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The cooperative sector, a vital pillar of Nepal’s economy, significantly contributes to poverty alleviation, financial inclusion and community empowerment. However, despite its importance, the sector faces deep-rooted issues related to governance, financial mismanagement, and regulatory oversight. Drawing lessons from Maharashtra’s cooperative experience in India and international models like Mondragon in Spain and Amul in India can provide valuable insights for revitalizing Nepal’s cooperatives. Additionally, cooperative theories and international standards set by organizations such as the United Nations (UN), International Labour Organization (ILO) and International Cooperative Alliance (ICA) can guide necessary reforms to restore integrity and sustainability in the sector.

Cooperatives in Nepal are intended to function as empowerment centers, focusing on mutual support and self-help, rather than mere service centers. Unlike traditional organizations, the formation of a cooperative institution involves specific requirements. As per Section 5 of the cooperative registration guidelines, three categories qualify for forming cooperatives: primary producers (those directly involved in production), actual workers (engaged in labor) and bona fide consumers (genuine consumers). However, these principles were often disregarded during registration, leading to deviations from cooperative standards, resulting in governance issues and misappropriation of funds. Officials failed to consistently enforce these guidelines, allowing intermediaries to capture control of cooperatives instead of genuine members, which compromised the essence of cooperativism.

The deep-rooted challenges in Nepal’s cooperative sector came into the spotlight with a series of scandals involving high-profile individuals. The arrest of Rabi Lamichhane, a former Deputy Prime Minister, Home Minister and Chair of the Rastriya Swatantra Party (RSP), along with 13 others, highlighted the issues plaguing the sector. A parliamentary special probe committee was formed in 2024 to investigate crisis-ridden cooperatives. The committee accused Lamichhane of misusing approximately Rs 650m that had been funneled into Gorkha Media Network, where he served as the Managing Director of Galaxy Television. The funds were allegedly sourced from multiple cooperatives, including Suryadarshan in Pokhara, Supreme in Butwal, Swanalaxmi in Kathmandu, Sahara Chitwan and Sano Paila in Birgunj. The incident showcased how influential individuals misused cooperative resources for personal or political gain, leading to significant financial crises and eroding trust in the sector. This case was not an isolated one, but rather indicative of a systemic issue where politically connected figures exploited cooperatives, leaving ordinary citizens, who invested their savings in the cooperatives, to bear the consequences. These individuals, many of whom work under harsh conditions in Nepal and abroad, saving diligently for their future, were among the primary victims.

Another case that drew public attention involved Congress Vice-president Dhanraj Gurung and his wife, who were accused of embezzling Rs 148.1m from the Miteri Cooperative. The unresolved nature of this case has fueled suspicions, emphasizing the urgent need for stringent reforms to address corruption and financial mismanagement in the sector. These incidents collectively underscored the systemic governance failures and the necessity for comprehensive regulatory reforms.

The cooperative movement in Maharashtra during the 1960s to 1980s stands out as a model of successful rural economic development, offering crucial lessons for Nepal. Maharashtra’s cooperatives emerged as a central force in the state’s economic and political landscape, with their influence paralleling that of Panchayati Raj institutions and the Congress Party. For many aspiring politicians, cooperatives were a critical platform for advancing their careers, making the cooperative network integral to rural development and political life. By 1988, Maharashtra had overtaken Uttar Pradesh as India’s largest sugar-producing state, with over 100 cooperative sugar factories driving economic growth. The sector expanded beyond sugar production to include related industries, such as dairies, spinning mills, agricultural processing units, poultry farms and cooperative banks, thus establishing a robust network that supported local economies. 

An illustrative example is the Hutatma Ahir Sugar Cooperative in Sangli district, which became a model of how cooperatives can drive regional development by fostering economic self-reliance and empowering communities.

However, despite its early success, Maharashtra’s cooperative movement eventually encountered significant challenges. Corruption, financial mismanagement and political interference became rampant, with cooperative leadership often falling into the hands of influential families connected to the Congress Party. The resulting dynastic control led to resource misallocation and weakened governance structures. Political entanglement with cooperative management eroded democratic principles and undermined financial oversight, allowing personal interests to take precedence over cooperative ideals of member empowerment and mutual benefit. The decline of the movement highlighted the vulnerabilities that arise when political power and cooperative management become intertwined.

