipalities. The Executive Officer, in-charge of the office, is
deputed by the central government. It is in the process of being established.
However, under the LSGA, there is a provision of Local Service Commission. After
the formation of the Local Service Commission service and its implementation, the
Municipalities will have their own Executive Officer.
The model structure of the Municipalities is given in Figure: 4.
Figure 4: Organizational structure of municipality

Municipal Council
Various Committees Municipal Board Accounts Committee
Mayor
Executive Officer
Administration Unit Fiscal administration Unit Planning Unit Environment or

Sanitation Unit
Tax Unit Store
The VDC Council:
Like the DDC and Municipality, the organization structure of VDC has three
main components. The first is the Village Council, which is the apex body of VDC.
The second is the Executive Board, which implements the decisions and directions
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of the Council. The third is the Office of the VDC, which runs the daily activities
under the Executive Board.
The Village Council:
The Local Self-Governance Act has made provisions of Village Council. The
Village Council consists of the members as mentioned before.
The Village Council, like the legislative body, controls and directs the VDC. The
Council determines policies and programmes. It approves the budget and
programmes presented to it, approval of proposals to levy and collect taxes, fees
and charges, disposal of fixed assets, approval of proposals for loan etc.
VDC as Executive Body:
Each VDC is an autonomous and corporate body with perpetual succession.

The VDC performs as its Executive Body. It implements decisions made by the
Village Council. The VDC consists of 13 members as mentioned previous. The total
number of VDC member is 50,869.
VDC Office:
Each VDC has the provision of an office to look after the day-to-day
administration of the local bodies. The Secretary, in-charge of the office, is deputed
by the central government. However, under the LSGA, there is a provision of Local
Service Commission. It is in the process of being established after the formation of
the Local Service Commission and its execution the VDCs will have their own
employees. The organizational structure of the VDC as a model is given in Figure 5:
Figure 5: Organizational structure of VDC

Village Council
Sectoral Committees Accounts Committee
Village Development Committee
VDC Chairman
Secretary
3.3 Local government finances

The Local Self-Governance Act has made provision for tax, service charge, fee
and revenue resources for the local bodies to enable them to generate adequate
income and carry out development functions. Breakdowns of those sources of
income of the local bodies are presented in Table 5.
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3.3.1 Sources of VDC and municipal income
The VDCs are to a great degree dependent on external resources. Most of the
VDCs have collected taxes in fiscal year 1998-99; the percentage of the tax of 75
VDCs in the internal resource was, on average, 53.8 per cent. The percentage of the
grant was high (74 per cent). This clearly indicates that the VDCs have to raise
financial resources locally for which they need to develop their capability.
Table 5: Breakdown of sources of income of VDC
Types of Revenue Sources

1. Own Revenue • House and land tax • Bahal Bitauri (rent)
♦ Tax • Land revenue and tax • Advertisement tax
• Haat bazaar tax • Professional tax
• Vehicle tax - registration, • Commercial video tax
renewal and lump sum • Natural resource utilization tax
• Entertainment tax • Other - collection and saving
tax
♦ Service Charge • Sanitation - use of drainage • Fee for entertainment like
(in services provided • Tourist Site Entrance fee magic, circus etc.
by it) • Park, garden, view tower • For recovering dues for others
♦ Fee • Television, video and other • Approval fee
equipment license fee • Recommendation fee
♦ Sales • Soil from fallow govt. land • VDC wood, fire wood,
• Product from public pond - branches, roots
orchard • 'Khar' grass
♦ Land Tax • Firm land
♦ Others • Tax arrears
2. Grant • From HMG, DDC
3. Loan (with approval from • Loans from bank or other institutions
Council, with or without
collateral and on
government guarantee)
4. Miscellaneous • Donation, assistance
Source: HMG, local self-governance Act 1989, p. 48-50
The sources of municipality income are given in Table 6. Municipalities are

entitled to collect various taxes, fees, charges and property rental. On top of this,
they get grants from the central government. They also receive grants and loans
from other financial institutions as well as donor agencies. With the enactment of
LSGA 1999, the Octroi (an indirect tax levied on goods entering into town using
lowered street barriers) was contributing approximately 67 per cent of their source of
revenue. This figure varied between 60 to 90 per cent among the 58 municipalities,
and has been replaced with a Local Development Fee (HMG, GTZ 2001/02). The
Local Development Fee is collected from different custom points of the country in
addition to import customs by the central government, and it is redistributed to the
different 58 municipalities on the basic of specific criteria. The Local Development
Fee is not a permanent source and it is only a temporary substitute of the Octroi.
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Table 6: Breakdown of sources of income of municipalities
Types of Revenue Sources

1. Own Revenue • House and land tax • Entertainment tax
♦ Tax • Land revenue and tax • Bahal (rent)
• Integrated property tax • Advertisement tax
• Vehicle tax - registration, • Means of profession tax
renewal and lump sum • Commercial video tax
♦ Service Charge Parking fee Public lavatories, park, bath
(in services provided Water supply, electricity, tap, room, swimming pool,
by it) public telephone fee gymnasium, guest house, tourist
Solid waste, sanitation, site, hostel, haat bazaar,
sewerage fee slaughter house, crematorium,
Valuation of real estate (fixed use of washing space, street
assets) light, road, drainage maintenance
♦ Fee • Approval and • Approval of building design fee
recommendation fee • Attestation of maps fee
♦ Land Tax • Firm Land
♦ Other • Tax arrears
2. Grant • From HMG, DDC
3. Loan (with approval from • Loans from bank or other institution
Council, with or without
collateral and on
government guarantee)
4. Miscellaneous • Donation, assistance
Source: HMG, Local Self-Governance Act 1989:113-115
A one-year aggregate revenue breakdown of the municipalities is presented in

