Province No 1

Introduction: Province 1

Province 1 is spread across the Himalayas, hills and Terai, and it consists of 14 districts- Jhapa, Ilam, Panchthar, Taplejung, Sankhuwasabha, Terathum, Bhojpur, Dhankuta, Khotang, Sunsari, Morang, Solukhumbu, Okhaldhunga and Udaypur. It shares border with the Indian state of West Bengal in the east, the state of Bihar in the south, Tibet Autonomous Region of China to the north and Province No. 2 and Bagmati Province to the west. The total area of ​​this state is 25905 sq. Km and the total population is 4534943 with population density of 175 per square kilometers. A large part of the population 56% lies in Terai and the rest 44% lies in the hills and mountain regions.

Eighty two percent of land areas falls in the Terai region and the rest 18% falls in hills and mountain region. The state is mainly inhabited by Brahmin (12.1%), Kshetris (14.8%), Rais (11.3%), Limbu (8%), Magar (4.2%), Tharu (4.2%), Tamang (4.7%), Gurung (1.2%), Meche, Koche, Yadav (1.2%), Rajvashi, etc., while Nepali, Maithili, Kirati, Tamang, and Limbu are major languages spoken. 43% of population are nepali speaking, followed by 11.19%, limbu 7.39% and Tharu 3.92%[1]. The population comprises of Brahmin (12.1%), Kshetris (14.8%), Rais(11.3%), Limbu (8%) Tharu, Lepcha, Tamang, Gurung, Meche, Koche, Yadav, Rajvashi. The world’s highest peaks, including Mount Everest, Kanchenjunga, Makalu, Choyu, Lotse, Jannu, Yalungkang, etc., serve as natural borders with allied China. The province encompasses 14 districts including 1 metropolitan city, 2 sub metropolitan city, 46 urban municipalities and 88 rural municipalities. The total number of local level is 137.  The total gross domestic production of the province is around 50 billion. The Human Development Index of the province is .504. The multi-poverty index of the province averaged 19.7%. Average life expectancy for the province is 70.7 years and an overall literacy rate is 71.1%.

1. Province 1 Government

The province 1 government is formed by province council of ministers as the executive head, province assembly as the legislative head of the province government. The members of the province 1 assembly select amongst themselves, the executive head of the government known as the chief minister. The chief minister forms the council of ministers among the members of the provincial assembly.  There are 7 ministries in the province with various department and agencies.

1. Institutional Profile (Ministries, departments, Units, service points, elected representatives, employees etc..)

There are seven ministries in province 1 according to the provision of the Constitution of Nepal 2015 article 174 clause 1. The article also provisions for division of responsibilities among different ministries. Following table give detail information about name, scope and department within each ministry of province 1.

Table 1: Ministries and their Departments

1. Province Assembly

The first meeting of the province assembly of province 1 was established on January 31, 2018. There are 93 members of the province assembly who comes from 14 districts. There are 56 province assembly constituencies. 56 members of the provinces assembly are elected from these 56 constituencies in First-Past-the-Post system and another 37 members are elected on the basis of proportional system of election. In the current province assembly, there are 67 members of Communist Party of Nepal, followed by 21 of Nepali Congress, 3 members from Samajwadi Party, and one member each from Sanghiya Loktantrik Rastriya Manch and Rastriya Prajatantra Party.

Table 2: Members according to electoral system and Gender

Following table shows the seats gained by political parties in the province assembly polls. The tenure of these members are 5 years from the election year of 2017/18.

Table 3: Members of Province Assembly based on Political Party

As shown from following table, the districts have different number of constituencies for province assembly. Districts in the Terai are far more electorally represented than districts in the hills and mountains although it is also ensured that there is atleast 2 province constituency in all districts. Geography and population were the two criteria for delimitation of the constituency with slightly higher weightage assigned to geography such that low population geography also have atleast sizeable representation in the province assembly.

Table 4: Number of elected representatives according to district

Province 1 assembly has also created seven committees from amongst its members which work as mini parliament. Following table shows the number of committees and their scope of work.