To address these setbacks, Maharashtra implemented a series of reforms aimed at restoring the integrity of its cooperatives. Mandatory audits were introduced to ensure transparency, while term limits for leadership positions were established to prevent power concentration. Stricter financial regulations aimed at curbing corruption and state-supported cooperative banks played a crucial role in providing financial resources to distressed cooperatives, enabling them to continue supporting rural development. These reforms demonstrated the importance of robust governance practices, financial transparency and effective regulatory oversight—lessons that are relevant for revitalizing Nepal’s cooperatives.

The principles that guide cooperative reforms in Nepal should be informed by theoretical frameworks that emphasize ethical governance and accountability. Fiduciary duty requires cooperative leaders to prioritize the interests of members, maintaining loyalty and transparency. The business judgment rule protects leaders who make decisions in good faith, using informed judgment, provided their actions do not serve personal interests. Agency theory highlights the need for mechanisms like regular audits and transparent reporting to monitor leadership behavior and mitigate conflicts of interest. Stakeholder theory broadens the scope to consider the interests of all stakeholders, particularly marginalized groups, while social capital theory underscores the importance of building trust and reciprocal relationships to promote cooperative development.

International standards and legal frameworks also play a crucial role in guiding cooperative reforms. The United Nations, through Resolution A/RES/56/114 and the declaration of the International Year of Cooperatives in 2012, emphasizes cooperatives' role in promoting sustainable development, social inclusion and poverty alleviation. The ILO’s Recommendation No 193 advocates for cooperative development aligned with international labor standards, promoting democratic member control and legal compliance. The ICA’s principles, such as voluntary membership, democratic governance, economic participation and continuous education, provide essential guidelines for enhancing cooperative governance. Aligning Nepal’s policies with these international standards can modernize the legal framework and improve the sector’s sustainability.

Successful models such as Mondragon in Spain and Amul in India offer valuable lessons on how cooperatives can thrive through effective management and member engagement. Founded in 1956, Mondragon operates on principles of shared ownership, democratic governance and profit-sharing. It has demonstrated resilience and adaptability across various industries, including manufacturing and finance, by emphasizing member participation and collective decision-making. Mondragon’s cooperative model shows the benefits of a structure where economic growth is shared equitably among members, ensuring long-term stability even in challenging economic times. 

Amul is a case in point. Founded in 1946, it transformed India’s dairy sector by creating a cooperative network that connected small-scale producers directly to consumers, thereby maximizing returns for farmers. Its ‘milk to market’ model, supported by government partnerships, facilitated rural development by eliminating intermediaries and promoting sustainable agricultural practices.

To address the existing challenges in Nepal’s cooperative sector, several key measures must be considered. Strengthening governance and regulatory frameworks is essential, with the modernization of the Cooperative Act of 1992 to close legal gaps. The revised act should incorporate stringent financial regulations, anti-corruption measures and enforceable penalties for violations. Establishing a central regulatory authority akin to a central bank would enhance oversight and ensure consistent enforcement across federal, provincial and local levels. Governance reforms should also include independent supervisory boards, transparent election processes for leadership positions and term limits to prevent the concentration of power.

Improving financial management practices is equally crucial. Regular independent audits and financial ‘health checks’ would help detect risks early and prevent financial mismanagement. Establishing a cooperative development fund could provide financial support to cooperatives that adhere to governance standards, promoting stability and ethical practices. Financial literacy programs for cooperative members would enhance understanding of budgeting, risk management and proper financial conduct, ensuring informed decision-making.

Investing in training programs for cooperative staff and regulatory bodies would build technical capacity, addressing the skill gap that has affected management quality. The adoption of modern management practices, such as result-based planning, would optimize decision-making and operational efficiency, while the use of technology would streamline cooperative operations and reduce costs.

Promoting inclusiveness and gender equality is vital to bringing diverse perspectives into cooperative governance. Ensuring women and marginalized groups are represented in leadership roles through leadership development programs would prepare future leaders from underrepresented backgrounds, ensuring inclusiveness in decision-making.

Finally, minimizing political interference is essential for maintaining the integrity of the cooperative movement. Policies should be implemented to prevent political manipulation in cooperative elections, and whistleblower protections must be established to encourage the reporting of unethical practices without fear of retaliation. Training cooperative leaders in ethical governance and cooperative values would further combat corruption and uphold the principles of member empowerment.