Table 7. As can be seen form the table, local taxes contributed the largest share, at
57.54 per cent. This was followed by grants (15.57 per cent), which include HMG
administrative, and development grants and TDF grants. The contribution of fees
and fines, other revenue, and property rental was at 10.37 per cent, 3.47 per cent
and 2.84 per cent respectively.
Table 7: Revenue breakdown of 58 municipalities with sources (2001-02)

Rs, 000
Local Tax
s/Amount
Fees and
categorie
Revenue
Revenue
Property
Forward
Balance
Misc. &
Grants
Rental
Loans
Other
Fines
Total
Amount
1,368,168
2,367,761
1,08,852
246,523
370,268
207,136
57,589
9,225,
Percentage 57.54 10.37 2.84 4.58 15.57 0.39 8.71 100.00

Source: HMG Nepal/GTZ, Detailed Revenue and Expenditure Breakdown with Budget and key Financial matters of 58
municipalities, 2001/02: xxi
Nepal has become the member of the WTO in 2003. The WTO discourages
levying taxes other than custom duties on import. Its implication is that the above
Local Development Fee (which is collected from the custom points), from which the
municipalities are getting some revenue, may not continue. They, therefore, need to
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focus on mobilization of other financial resource, especially integrated house and land
taxes and other direct taxes, which is a very challenging task for the municipalities. Also,
they need to give focus on raising financial resources locally, from the people of the
concerned municipalities, in the form of taxes, service charges and fees etc.
3.3.2 Sources of DDC income
In order to increase the financial resource, the LSGA has provided authority to
DDC to impose tax, service charge, fee etc. The types of revenue and sources of
DDC income are given in Table: 8.
Table 8: Breakdown of sources of income of DDC
Types Sources
1. Own Revenue Wool, solvent extraction, herbs, dry grass (bankes) Kabadi (reusable
♦ Tax solid waste), boulders, slate, sand, animal bone, horn, feather, Hyde
♦ Service Charge (in Road, bridge, irrigation canal, pond, guest house, library, medical
services provided by centre, community hall, Canal, water source (irrigation), embankment
it) Local development fee
♦ Fee River rafting, boat, tuin, fishing permission and renewal, registration and
renewal fee for water bank, recommendation fee and others
♦ Sales River sand, aggregates, boulders, slate, soil, swept away wood
♦ Others Share of Land tax from VDC and Municipality, Tax arrears
2. Grant From HMG
3. Loan Borrowing from bank other Institutions with without collateral with
approval from District Council and on guarantee from HMG
4. Miscellaneous Donation, assistance
Source: HMG, The Local Self-Governance Act, 1999: 168-70
3.3.3 Power of DDC for determining tax rate
The power of the DDC to determine tax rates are classified into three
categories: (i) sources with fixed rates, (ii) sources with minimum and maximum
units, and (iii) sources in which the council can determine rates. Sources with fixed
rates include: export of goods made in the district, unrestricted animal produces,
herbs, agro-products, by-products and forest based mine products (like sand,
boulders and slate). Sources with minimum and maximum limits include: natural
resource utilization taxes and other recommendation fees. Sources in which the
council can determine rates are: unrestricted animal bones and horn exports; and
guest houses, libraries, medical clinics, inns, and community halls.
3.3.4 Revenue rights of the local bodies provided by the centre
As per the Local Self-Governance Act 1999 and Regulation 1999, the
provisions for revenue sharing with DDC are as follows:
▪ 5 to 90 per cent of the revenue raised from house and registration fee;
▪ 50 per cent of the royalty from mines;
▪ 10 per cent of the income from forestry sector;
▪ 10 per cent of the income to HMG from electric power house; and
▪ 30 percent of the income from tourist entrance
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3.3.5 Financial status of DDC
The total income of 34 DDCs from internal resources was Rs 11,92,02,000 in

fiscal year 1998-1999 and it increased to Rs 19,75,68,000 in 1999-2000, an increase
of about 66 per cent (HMG, 2000:9). Sales, local taxes and income raising activities
contributed a major part to this increase. To give a picture of DDC internal resource
mobilization, a composition of internal resources of 34 DDCs is given in Table: 9.
Table 9: Composition of Internal Resources of 34 DDCs (1998-1999)

Rs, 000
Other
Resources/ Service Land income
Tax Fee Sales Loan Total
Amount Charge Revenue raising
programmes
Amount 41225 3780 9695 96620 1442 4902 36304 197568
Percentage 20.90 3.70 4.90 48.90 0.70 2.50 18.40 100.00
Source: HMG, Local Authorities Fiscal Commission Report, 2002: 50
The table showed that sales contributed 48.90 per cent to the total internal
income followed by tax (20.90 per cent). Other income generating activities
contributed 18.40 per cent. The share of fees, service charge, land revenue and
loans was 4.90 per cent, 3.70 per cent 2.50 per cent and 0.70 per cent respectively.
The revenue of DDCs can still increase since income from royalty and registration
has started coming. Nevertheless, DDCs in Nepal are more dependent on external
resources. To bring change in the dependent financial situation, DDCs need to utilize
sources like capital, interest, dividend and bonus. They also should endeavor to
mobilize the internal resources effectively as well as efficiently.
3.3.6 Expenditure allocation
The expenditure pattern of an organization indicates its performance level. With

