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Kathmandu: The Supreme Court has paved the way for businessman Ajaya Raj Sumargi to recover around Rs 2.25 billion that the Nepal Ras­tra Bank had frozen earlier. A sin­gle bench of justice Tej Bahadur KC issued an interim order on Tuesday in the name of the bank to desist from implementing its earlier deci­sion to withhold the amount. “The legal reasons put forth by the bank to withhold the fund were not transpar­ent, and hence this order is issued to allow the petitioner to withdraw the money,” reads the order.

The court has also summoned both plaintiffs and defendants on February 14. Sumargi and Subas Chandra Poudel had filed a writ at the Supreme Court last Sunday on behalf of the Nepal Satellite Telecom Company, arguing that the bank’s decision to withhold the funds had damaged the company and had asked for immediate release of the funds. RSS

Is federalism prohibitively expen­sive for Nepal? Even though the federal system is an irreversible truth after the promulgation of the new constitution and holding of all three constitutionally-mandated elections, the old debate over the cost of the new system refuses to die down. To make their ends meet, the new constitution allows “the federation, province and the local level entity… to impose tax on subjects within their fiscal jurisdiction and collect revenue from such sources”. If rev­enues collected at provincial and local levels are inadequate, “the Government of Nepal shall make necessary arrangements to equita­bly distribute the revenue generated by it from its sources, between the federation, province and the local level entities.” But is the economic pie big enough for all three layers of government?

“For a rough estimate, multiply the costs under the old unitary system by three,” says Ram Saran Mahat, the multiple-time finance minister. “I have always maintained that a federal system is inherently costly and complex. The early signs of implementation of federalism only adds to my suspicion.”

The signs Mahat hints at are the disputes over the designation of pro­vincial capitals. He believes these challenges will get more and more complicated.

820 bn—and counting

According to the Ministry of Finance, Nepal will need Rs 820 billion over the next three years on federal infrastructure alone. To put this into perspective, in the first six months of the current fiscal, Rs 336 billion has been collected in revenues, two billions more than the target of Rs 334 billion. The gov­ernment thus seems to be on course for the yearly revenue target of Rs 730 billion. But a year’s worth of revenues will still be inadequate to meet the added costs.

“All this money for federal infrastructure and administrative tasks will be at the cost of the all-im­portant development expenditure,” says Mahat.

Economist Biswo Poudel is not very sanguine either. He cites the recently introduced voluntary retirement scheme for civil servants, which is expected to cost the exche­quer Rs 50 billion, as an example of the new profligacy under the federal setup. “A civil servant should be ready to go to any part of Nepal that he or she is deputed to. The gov­ernment is setting a troubling, and expensive, precedent for federal Nepal by giving civil servants who don’t want to go to certain places golden handshakes.”

Poudel is also unhappy with what he deems unnecessary expansion of government. The country will now have as many as 825 MPs and 110 ministers. “Even if we assume a low-end salary of Rs 60,000 for each of them, their monthly bill will amount to Rs 49.5 million. This is not factoring in other associat­ed costs like vehicle and secretariat costs.”

But there are also those who believe the initial invest­ment in the federal setup, however big, is worth it. “For those who say federalism is expensive, I would like to ask, ‘On what basis?’” says Uma Shankar Prasad, a professor of eco­nomics at Tribhuvan University. “I don’t know of any systemat­ic study on the financial viability of federalism in Nepal.”

Apples and oranges

Nor does Prasad buy that the sev­en provinces, as proposed, are unvi­able. “People say that Province 2 is unviable as it does not have natural resources. But there are other ways to make money. For instance, there are hardly any good hospitals across the border in Bihar. If we can build good hospitals in Province 2, hun­dreds of thousands of patients from Bihar will come to the province for their check-up every year.”

Likewise, “the apples of Jumla and oranges of Ramechhap” can be processed, packaged and exported profitably. There are many such innovative ways to make the federal system work, Prasad says. Perhaps the reason so many people in Nepal are skeptical about the federal setup, he muses, is that they focus on failed examples of federal­ism: “If the tiny Switzerland, which is much smaller compared to Nepal both in terms of area and popula­tion, can thrive with 26 cantons, why can’t Nepal prosper with its seven provinces?”