Nepal’s cooperative sector holds immense potential to drive economic development and support inclusive growth. Learning from Maharashtra's experiences and international models like Mondragon and Amul offers valuable guidance for addressing current challenges. By strengthening governance, modernizing regulations, enhancing financial management and investing in capacity-building, Nepal’s cooperatives can be revitalized to empower communities, support small businesses and promote sustainable development. Through these comprehensive reforms, the state can transition from a controlling role to that of a facilitator, allowing cooperatives to thrive and fulfill their role as a crucial component of the national economy.

As an emissary of President Xi Jinping of China, Central Committee Member and Secretary of China’s Qinghai Province, Chen Gang, visited Nepal from 19-21 October 2024. His visit should not be viewed as an isolated event loaded with an agenda but rather as part of a continuing series of exchanges between the leaders of the communist parties of Nepal and the Communist Party of China (CPC). Nepali political leaders, particularly those from left-leaning parties, have frequently visited China at the invitation of the International Department of the CPC, and senior leaders of the CPC have reciprocated these visits.

Chen's visit came at the invitation of CPN-UML Secretary Raghubir Mahaseth, who is also the chief of the party's foreign affairs department. Upon arriving in Kathmandu, Chen engaged in discussions with the heads of major political parties, including Prime Minister KP Sharma Oli and Sher Bahadur Deuba, reaffirming the ties between the CPC and Nepali political parties. He also raised Chinese concerns, apart from sharing decisions made during the Third Plenary Session of the 20th CPC Central Committee.

How, then, should this visit be considered? Here are three key points that outline its significance:

Taking stock of Kathmandu’s mood
Chen’s visit aimed to gauge the mood in Kathmandu following the formation of a coalition government under KP Sharma Oli, president of Nepal’s largest communist party. Beijing likely finds comfort in a government led by leftist parties, but this does not imply that Chinese officials neglect their relations with non-leftist parties. China has adopted a policy of multiparty engagement in Nepal since the abolition of the monarchy. Every delegation meets the key leaders of major parties regardless of ideology or political alignment. The CPC understands that in today's globalized world, mutual respect and benefit take precedence over ideological closeness. China has a policy of shared development and shared destiny. Thus, Chen's visit was a way to take stock of Kathmandu's political situation following the formation of the new government.

Reaffirming support
Chen's visit served to reassure Nepal’s new coalition government of China’s full support. Chinese leaders have closely monitored Nepal's political dynamics and the influence of external powers on its domestic affairs. The world is currently in a state of transition: the old order is being questioned, and the new world order has yet to fully emerge. Although the US-led world order has already lost much of its influence, with China rising as a new global power, the future of world politics remains uncertain. Chinese leaders recognize that Nepal has become a focal point in geopolitical competition. The MCC is now being implemented in Nepal, and both American and European powers are promoting Western narratives that aim to counter China's growing influence in the region. During his visit, Chen discussed global politics and geopolitics, advising Nepali leaders to stay informed about Chinese affairs through official CPC and Chinese government sources.  

The third plenary session
Another important aspect of Chen's visit was to share decisions made during the Third Plenary Session of the 20th CPC Central Committee, recently held in Beijing. The International Department of the CPC and the Qinghai Provincial Committee organized a deliberation and interaction program at the Yak & Yeti Hotel, where Secretary Chen and Chinese Ambassador to Nepal, Chen Song, addressed key aspects of Nepal-China relations and explored potential future partnerships. Secretary Chen presented China's development model, focusing on the use of technology in agriculture, industry and human resource development. 

Qinghai's topography is similar to Nepal’s, and the region has faced seasonal floods and landslides. The Qinghai provincial government has swiftly carried out reconstruction and rehabilitation efforts for those affected. Secretary Chen assured the government of Nepal and political leaders that China is ready to support Nepal in the post-disaster reconstruction process. This was a significant commitment from the Chinese side. However, it is worth noting that both India and China have provided support to Nepal during such disasters, proving that "neighbors in need are neighbors indeed."