regard to local bodies, the expenditure composition shows whether they are doing
justice to public/tax payers. The more resource that are allocated for development
programmes, the better the result/service.
Broad areas of VDC expenditure are: (i) administration expenses, (ii)

development programmes, (iii) miscellaneous, contingency and financial assistance,
and (iv) social security. Administration expenses include: personnel expenses, rents,
office expenses and fuel. Development programme expenses include public
work/maintenance, programme grants, capital grants and programme grants. The
expenditure breakdown of 47 VDCs in total is given in Table: 10.
Table 10: Expenditure breakdown of 47 VDCs (1998-1999)
Expense Miscellaneous
Administrative Development Social
categories contingency and financial Total
expenses programmes security
/Amount assistance
Amount 6721 10049 4769 1116 22595
Percentage 30 44 21 5 100
Source: HMG, Local Authorities fiscal commission Report, 2000: 57-59.
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The table shows that substantial portion of income was spent for development
programmes, followed by administrative expenses. The share of miscellaneous,
contingency and financial assistance expense was 21 per cent and that of social
security five per cent. The table also shows that administrative expenses need to
reduced since it exceeds the prescribed limit.
3.3.7 Expenditure breakdown of municipalities
Municipality expenditure lines are broadly classified into five categories: (i)
current expenditure, (ii) debt payment, (iii) social programmes, (iv) ordinary capital,
and (v) capital investment. Current expenditure includes salaries, allowances, rent,
office supplies, donation, ward administration etc. Social programmes embody
education, health, forestry, cultural sports, disaster relief, financial assistance, and
miscellaneous. Ordinary capital includes furniture, vehicles and machinery
equipment. The expenditure breakdown of 58 Municipalities is given in Table 11.
Table 11: The expenditure breakdown of 58 municipalities (2001-02)

Programmes
Expenditure
Categories/
Investment
Population
Best Debt
(Rs. ‘000)
Payment
Expense
Ordinary
Amount
Current
Capital
Capital
Social
Total
Amount 888,345 62,659 138,795 24,603 1,04,7,158 2,16,1,560 3249681
Percentage 41.10 2.90 6.42 1.14 48.44 100 -
Source: HMG/GT3, 2001/02: xxii
The table showed that 48.44 per cent of total revenue was spent on capital
investments. This was followed by current expenditure (41.10 per cent), which was
much higher than the given limit. The table also shows that 6.42 per cent of the
budget was spent on social programmes, 2.20 per cent on social programmes, 2.20
per cent on debt payment and 1.14 per cent on ordinary capital. One conclusion that
can be drawn is that municipalities need to reduce the administrative cost and
increase investment on development programmes.
3.3.8 Expenditure breakdown of DDC
The DDC expenditure heads are broadly classified into three categories: (i)
administrative expense, (ii) miscellaneous and contingency and (iii) development
programmes. Administrative expenses include: office, personnel and rent related
expense, fuel and durable office equipment. Development programmes
encompasses public works and improvement programmes and capital grants.
Table 12 shows that the development expenditure was 48.93 per cent in 1998-
99. This was followed by administrative expenses (36 per cent). The share of
miscellaneous and contingency expenses was found to be 15.47 per cent. In totality,
the administrative and contingency expenditure was too high. DDCs therefore need
to think about how to increase investment on development programmes.
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Table 12: The expenditure breakdown of 32 DDCs (1998-99)
Expense
Administrative Miscellaneous Development
Catogories/Amount Total
Contingencies Programme
(Rs. ‘000)
Amount 305 131 411 847
Percentage 36 19.47 48.53 100
Source: HMG/GT3, 2001/02, table 4.5
3.3.9 Procedure for approval of budget, levying taxes, audit and tax
expenditure
In order to make the working system of the Local Bodies effective, participatory,
transparent and need based, the LSG Act and Regulation have mentioned the
system of budget formulation, approval, implementation, accounting and auditing.
The procedures for approving budget, levying taxes and auditing at different levels
are briefly mentioned below.
At the VDC level:
The Village Council constitutes an Account Committee under the

Chairpersonship of any member of the Village Council, consisting of three members
to oversee financial irregularities. The VDC:
Prepares the budget and submits it to the Village Council, which passes it;
Puts forward proposals relating to the levying and collecting of taxes,
charges, fees, and levies, approved by the Village Council;
Puts forward proposals relating to the raising of loan, which the Village
Council passes;
Discusses irregularities pointed out in the audit report of the VDC and direct
the VDC to take necessary action;
Grants approval of allowances and other facilities of employees proposed by
the VDC; and
Has to operate within the approved budget.
At the municipal level:

The Municipal Council constitutes an Account Committee under the
Chairpersonship of any member of the Municipal Council consisting of three
members to oversee the financial irregularities. The municipality:
Prepares budgets and submit it to the Municipal Council. The Municipal