Fiscal federalism expert Khim Lal Devkota believes it’s a question of whether to see the glass as half-full or half-empty. “Ever since the first Con­stituent Assembly stated debating Nepal’s federal contours, I had been saying that the federal provinces should be demarcated based on their fiscal viability rather than group identity,” Devkota says. (According to the new constitution, the provin­cial demarcations will be based both on ‘identity’ and ‘viability’).

“Most of the revenues will be gen­erated in areas with high popula­tions. In fact, already, 96 percent of our revenues comes from just 15 districts. So equita­ble distribution of revenues across federal provinces will not be easy,” he said.

But Devkota is optimistic. “Yes, federalism may be a little costly, and complicated as well, but what you cannot deny is that for the first time the power and resources that was centralized in Singhadurbar have been passed down the line. This is something to be celebrated.”

Moreover, federalism is based on a sharing model. Devkota expects the federal model to start functioning smoothly after, in the course of time, a viable revenue-sharing model is worked out. It is true that many new posts and offices have been created, adding to the administrative costs, Devkota adds, but then, to offset these expenses, the number of min­istries have also been reduced, considerably reducing the costs.

Power to people

There are also tangible, if hard to compute, econom­ic benefits of federalism. “Factor in the savings of all those who do not now have to come to Kathmandu for the most minor of things,” Devkota says.

Economist Poudel agrees. “There is also a way to do feder­alism cheaply. But for this the role of the central government in a fed­eral setup should be largely advi­sory”. Core functions like defense, monetary system and foreign affairs remains with the federal govern­ment, Poudel advises, everything else should be delegated.

Even Mahat, the ex-finance min­ister, reckons that federalism can succeed if our leaders show more ‘fiscal discipline’—by learning to live within their means, controlling corruption, maintaining uniformity in taxation and pruning the size of government. “But all this is easier said than done,” he adds.

In the end, it all boils down to the will of our major political actors to make the new system work. For the federal experiment to succeed they must learn to rein in their profli­gate ways and remain true to their electoral promise of meaningful decentralization. Done right, feder­alism can empower each and every Nepali, politically as well as econom­ically—not that we have the luxury to get it wrong.

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 New Delhi is clearly in a mood for ‘course correction’ on Nepal. Having decided to support the border-centric protests of Madhesi parties, which brought Nepal to a standstill for over four months, the new emphasis is once again on directly engaging Kathmandu. The cause of the Madhesi people, if the Indi­an establishment ever believed in such a thing, has been conveniently sacrificed at the altar of the old geopolitical game that was tilting towards China.

Sino-Nepali ties had gotten a boost following the India-inspired blockade, what with KP Sharma Oli going to China to sign landmark transit and fuel agreements in its wake. China has since cleverly used the rising anti-India sentiment to expand its influence in Nepal. The Chinese stock in Nepal, in fact, has never been higher.

This is why Indian Prime Minister Narendra Modi has of late been keen to cultivate Oli, the prime minister-in-waiting, as reflected in his repeated calls to the CPN-UML chief, and dispatching of his foreign minister, Sushma Swaraj, to Kathmandu on the eve of Oli assum­ing power. Gradually being forgotten is the animosity that Oli had built for himself in New Delhi as he inched closer to China post-block­ade. Only by maintaining friendly relations with Kathmandu, New Delhi has discovered, can a semblance of challenge be mounted to China’s growing clout in Nepal. (Too bad the Madhesis don’t figure in this new calculation.)

What is interesting is that KP Sharma Oli seems as keen to improve the frayed Nepal-In­dia ties. So when Modi called on January 21 to congratulate “the new prime minister of Nepal”, and invited him to visit India on assuming premiership, Oli gladly accepted the invite and said he also wanted to welcome Modi and arrange for his visit to Janakpur and Muktinath. Then, on his message on India’s Republic Day on January 26, Oli once again conveyed his eagerness “to work with your Excellency and your government for the bet­terment of our two countries.”

Oli’s overtures to India should come as no surprise. After all, not long ago, Oli was reput­ed as among India’s most trusted in Nepal, one with extensive ties not just with the Indian political parties but also with their bureaucrats and spies. Were it not for the border block­ade and the resulting anti-India hysteria, it is inconceivable that Oli would have dared to bite the hand of his old patrons. As former Indian foreign secretary Shivshankar Menon likes to say: Oli’s cozying up to China after the block­ade was no different to similar efforts of other power-hungry politicians in the region who, like Oli, are ready to do just about anything to get to power.