Prime Minister Oli and CPN-UML General Secretary Shankar Pokhrel echoed similar views on party-to-party relations between Nepal and China. Prime Minister Oli recalled President Xi's 2019 visit to Nepal as historic and requested the prompt execution of the commitments made during that visit. General Secretary Pokhrel highlighted the lessons Nepali political parties, especially the CPN-UML, could learn from the CPC’s growth and functioning. Pokhrel had visited China last year, including Qinghai, where he observed the region’s ecological development efforts. The CPC and the Chinese government have been transforming Qinghai into an ecological center of China, ensuring harmony between humans and nature. Under Secretary Chen's leadership, Qinghai has made significant progress. In this regard, Chen's visit was important for both Nepal and China.

The rise of populism and a crowded political culture threaten Nepal’s democracy. Although this perspective may be controversial, I believe in the need for a transparent and democratic political system that allows Nepalis to thrive in diverse ways. Nepali voters are understandably frustrated with current governance and political instability. However, it is alarming when educated and influential figures fuel political division, spread populist ideas, and engage in conspiracy theories—actions that undermine Nepali democracy. Nepal is still on its path to becoming a fully democratic state, and this journey may take generations. This does not mean Nepal’s democracy has failed; rather, it is evolving. Several factors, however, have weakened Nepal's democratic system, including the rise of populist trends, radical political groups, and the constant shifts in agendas since the 1990s reforms. Traditional political ideas have also struggled to uphold democratic values, causing a rift between voters and political parties.

In recent years, populism has gained momentum in Nepal’s political landscape. Notable figures like Rabindra Mishra, a former journalist, entered politics with strong anti-corruption rhetoric, earning public trust. Yet, his shift from democratic to authoritarian ideologies exposed him as a deceptive leader. TV journalist Rabi Lamichhane entered politics with vague and false promises, using his media influence to gain power without offering clear policies. He quickly became one of the most controversial figures, embroiled in scandals involving passport fraud, citizenship issues and financial misconduct. Lamichhane founded the Rastriya Swatantra Party (RSP), which performed well in the 2081 general election and attracted educated candidates. However, the RSP remains a populist party without a solid ideology, relying on blame tactics and controversial leadership. Lamichhane's involvement in coalition politics appears to be a strategy to shield himself from legal consequences, and his negative populist rhetoric continues to endanger Nepal’s democratic and legal system.

Recently, authorities arrested Lamichhane for his alleged involvement in a credit union fraud scheme, based on evidence collected by a parliamentary investigative committee and the police. Although the investigative process may lack full transparency, his arrest was properly carried out by government authorities and investigative bodies. Unfortunately, many of his political supporters, including some self-proclaimed intellectuals from his party, took to the streets and engaged in violent protests. This behavior presents a serious threat to Nepali democracy and the rule of law.

As a journalist, Lamichhane loudly criticized other political parties for violent or unethical actions. Now that he faces similar accusations, it raises questions about his integrity. It is crucial to remember that other high-profile political leaders are currently in jail, and their party members have not interfered with police investigations or the judicial process. Nepali leaders and the public must recognize that Lamichhane is not above the law and must cooperate with government and legal institutions like anyone else.

Nepal’s democracy has faced challenges from both radical left- and right-wing ideologies. Some leaders cling to outdated beliefs in socialism or communism, despite these systems failing in countries like China, Russia, Israel, India and the UK. Others advocate for a return to monarchy, an idea that has been tried and failed. These are merely opportunistic attempts to gain power. 

Meanwhile, democratic leaders have struggled to meet the Nepali people’s expectations. The bureaucracy remains inefficient, and successive governments have failed to address the country’s social, economic and foreign policy challenges. Since the 1990s, Nepal has dealt with crises like the Maoist insurgency and regional conflicts, yet political leaders have not been able to offer a unified, long-term vision for the country’s progress.

The rise of populism and divisive political culture poses a significant threat to Nepal’s fragile democracy. While frustration over current political instability is understandable, influential figures fueling populist sentiments and spreading conspiracies undermine the democratic process. Figures like Mishra and Lamichhane have introduced dangerous populist trends that distract from the real progress Nepal needs. Lamichhane's recent legal troubles and the violent protests from his supporters demonstrate how populist leaders can destabilize the rule of law. No one, including prominent leaders, should be above the law. Both the public and political figures must prioritize the integrity of democratic institutions over personal ambitions. For Nepal to move forward, leaders must provide transparent governance and long-term visions, while the public must stay vigilant against populist movements that offer no real solutions. True progress lies in a unified commitment to democratic values and accountability.