Council passes it.
Puts forward proposals relating to the levying and collecting of taxes,
charges, fees, levies and the Municipal Council approves them;
Puts forward proposals relating to the raising of loan and the Municipal
Council passes them;
Discusses the irregularities pointed out in the audit report of the Municipality
and direct the Municipality to take necessary action; and
Municipality has to operate within the approved budget.
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At the DDC level:
The District Council forms an Account Committee under the chairmanship of

any member of the District Council, comprising of maximum five members to
oversee financial irregularities. The DDC:
Submits the budget to the District Council and the District Council passes it;
Puts forward proposals relating to taxes, charges, fees, tariffs, loans or
borrowings and internal resources and the District Council adopts it;
Holds discussion on the audit reports of the DDC and give necessary
direction to it for the settlement of irregular accounts;
Proposes remuneration, allowances and other facilities of the employees to
the District Council and the District Council approves them;
Puts forward the proposals relating to imposing taxes, fees, charges and
duties and raising loans and District Council passes it; and
Has to operate within the approved budget.
3.3.10 Role of central government in controlling local government revenues

and expenditures
In the case of grants, the central government does influences the local bodies
through the allocation of block and development grants. Since there are no specific
criteria for the distribution of grants, it is often allocated on the basis of political
connection and patronage. However, with regards to internal resources, the central
government does not enjoy much influence. Nevertheless, the government has the
rights to monitor whether the local bodies have followed the prescribed financial
rules and regulations.
3.4 Personnel system in local government
The LSGA makes provision for the Local Bodies to have their own secretariat
and staff. However, in practice, the Local Government personnel system consist of
two categories (i) staff deputed by the central government, and (ii) staff recruited by
the Local Government i.e. Local Government’s own staff.
The Ministry of Local Development, as a link Ministry, directly deputes civil

service personnel at the Local Governments. The Government appoints the
secretary of all LGs as the LSGA has given this authority to the government. The
secretary appointed by the government is the ex-officio chief of the LG personnel
system. Also, the government appointed accountant operates accounts of the DDC
and Municipality. At the VDC level, the government appointed secretary along with
the VDC chairperson operates the account. Besides, the government may depute
additional staff such as engineers, planning officers and overseers to the DDC. The
government can withdraw or transfer its staff at any point of time. Therefore, the
turnover of government staff in the local governments is very high.
Civil servants are vertically accountable to the central government for their
performance career opportunities and benefits. They follow the instruction and
guidelines issued from their respective line commands.
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The LSGA has made a provision for the transfer of the civil servants to Local
Governments if they choose to do so. However, such provisions have yet to come
into practice.
The LSGA has also made a provision for the withdrawal of government line
agencies and their staff when the DDCs establish their own sectoral units. But, to do
so DDCs need to fulfill some defined criteria, which are following the participatory
planning process, establishing an information and database centre and preparing a
long-term periodic plan. This provision has not yet been operationalized.
The relationship between the civil servants working at the field level and local
governments has always been an issue of unsolved debate in Nepal. Local
governments demand that the civil service employees should be responsible to the
local bodies for their performance, while the civil servants strongly resist it, mainly
because of the centralist attitude of the civil servants, contradiction between sectoral
acts and LSGA, and vested interest of the politicians who are in power.
Decentralization policies have constantly failed to address this problem (HMG -
Donor Review, 2000: 33).
3.4.1 Training facilities
The Local Development Training Academy (LDTA) was established in 1993

with the mission of enhancing managerial and administrative capacity of local
bodies/local authorities. Since its establishment, it has been implementing various
training courses/workshops to enhance knowledge and skills of different level of
personnel involved in the local bodies on different subject areas and bring changes
in their attitude. The training courses mainly include: planning and management,
administrative and financial management, resource mobilisation, gender and
development, local self-governance and leadership development. Donor agencies
like UNDP, DANIDA, SNV, SDC, GTZ, CARE-Nepal, DFID and others have been
giving focus on capacity development of local authorities in Nepal including the
capacity enhancement of the personnel working therein. Further, five municipalities
have established their own learning centres and are carrying out some human
resource development programmes for personnel working in the municipalities.
Moreover, ADDCN, MuAN and NAVIN have started initiating human resource
development programmes to enhance the capability of local authorities including
training for the personnel. However, these training programmes are more or less
supply driven. Human resource development programmes have not become demand
driven yet. In order to meet the increasing training needs of local authorities, the
importance of human resource development still needs to be fully recognized,
including further funding.
3.5 Local autonomy

Although, the Local Self-Governance Act (1999) devolves a wide range of
sectoral functions and services to the local bodies, the functioning of government
departments remain unchanged. Most of the line agencies still have their presence in
the district in the form of separate office. Most of the functions to be discharged by
the local bodies fall within the sectoral jurisdiction, too. Consequently, the line
agencies plan, implement and operate in their traditional top-down and vertical
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manner having little involvement of local bodies. It has affected the autonomy of the
local bodies (LBs) in the formulation and implementation of local development plans
and programmes.
The LSGA has made provisions for the LBs to generate internal resources through
taxes, service charge, fees and sales. However, the LBs have not been able to generate
their own resources of revenue for various reasons such as (Kafle, 2003: 24):
Small level of business at the local level;

Absence of services and facilities for imposing taxes and service charges;
Unwillingness of the local representatives to go heavily for direct taxes;
Organizational weakness/lack of efficient personnel on the part of LBs ; and
Lack of interaction between the taxpayers and LBs.
Hence, the LBs are heavily dependent on the central grants and funds, which,
in turn, have limited their autonomy to initiate and launch development plans and
programmes.
The centrally controlled management system of local governments defies both

the principles and practices of local government autonomy in the recruitment,
promotion, dismissal and management of its staff. The MLD appoints civil servants
as Secretaries of the LBs. They are vertically responsible to the Ministry in all
respects, but are expected to perform according to instructions of LBs, which goes
against the principle of unity of command. Although LBs are legally permitted to
recruit, promote and dismiss staff paid from their own resources, the Ministry of
Local Development defines the process of recruitment, salary scale, and promotion.
There are at least 23 sectoral Acts and Rules that are in conflict with the LSGA.
This has led to confusion and the overlapping of powers and functions between LGs
and central government agencies. In most of the cases, the central government
agencies prevail over the LBs. In effect, it has undermined the autonomy of LBs.
4. EXTENT OF PUBLIC PARTICIPATION
Broad based participation is needed for sustainable development of people.