Table 5: Thematic committees of Province Assembly with Scope

Until current fiscal year, the province 1 assembly has conducted 4 sessions of the parliament. The parliament has promulgated laws to deliver services for the citizens. Following table details the information of various sessions:

Table 6: Information on various business of the Province assembly

There are altogether 89 employees in the secretariat of the Province Assembly in province 1. The secretariat has Work Arrangement Department with 2 branches; Laws and Legislation Department with 2 branches; Administration and Planning Department with 5 branches; Study Research and Training Department with 6 branches and Technology Management Department with 3 branches. The secretariat of province assembly is engaged in support speaker of the house to conduct business of the house by publishing agendas of meetings; provide administrative, legal, and logistics support for various committees of the parliament and conduct research and study on parliament administration. Until Ashar 2077, the total number of bills registered is 49. Out of which the province assembly has passed 44 of these bills and 41 of these passed bills have been promulgated as acts and published in the province gazette.

Legal Profile (Laws prepared, plans and policies etc..)

The Province has already formulated many laws to dispense important functions. Some of the important Laws are:

Table 7: Laws prepared by the province assembly by date of authentication

3. Fiscal Profile

3.1 Mid Term Expenditure Framework

Mid Term Expenditure Framework (MTEF) is an important tool for public finance management. It help matching development priorities with resources projection and tracking expenditure on mid term basis.  Based on the current year expenditure pattern, expected resource allocation and expenditure are projected for coming 2 years. The framework allows changes in the budgetary allocation based on development needs, implementation status of development projects, taxes and external financial supports. Realizing importance of efficient mobilization of public finances to achieve goals set in the periodic plans, sustainable development and vision paper, province 1 has developed an expenditure framework. The Mid Term Expenditure Framework tracks expenditure giving due consideration to allocation efficiency, financial discipline and mobilization capacity. Achieving coordination among investment priorities as set in various vision paper and policy documents of the government is the objective of the mid term expenditure framework. To formulate MTEF, all tiers of government need to prioritize development projects and commit required fund allocation for three consecutive years along with justification of the expenditure in meeting goals of the projects. The province 1 government has formulated MTEF for the year 2076/77- 2078/79 based on the fifteenth Periodic Plan of Government of Nepal, 1^st Province periodic Plan, and Sustainable Development goals. Province 1 has constituted a Director’s committee headed by Minister of Finance. The committee has members such as Vice chairperson and members of the Province Planning Commission, Chief Secretary, and Secretaries of province. The secretary of the province planning commission acts as the member secretary of the committee. There is also a provision for a resource committee headed by vice chairperson of the province planning commission to project financial resources of the province based on analysis of the size of economy of the province and expenditure patterns. The resource committee also recommends the budget limit for the upcoming fiscal year. At the ministerial level, a working group is formed to review expenditure pattern of the ministry and its agencies and set a budget limit. The MTEF also develops indicators to help realize vision set in various policy documents and plans. Province 1 has developed indicators which are tabulated below:

Table 8: Indicators of the province according to the MTEF (2076/77- 2078/79)

The development needs of the province 1 as conceptualized in the MTEF projects that the province needs financial resources of 1.53 billion. The current expenditure and capital expenditure for the province will average 34.87% and 65.13% respectively.  The MTEF analyzes effects of budgetary allocation and expenditure projection based on strategic areas of Periodic Plans, Sustainable Development Goals and Gender sensitive budgeting practices and Climate adaptation practices.

3.2 Budgetary provisions for Province 1

The constitution of Nepal 2015 has recognized National Natural Resources and Fiscal Commission (NNRFC) as the custodian of the fiscal federalism. Most important task of the commission is to recommend criteria and funds for inter governmental fiscal transfers to province and local level based on the principle of financial justice, objective assessment of needs and efforts of governments to raise revenues. The commission recommends basis/criteria for distribution of equalization grants, conditional grants, revenue sharing and internal loans. Two important legislations promulgated by federal government regarding implementation of the fiscal federalism are National Natural Resources and Fiscal Commission Act, 2017, and Inter- governmental fiscal management act 2017. The commission recommends basis for distribution of intergovernmental transfers for two consecutive years. The commission recommends basis of distribution of revenues, equalization grants, conditional grants and internal loans limits. Accordingly, the commission has recommended basis of distribution for two years 2075/76 and 2076/77 on the basis of different weightage assigned to factors such as Population distribution, Geography, Human Development Index, and Development indicators.

The distribution of benefits from the use of natural resources are also divided among different tiers of governments based on shares in investments in protecting natural resources and shares in benefits sharing by the respective level of governments.

The commission has also recommended that province and local level can raise internal loans which do not exceed 10% of the funds resulting from addition of revenue from revenues sharing (with other level of government) and revenue from internal sources. The fund raised from internal loans can only be used for projects which can be capitalized in the future and provide long term benefits.  Following table give detail information about fiscal transfers from one government to other.