Views are personal

The new government formed three months ago had announced that it wanted to conduct a review of the Constitution promulgated almost a decade ago (in 2015) by exploring areas for amendments. The two largest political parties in the Parliament—the Nepali Congress (NC) and the Communist Party of Nepal-Unified Marxist Leninist (CPN-UML)—joined hands to form the government that enjoyed the support of almost two-third members of the parliament—ostensibly to push constitutional reforms.

As per the constitution, any amendment can pass only with a two-third majority. Therefore, the public pledge made by the two largest parties during the formation of the latest coalition was viewed seriously by everyone. The parties had promised to first conduct objective analysis of the constitutional performance and suggest amendments.

Almost a decade has passed since the promulgation of the constitution, so it is an opportune time to take stock of its performance, examine its contributions and failings, and prescribe reforms for its improvement.

The constitution has embraced some fundamental changes like federalism, republic and inclusion, which cannot be compromised. But their workings can be refined to better address the aspirations of the general public.

The major parties have been suggesting that one reason why the constitution needs reforms is the current setup, which, according to them, prevents a single party from forming a majority government, leading to perennial instability in governance.

While that may be the case, it is utterly important to also pay attention to other aspects of the new constitution such as strengthening local governance.

The constitution had intended to empower the local government and recognize them as the primary vehicles for the delivery of public service and governance to the people.

As per the constitution, there are currently 753 local governments, including six metropolitan cities, 11 sub-metropolitan cities, 276 municipalities and 460 rural municipalities. Part 17 of the constitution provides for the formation of Local Executive, Part 18 provides for the Local Legislative, Part 19 provides for the Local Financial Procedure and Part 20 provides for relations between federal, province and local levels. Article 217 of the constitution has also provided for the judicial powers of the local government.

In the past, there were around 4,000 local bodies, which were reduced to 753 local governments. In the last one decade, the local governments have been strengthened with adequate powers to prove their worth by becoming immediate centers of power to the local people and the deliverer of most basic of public services. The chiefs and deputy chiefs of the local governments have become powerful in terms of their influence in budget allocations, resource mobilization and service delivery issues.

The local governments also have the power of formulating local laws. They also have separate judicial committees to provide local level justice in specified areas. Many local disputes are now being submitted for settlements at local levels.

In terms of development resources, too, the local levels have been able to use a huge chunk of the national budget. The annual budgets of local levels are in the range of Rs 400m to Rs 28bn (Kathmandu Metropolitan City). They are also found active in providing basic recommendations such as for citizenship, passport, national identity, etc. They are also becoming the first point of responders in times of disasters such as during earthquakes, disease outbreaks like Covid-19 and natural disasters like floods and landslides.

However, they still face a number of challenges to prove their worth—many of which have the root in laws and the constitution.

Legal reforms: The number of local levels needs to be reduced to less than 500 in order to make them agile and effective. The wards should be made more powerful. For example, presently, the wards are responsible for only providing recommendations for citizenship whereas it is issued by the district administration office. Laws and constitution can be changed to ensure that the people get the citizenship issued from district administrative offices delivered at the wards themselves. Processes can be interlinked between wards and district offices for this purpose.

Currently, local governments also have authority to formulate laws but in the last one decade, there has been concern that they lack skills to formulate quality laws. Therefore, this authority probably could be given to the provinces, where such skills can be available. Besides, it is also better for provinces to have uniform laws for all their local governments.

Budgetary reforms: Presently, the federal government bears almost 80 percent of the budget of the local government. There is a need to conduct reforms enabling local governments to generate more budgets for themselves, and there is also a need to change the sequence of budget-making. Ideally, local governments should be allowed to first pass their annual budgets, followed by the province and the federal government, respectively instead of the current sequence, which is just the opposite.

HR reforms: Although one decade has passed, the proper staff management has not been achieved. Local government staff should be recruited by local governments themselves within the mandate prescribed by the concerned province. Such staff should be able to transfer within the province and they should have ample opportunities for career growth.

Election reforms: Many have questioned the appropriateness of holding local government elections on a party basis. Since they are designed for service delivery to citizens, it is thought that their elections should not be guided by partisan politics. Rather, they should have independent candidates. This can facilitate smooth functioning of the local government without petty politics and political disruptions.

These reforms should be kept in mind when the government and the major political parties conduct a study for constitutional reforms.