Participation of people revolves around the function of local democracy, and higher
level of participation results in desirable level of cooperation, negotiation and
contestation among the stakeholders in controlling and allocating resources, services
and assets at local level (LDTA, 2002:93). The LSGA Act (1999) has well recognized
the concept of the broad based participation. In the preamble, it is stipulated that it is
expedient to make provisions conducive to the enjoyment the fruits of democracy
through the utmost participation of the sovereign people in the process of governance
by way of decentralization (HMG, 1999:1). In the context of local government, public
participation in Nepal can be seen from five perspectives which embody: local
election, planning process, promotion of civil society organization representation of
women and disadvantaged group, and Village Development Programmes (VDP)
based on social mobilization.
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4.1 Local election

The LSGA has made a provision of election, according to which local
representatives are elected for the period of five years. In each VDC, the eligible
voters of the respective wards elect the ward chairpersons and members, and the
adult voters of the VDC based on the adult franchise system elect VDC
Chairpersons and Vice Chairpersons. Likewise, the ward adult voters of the
municipality elect the ward chairpersons and Members the eligible voters of the
municipality elect Mayor and Deputy Mayor. The DDC is the representative body of
all the VDCs and Municipalities in the district. The Electoral College consisting of the
elected members of each village and municipal council in the district elects the
president and vice president of the DDC.
Leaving out those nominated and MPs, the village council and the municipal
council members of the respective Ilaka also elect DDC's members. The total
number of the representatives of the local bodies (DDCs, Municipalities and VDCs)
is 221,617. The ratio of local representatives to the total population is 100:0.9. At
present, an impasse has been appeared in the way of local self-governance. The
tenure of all the local representatives was expired in July 15, 2002. The election of
the local government (local bodies) has not yet been held. For some time,
committees, consisting of government officials, ran them. Now, the government has
started constituting boards of local bodies consisting of nominated people.
4.2 Planning process
Bottom up participatory planning is made mandatory to all local bodies. The

service providing agencies, including NGOs working in the areas of the concerned
local bodies, need to coordinate with them in planning, resource mobilization and
service delivery. Plans should generate at the ward level, based on the felt needs of
the ward inhabitants. The ward chairperson submits the ward plan to the
VDC/municipality. The VDC/municipality prepares a VDC/municipal plan and submits
it to the concerned council for approval. Programmes that can be managed with
village and municipal resources do not need to be forwarded to the district.
Programmes requiring district or national support are discussed at Ilaka level (cluster
of VDCs and municipalities). In the Ilaka level discussion, programmes are prioritized
and those selected are forwarded to the district, where DDC sectoral committees
discuss, prioritize and finalize them. Through the DDCs these programmes are then
submitted to the District Council for approval. Programmes approved at the district
level are further forwarded to the National Planning Commission (NPC) for approval
and budget. Once the programmes submitted are approved at the NPC, the sectoral
Ministries prepare budgets (with a trimester breakdown) and submit it to the Ministry
of Finance for budget allocation. If the prescribed planning process is followed
properly, it will produce concrete result.
There are, however, problems at all levels. The main problems include:
• VDCs and municipalities do not strictly adhere to the prescribed planning

process;
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• There is weak coordination between Line Agencies and DDC in regard to

the planning process and implementation. Often there is duplication in
plans;
• Plans are of adhoc nature mainly due to inadequate information and
databases;
• In the planning process prioritization criteria are overlooked;
• Local Programmes and priorities are changed at the national level;
• Horizontal coordination is weak in all plans; and
• Monitoring and evaluation systems are very weak.
The participatory development planning approach outlined by LSGA places

focus on DDC for planning, implementation, monitoring, evaluation and management
of development programmes at the district level, in association with the VDCs,
sectoral line agencies and the community organizations. Through this approach,
national level development policies, village level problems and the potential of
development are converged at the district level, and an opportunity is created to use
talents and resources available at the community level for local development, getting
supplementary assistance from the district and central levels. In this process,
directives and budgetary ceilings go down for the following year from the sectoral
ministries and NPC and programmes/projects are generated from wards and
community levels. Different stakeholders are involved in planning discussions to
enhance their ownership of local development, and programmes need to be
approved by the village council/municipal council and district council. The fourteen
steps of district development planning process are given in Table 13.
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Table 13: Fourteen steps of participatory district development planning process