But there is a wee problem in this reading. It is true that Oli’s growing proximity to China owes to his desire to cash in on the recent nationalist anti-India fervor. Yet, at the fag-end of his political career, perhaps even his life, Oli also wants to leave behind a sterling legacy: of someone who brought back much-needed bal­ance in Nepal’s relations with India and China.

This is why he is for expediting works on establishing reliable road and rail links between Nepal and China, which is only right. After all, Nepal has time and again been reminded—and how!—of the exorbitant costs of overreliance on India. Any self-respecting leader of post-blockade Nepal would work to create a condition whereby no country, not even the mighty ‘Big Brother’ next door, is in a position to blackmail Nepal.

Oli is thus torn between his desire to appease India (to extend his government-stay) and to further improve Nepali’s relations with China (a populist measure that is nonetheless also in Nepal’s interest). It will not be easy. India seems in a mood to make significant conces­sions, including revising the 1950 treaty. In return, it will expect Nepal to keep a calibrated distance with China. But there is now a big constituency in Nepal clamoring for closer ties with China and any Nepali leader who ignores this reality will be committing a polit­ical hara-kiri.

Oli, the consummate politician that he is, may be among the rare Nepali leaders capable of pulling off this delicate balance, at least for some time. But it will be hard to sustain. Unlike in the past, China today, just like India, is looking for Nepal’s unambiguous commit­ment to closer cooperation. This is part of its broader South Asian strategy to minimize ‘American influence’, the influence that is often expressed via America’s regional ‘proxy’: India. On the other hand, India fears that unless the rulers in Kathmandu and Thimpu and Dhaka are quickly and firmly brought back into its camp, its strategic space in South Asia will be forever lost to China.

In the lead-up to the 2019 Lok Sabha elec­tions Modi will want to show his ‘Look East’ policy, and his South Asian policy in particu­lar, has been a success. After all, this is a prime minister who started his tenure by inviting all SAARC heads of state to his swearing-in, send­ing a clear signal of his intent as prime minster.

He will have a tough time tackling a resur­gent China in Nepal. Oli, Modi and company may soon discover, has acquired a harder edge, too

  A few things stall the long-hyped merger between CPN-UML and CPN (Maoist Center), the first and the third largest parties in national parliament respectively. The most important of them is the dispute over who gets to lead the unified communist party. Maoist Chairman Pushpa Kamal Dahal has categorically said in merger talks that unification is happening only is if he gets the post of chairman of the combined outfit. When, back in October, the two parties had announced their pre-poll alliance, and an eventual merger, the ‘gen­tleman’s agreement’ between the two party chairmen was widely publicized: while Dahal would be the head of the new party, UML chairman KP Sharma Oli would lead the new government. UML denies any such deal. Moreover, Oli is reluctant to hand over leadership of what would be an all-powerful party, even if he gets to be the prime minister. This is why UML has now proposed a middle-way solution: making Dahal and Oli duo co-chairmen, even as Oli also leads the new government. When The Express asked a senior Maoist leader if such an arrangement would be agreeable to the Maoists, he said the party prefers ‘one-person-one-post’ formula. But UML is unlikely to agree to it easily. “During the elec­tions we followed the 70-30 principle for distribution of constituencies between UML and Maoists,” says UML Secre­tary Pradeep Gyawali. “We would like to continue with this arrangement”. In other words, Dahal and the Maoists must accept their junior status in the merger process. Gyawali concedes the Maoist concerns over equitable distribution of portfolios are valid, and something to be expected. “But we also need to give a serious thought to the psychological impact on UML rank and file of a sudden change in party leadership.” Senior Maoist leader Narayan Kaji Shrestha, for his part, believes the hurdles to unification are two-fold: disagreement over the political line of the new outfit and over the shape of the new party organization. “But the two parties continue to talk and discussions so far are extremely positive,” says Shrestha, “A breakthrough is imminent.” The Maoists are pressing for a merger before the formation of the new government, which, if the current schedule is fol­lowed, could happen as soon as the end of the second week of February. But if Oli becomes the prime minister before the merger, the Maoists fear the loss of their leverage over UML. Perhaps for the same reason UML wants to delay the merger. Asked when we should realistically expect the merger, Gyawali replies: “Sometime at the end of February.”