Table 9: Basis for Distribution of fiscal transfers among different tiers of government

3.2.1 Equalization grants

The commission recommends amounts for fiscal equalization grants from federal to province and local level based on National Natural resources and fiscal Commission Act 2017 and Inter- Governmental Fiscal management Act 2017. According to these acts, each province and local government receive a minimum grants amounts and fiscal equalization grants based on certain criteria. For distribution at the province level, 25% of the total equalization grant of the federal government is considered as 100%. This 100% is distributed among seven provinces based on their population (50%) weightage and geography (50%) weightage. The resulting amount for a province is considered as a minimum grant. After calculating minimum grant amount to a province, a formula based weightage system is used to fix the fiscal equalization grants. According to the formula, 60% weightage is assigned to costs of services to be delivered, 15% is assigned to Multi Dimensional Poverty Index, another 15% weightage is assigned to economic and social disparity indicators of the province and another 10% weightage is assigned to Infrastructures related indicators. The infrastructure related indicators include road density, Information and Technology Accessibility, and Electricity accessibility. These indicators are derived from various government sources by the commission. In the fiscal year 2075/76, 37.12% of all equalization grants from federal government was allocated to seven provinces. Based on above formula, province 1 received NPR 6.61 billion as equalization grants while the corresponding figure for province 1 in the fiscal year 2076/77 is NPR 8.16 billion.

At the local level fiscal equalization transfers from province to local level is determined by  minimum grants (equal to all local level), formula based weightage system and performance evaluation grants. All local level governments received 60 million as minimum amount of equalization grants for the year 2075/76. According to the formula, 70% weightage is assigned to the gap between expenditure needs and revenue capacity of the local level, 15% weightage is assigned for Human poverty Index of the local level, another 5% weightage is assigned to economic and social disparity indicators of the local level and another 10% weightage is assigned to Infrastructure related indicators of the respective local level. Additionally, the work performance evaluation measures are also accounted for in case of equalization grants to local level. The work performance measures is composed of 40% weightage assigned to financial progress of the previous year, another 40% assigned to whether budget was brought on Ashar 10 of the current fiscal year and another 20% weightage is assigned to whether incomes expenses projections of the local level was shared with Ministry of Finance within Poush of the current fiscal year. In the fiscal year 2075/76, 62.88% of all equalization grants from federal government was allocated to local level. Province 1 has allocated NPR 500 millions as equalization for 137 local level units in 2075/76 while the corresponding figure for 2076/77 was NPR 1 billion.

3.2.2 Conditional Grants

Conditional grants are given from federal to province level and from province to local level to accomplish projects and programs which are of national importance and which produces returns in the long run. The conditional grants supports programs which come under the shared responsibility areas of province and local levels of governments or programs which fall under federal responsibility areas but lower tiers of government are executing those programs. In the fiscal year 2075/76, 36.49% of all conditional grants were allocated for provinces. Emphasis is also laid on national level sectoral policy of the state while developing basis for conditional grants. Programs which correspond to schedule 6 and 8 of the constitution of Nepal 2015 concerning rights of province and local level are also included as basis for distributing conditional grants. Conditional grants are also given to programs which correspond to schedule 5 of the constitution of Nepal where the rights falls under jurisdiction of federal level but the programs should be implemented with the help of province and local level. This pertains to those projects executed with the support of foreign funds also. Province 1 received NPR 13.27 billion as conditional grants in the fiscal year 2075/76 while it received NPR 7.04 billions in fiscal year 2076/77. The NNRFC has developed basis for the distribution of conditional grants among different tiers of governments from the fiscal year 2076/77. The broad basis for the distribution of conditional grants is as follows:

• Support to implement national policies across country
• Programs which address infrastructural needs of the province and local level
• Programs which help realize commitments made at the national and international level

Much like the federal government, the province government can also develop basis of distributing conditional grants among local level governments ensuring that the conditional grants are directed towards implementation of province level sectoral policy, programs and meet development objectives and infrastructure needs of the province. The province government should analyze federal grants to local level before it provides conditional grants to local level. This way it can be ensured that none of the programs supported by conditional grants of the province overlap with programs supported by federal governments at the local level.

The basis for the division of conditional grants was suggested based on discussions with province governments and local level governments for the fiscal year 2075/76 and 2076/77[2]. The amount of conditional grants allocated for the fiscal year 2075/76  and 2076/77 are NPR 2 billion and NPR 750 million respectively[3].