Steps of Activities/ Work Participants Time-Frame
Fourteenth Step • Forward the District Development Plan to MLD and NPC NPC, MLD and Sectoral Ministries By the end of
Implementation • Forward the sectoral programme and project to sectoral Ministries March
on of D.D. Plan
⇑
Thirteenth Step • Discuss the draft District Development Plan & approval of the District Members of District Council By the
District Council Development Plan second week
of March
⇑
Twelfth Step • Assess the District Development Plan in relation to govt./NPC DDC Chairperson, Vice person (First week of
District instruction, district periodic plan, resource map, environmental impact and members March)
Development etc.
Committee • Classify programme/projects separately between those to be done from
the district and from the center.
• Prioritize programmes and projects on sectoral or geographic basis and
submit the draft plan for the approval of the District Council.
⇑
Eleventh Step • Assess and analyze the prioritized programmes/projects of different DDC Chairperson, Vice chair (Third week
Integrated plan sectors. person, MPS of the district of of February)
formulation • Incorporate prioritized project into different sectoral committees sectoral committee's chief and
committee development plans and submit the draft to integrated plan formulation representative of I/NGOs
meeting committee
⇑
Tenth Step • Prioritize sectoral programme identified by VDC and Municipalities and DDCs members, I/NGOs Second week
Sectoral planning forward them to DDCs sectoral committee representative sectoral February
committee • Ilaka member conduct Ilaka level planning workshop committee's member as per the
meeting nature of their work
⇑
Ninth Step • Prioritized sectoral programme identified by VDC and Municipalities and Ilaka member, VDC Chairperson, By the first
Ilaka level forward them to DDCs sectoral committee vice Chairperson, Ward week of
planning • Ilaka member conduct Ilaka level planning workshop Chairperson, Mayors and Deputy February
workshop Mayors, Chief of Sectoral Agency,
Chief of Financial Institutions and
I/NGOs representatives
⇑
Eighth Step • Among the programme/projects submitted from settlement and village: VDC council members By the
Village council • Approve those to be done through VDC resources or VDC plan second week
meeting • Identify those that require support from outside, prioritized them and of January
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forward it to DDC for assistance

⇑
Seventh Step • Prepare list of programmes/projects received from the settlement level VDC officials and Sectoral By the first
VDC meeting • Identify and finalise programmes/project Agencies representative week of
• Prioritize programmes/projects which VDC can implement on its own January
and which needs outside support with estimated budget and separate
those to be done from VDC and requiring support from outside
⇑
Sixth Step • Prioritization of programmes/projects received from the settlement level Ward Chairperson, Members COs By the end of
Ward committee community level and UG December
meeting
⇑
Fifth Step • Assessment and analysis of the projects & programmes in a Local residence I/NGOs, CO, UG By the third
Settlement level participatory way which benefits the maximum no. of house holds (local and Ward Chairperson and week of
Planning resident/Core-User Groups) Members December
selection • Fill forms at settlement level by communities with signature of the
workshop participants.
⇑
Fourth Step • Analysis of programmes/projects to be carried out in ward/settlement VDC, DDC and Sectoral Agencies By the 2nd
VDC Meeting level by VDC representatives week of
December
⇑
Third Step • Dissemination of information on policies, objectives, programme DDC Officials, Sectoral Agencies, By the end of
Planning resources, activities, available budget of sectoral ministries and Chief representative of Financial November
workshop allocation of estimated budget per VDC institutions, CCII/NGOs, VDCs
• Distribution of project request forms and orientation to fill the form to DC Chairperson and Vice
Chairperson, vice chair person, secretary and others Chairperson and Secretary
⇑
Second Step • Analysis and review of directives, policies, guidelines estimated budget Sectoral Agencies, Chief DDC By the third
Review of provided by sectoral Ministries/NPC Chairperson, Vice Chairperson week of
Directives and Members November
⇑
First Step • Directives and information, budget ceiling for next year from sectoral District level Sectoral Agencies By the mid of
Directives ministries and NPC November
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4.3 Representation of women and disadvantaged groups

To ensure the active participation of women in the decision-making process, the
LSGA has made it mandatory to allocate 20 per cent of seats to women in the local
election. Likewise, to ensure the participation of disadvantaged groups in the
mainstream, it has made provisions for nominating women in each level of local
bodies. The provision of allocating seats to women has definitely benefited them. It
has helped increase confidence among women that they can also raise their voices
for their development, participate in different activities and take decisions. However,
the quality of their participation needs to be enhanced and their leadership needs to
be developed. Further, some efforts are being made to enhance their representation
in different areas. As women have raised their voices to increase their roles, efforts
are being made to prepare laws to allocate quotas to women for administrative post,
education facility, foreign employment etc. Likewise, the voices of the disadvantaged
groups are being heard. They are also entitled to get quota for education facilities,
foreign service etc. Recently, it has been agreed to allocate 5 per cent of seats for
Janajatis, 20 per cent for women and 10 per cent for the Dalits in the civil service.
4.4 Promotion of civil society organization

The LSGA and various other sectoral regulations (e.g. irrigation, forestry,
drinking water, health) have recognized that civil society organizations can play an
important role in undertaking development efforts and they need to be promoted.
Under the LSGA, the local bodies require to encourage, involve and coordinate
the non-government organizations (NGOs) while formulating planning and
implementing projects. The Act has envisaged active involvement, participation and
cooperation of citizens through their collective bodies, such as NGOs, consumers'
group and civil society organizations (LDTA, 2002: 37). There is a specific provision
in the LSGA, according to which, all the local bodies require giving first priority to
user groups to implement projects. As a result, user groups implement most of the
projects of the local bodies. User groups, with compulsory representation of women
(30 per cent) are the main institutions to implement local level projects. From a
sectoral point of view, forest users' groups are also active. They protect their
community forest, and manage to sell and use the forest products. In total, about
15,000 NGOs are being involved in carrying out different development and advocacy
activities in the country.
4.5 Village development programme based on social mobilization
The Village Development Programme was initiated in VDCs in partnership with

DDCs by UNDP under the Participatory District Development Programme/Local
Governance Programme. Its main goal is to improve the socio-economic condition of
the rural population through organizing them into groups and providing opportunities
to develop their potentialities.
The Village Development Programme (VDP) empowers rural Nepalis to band

together to rise above the trap of poverty. It urges communities towards self-reliance
and self-governance by encouraging them to group into broad based and multi-
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purpose community organizations. Through institutional, social and economic

development, these groups of men and women enhance their capacities to
effectively plan and manage participatory and sustainable local development to
enable them to boost their living standards. In the process, they manage to transform
themselves into self-governing institutions at the grassroots (UNDP, 2002: 50)
There are two components of social mobilization in the VDP: (1) institutional
development, and (2) social and economic development. Under institutional
development, people form community organization through which they participate in
the decision making process to improve their socio-economic condition. Active
participation is sought from all households without any discrimination. Under social
and economic development, the community organizations are provided with
mechanisms to secure the potential benefit of social change. To build up their
economic capital, the group members hold weekly meetings and deposit money, as
prescribed by the group, into its saving account. The community organizations
upgrade their skills to run income generating and micro-enterprise activities. The
community organizations also get credit facilities from the Local Development Fund
(LDF) to meet their needs for establishing micro-enterprise and other income
generating activities.
A graphic representation of village development through social mobilization is

given in Figure 6.
Figure 6: Village development through social mobilization
LDF/
PDDP DDC
LDFBs
Line Agencies
in the District VDC Do+ors
I/NGOS
CO1
CO7
CO2
THE VDP PACKAGE
INSTITUTIONAL DEVELOPMENT
CO3
Community Organizations
Saving and Credit Schemes Skill CO8
Enhancement CO9
CO4
SOCIAL & ECONOMIC DEVELOPMENT
Revolving Credit Fund for Micro-Enterprise
One-time SGF in Productive Infrastructure CO10
Technology Transfer
COn-1 COn
LOCAL SELF-GOVERNING INSTITUTIONS

FOR POVERTY ALLEVIATION INITIATIVES
32
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The programme has been found very effective to elicit wider participation of the
community citizens. At present, it covers 650 VDCs and 17,000 community
oganizations have been created. 35,000 families have so far benefited from this
programme. Wider replication of this programme with strong technical and financial
support is needed.
5. CONCLUSION
In Nepal, various efforts have been made over the last fifty years to strengthen
the local bodies/local governments to involve local people in understanding local
development activities, mobilize local resources, and manage local affairs. The Local
Self Governance Act (LSGA) that is being practiced now is considered to be the
milestone in regard to improving legislative framework for decentralization. The
LSGA has developed wider functions, powers and responsibilities to the local bodies
for planning, implementation and monitoring development activities and for providing
service delivery in an efficient manner. The Act has also provided a resource base,
such as raising different types of taxes, charging fees, and revenue sharing with the
central government to the local bodies. They are the key institutions in their
respective areas to coordinate and mobilize other agencies (such as line agencies,
non-governmental organizations, and civil society and community groups) while
initiating, carrying out and managing development programmes and other activities.
With the aim of institutionalizing decentralized local governance, the
government has further developed four sectors: primary education, community
health, agriculture and postal service by providing authority and responsibility to
DDCs for planning and implementation at the local level. The sectoral units within the
DDC have been established to formulate, operate, monitor and evaluate the
developed development functions.
Given the country's geographical variation and ethnic diversity, the approach of
decentralizing functions to the local bodies is seen as pivotal, not only in
strengthening the democratization of government but also in reducing the cost of
public service delivery. It will promote innovative and locally appropriate solutions at
the local level, and will also give ownership to the local bodies and local public to
better plan and manage their development priorities and address local challenges.
However, at present the local bodies are facing numerous challenges, including
problems in imposing and collecting direct taxes, weak programme planning and
implementation, weak coordination among local bodies, line agencies and NGOs,
poor participation of female members and political instability.
To carry out the decentralized functions effectively, as well as in a sustainable

way, the local bodies require to enhance their capacity to mobilize local financial
resources, and also need to develop their capacity in other areas such as planning,
preparing data bases, good governance, e-governance, information technology,
conflict resolution, leadership development, the concept of a citizen chart, and
environmental management.
At present, there are no elected representative in the local bodies since

elections could not be held due to the Maoist insurgency in the country. This has
hampered the decentralization process. However, the government has started
constituting Boards comprising nominated members. It has nominated Mayors and
Deputy Mayors for 58 municipalities. It has also constituted some Municipal Boards
33
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on the recommendations of the concerned municipalities. Some municipalities are in

the process of constituting their Boards. Likewise, the government has nominated
Chairpersons and Vice Chairpersons for most of the DDCs and they are in the
process of constituting District Development Committees. Similarly, the government
has planned to form VDCs. This is a temporary solution. For the survival of
democracy and strengthening the local governments, the representation of an
elected body is essential, for which both the government and political parties require
to create conductive environment. The elected local bodies could be the driving force
to achieve the goal and objectives of the Tenth Plan.
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Nepal
References
Asian Development Bank, 2000, Nepal Urban Sector Strategy, Vol. 1: Main Text
(Asian Development Bank)
HMG, 2000, Local Authorities Fiscal Commission Report, (HMG, Kathmandu)
HMG/Donors, 2000, Review on Decentralization in Nepal, (HMG, Kathmandu)
HMG/GTZ, 2003, Detail Revenue and Expentiture Breakdown with Budget and Key
Financial Indicators of 58 Municipalities (Fy 1997/98 - Fy 2001/02),
HMG/Ministry of Law and Justice, 1999, Local Self-Governance Act, (HMG,