3.2.3 Raising Internal Loans

The NNRFC has recommended amount of internal loans which can be taken by federal, province and local level based on the assessment of existing financial settlements of the federal government, economic status of the country, and capacity to pay back loan by lower tiers of governments. The commission has also recommended that province and local level can raise internal loans which do not exceed 10% of the funds by adding amount received from revenues sharing and revenue from internal sources. The fund raised from internal loans can only be used for projects which can be capitalized in the future and provide long term benefits. Province 1 government has not mobilized internal loans in the fiscal year 2075/76 and 2076/77.

3.2.4 Vehicle tax sharing among province and local level

The vehicle tax falls under shared jurisdiction of province and local level. The rates of taxes and collection procedures fall under province government. Province uses 60% of the total vehicle taxes and distributes rest 40% among local governments. Local governments receive part of the vehicle tax based on its population (45%) weightage, length of roads (50%) weightage  and forest and greenery cover (5%) weightage respectively. The weightage are assigned by the NNRFC. Province 1 collected NPR 2.36 billion as vehicle tax out of which it received 60% of the sum while it distributed rest 40% among local governments in the province. The estimated vehicle tax for fiscal year 2076/77 is NPR 2.58 billion for province 1.

3.2.5 Revenue from royalties from Natural resources

The inter- governmental fiscal management act 2017 governs the distribution of royalties from natural resources among federal, province and local governments. The royalties from the mountaineering activities area shared among federal province and local level in the proportion of 50%, 25% and 25% respectively.   This division ensures proportionate sharing of royalties. The division of royalties is concentrated among those province and local level governments whose population are affected by the presence or use of natural resources or the population contribute to the preservation of natural resources. For instance, incase of royalties from mountaineering, local government where the mountains exist are considered as core areas while local level which share boundary with core areas are considered as adjoining areas. The division of royalties from mountaineering activities is distributed among local governments based on weightage according to following table

Table 10: weightage assigned to different factors to derive distribution of royalties from Mountaineering

3.2.6 Royalties from Hydro power plants

The royalties from the hydro power plants are shared among federal, province and local level in the proportion of 50%, 25% and 25% respectively. This division ensures proportionate sharing of royalties. The division of royalties from hydro power plants is distributed among local governments based on weightage according to following table.

Table 11: weightage assigned to different factors to derive distribution of royalties from Hydro power

3.2.7 Royalties from forests and forests resources

The royalties from the forests and forests resources are shared among federal, province and local level in the proportion of 50%, 25% and 25% respectively. The basis of division of royalties from forests is contingent upon the affected local population and their role in preserving forests resources. Hence, the commission takes into account population in the catchment areas of the forests in addition to political boundaries of the local levels. This division ensures proportionate sharing of royalties. The division of royalties from national forests and conservation forest areas is distributed among affected local governments based on weightage according to following table.

Table 12: weightage assigned to different factors to derive distribution of royalties from Forests

3.2.8 Royalties from mineral resources

The Inter-governmental fiscal management act 2017 governs the distribution of royalties from mineral resources among federal, province and local governments. The division of royalties is concentrated among those province and local level governments whose population is affected by the presence or use of such mineral resources or population affected by extraction activities. The royalties from the mineral resources are shared among federal province and local level in the proportion of 50%, 25% and 25% respectively. This division ensures proportionate sharing of royalties. The division of royalties from mineral resources is distributed among local governments based on weightage according to following table.

Table 13: weightage assigned to different factors to derive distribution of royalties from minerals

3.3 Comparison of Annual Budget

The contribution of economic activities of province 1 bears a sizeable impact in the overall economic life of Nepal. Its contribution to the national GDP ranges around 18%. The province is composed of areas which are very diverse not only in terms of ethnicity but also development indicators. The annual budget of the province for fiscal year 2018/19 was around NPR 35.93 billion which increased to more than NPR 42 billion in the fiscal year 2019/20 and it is estimated to be around NPR 40 billion in fiscal year 2020/21 largely due to contraction of economic activities because of covid 19 pandemic. As shown in the following tables, there is increase in the projected income from internal sources, revenue sharing  and cash in hands while inter-governmental fiscal transfer from federal to the province as well as grants received have decreased yearly.

Table 14: Comparison of annual budgets of province 1

[1] 1^st Periodic Plan Province 1 2076/77 – 2080/81 Province Planning Commission Province 1

[2] Progress Report of National Natural Resources and Fiscal Commission 2019

[3] Ibid