Kathmandu)
HMG/N, 2002, Statistical Pocket Book, Nepal, (HMG, Kathmandu)
HMG/N, 2003, The Tenth Plan, Nepal, (HMG, Kathmandu)
HMG/N, Ministry of Law and Justic, 1971, Local Administration Act, (HMG, Kathmandu)
HMG/N, Ministry of Law and Justic, 1982, Decentralization Act, (HMG, Kathmandu)
HMG/N, Ministry of Law and Justic, 1984, Decentralization Regulation, (HMG,

Kathmandu)
HMG/UNDP, 2002, LGP, Annual Report (LGP Programme), (HMG, Kathmandu)
HMG/UNDP/NORAD, 2002, Putting People First (PDDP), (HMG, Kathmandu)
HMG/National Planning Commission, 2003, The Tenth Plan (Poverty Reduction

Strategy Paper), summary, Kathmandu.
HMG/Ministry of Law and Justice, 1990, The Constitution of the Kingdom of Nepal
1990, Kathmandu, Nepal
Kafle, Mukti Prasad, 2003, A Study on JICA's Possible Cooperation for Capacity
Building of Local Bodies Under Decentralization, (JICA, Kathmandu)
LDTA, 2002, Poverty Reduction and Decentralization: A Linkage Assesment Report,

Nepal. (LDTA, Kathmandu)
Paudyal, Durga Prasad, 1994, Strategies for Local Level Planned Development in
Nepal: An Evaluation of the Decentralization Act 1982 from the Local Prespective,
(Dhaka: Agani Printing and Publishing Co.)
UNDP, 2003, Human Development Report, UNDP

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Country Reports on Local Government Systems:

1. BRIEF DESCRIPTION OF THE COUNTRY

Socio-culturally, Nepal is a multi-lingual, multi-religious, multi-ethnic and multi-

1.1 Socio-economic profile

Nepal's overall economic performance in 2001-2002 was not satisfactory.

Although Nepal has implemented nine periodic plans, human development

Table 1: Human Development Indicators (HDI) (1996 and 2000*)

Adult literacy Percentage of Human Development

Source: Nepal Human Development Report, 1996 and 2001

Table 2 shows the poverty incidence, poverty depth/intensity and severity of

Table 2: Income poverty indicator (1995/96)

Ecological zone Poverty incidence-percentage of Poverty gap-depth/intensity of Severity of

Gender disparity is another important area to be analyzed and considered.

Table 3: Gender disparities in key human development indicators (2000)

Source: NPC, The Tenth Plan, 2003

Table 4: Population by households, area, density for large municipalities (2001)

Population Area in Pop. density

Biratnagar Sub Municipal 33,678 166,674 87,664 79,010 58.48 2,850.1

Source: Central Bureau of Statistics, Population Census 2001.

In order to bring changes in Nepal’s existing socio-economic situation, the tenth

1.2 Political and administrative structure

The central organizational structure is summarized in Figure 1 below. The king

Administratively, Nepal is divided into five development regions namely Eastern

Figure 1: Central organisation chart of Nepal

Parliament Supreme Council of Other Constitutional

Development Regional Departments

Source: LDTA 2003 updated from, General Administration

2. EVOLUTION OF LOCAL GOVERNMENT

2.1 The First Phase (1951-1960)

2.2 The second phase (1960-1981)

The objectives of the local governments embodied:

Creating local Panchayats to strengthen the system at the grassroots level;

2.3 The third phase (1982-1991)

The scheme incorporated many features, including: devolution of wide ranging

2.4 The fourth phase (1992-1998)

2.5 The fifth phase (1999 onwards)

In response to these issues and pressing demand, the government in 1996

The main objectives of the Act, as mentioned in the preamble are:

3. MAIN FEATURES AND CHARACTERISTICS OF LOCAL

After the restoration of multi-party democracy in 1990 the government has

Devolve needed powers, responsibilities and means and resources to make

The Local Self-Governance Act (LSGA) (1999) is a unified act (opposed to

Main features of the Local Self-Governance Act (LSGA) (1999)

3.1 Local government categories and hierarchies

There is a provision of classification of local bodies by HMG. The LSGA

In the case of DDCs and VDCs, there is a provision of classification on the

3.2 Local government structures and functions

3.2.1 Structure: Framework of local self-governance

A municipality may be established in any area having access to facilities such

DDC may be formed in each administrative district as per the Local

The Village Council comprises a Chairperson and Vice-Chairperson of the

The diagrammatic representation of the structure of Local Self-Governance

Figure 2: Structural chart of Local Self-Governance bodies

Ward Committees Ward Committees

3.2.2 Powers, functions and responsibilities of local bodies

3.2.3 Powers, functions and responsibilities of the VDC

Relating to planning, administration and finance:

Formulate periodical and annual plans;

Develop human resources, make arrangements for generating employment;

3.2.4 Powers, functions and responsibilities of municipalities

Relating to planning, administration and finance:

Formulate periodical and annual plans;

Plantation on either side of the roads and other necessary places;

In addition to the mandatory function mentioned above, the optional functions of