Local Governments Need Branding to Boost Revenue
Even as Nepal enters the second phase of federalism, most local governments (municipalities) remain economically dependent. Relying on grants from federal and provincial governments and limited traditional tax systems has made it difficult for municipalities to establish themselves as strong, autonomous entities. The question of how local governments can achieve financial self-reliance has never been a priority.
Federalism is Costly, But Citizens Will Pay for Quality Services
Federalism is an expensive system, but citizens are willing to pay taxes if they receive efficient and quality services. Unfortunately, municipalities have failed to improve service delivery or expand revenue sources. Most still depend on unproductive sectors like property registration. Traditional tax systems are unsustainable, they burden citizens without stimulating the local economy.
Why Are Municipalities Financially Weak?
About 60-70% of the problem lies within municipalities themselves. Many have not identified their strengths, competitive advantages, or potential revenue sources. They lack awareness of which products can be branded or which businesses can be formalized to increase income. Another major issue is populism among elected representatives, reducing tax rates to please voters while criticizing low municipal revenue is a contradictory practice.
Around 30-40% of the problem is policy-related. Federal laws on forests, conservation, and natural resource use restrict local revenue collection. Provisions like not being able to collect fees without refund guarantees further complicate matters. While citizens expect development from their local governments, most municipalities remain trapped in dependency.
What Needs to Be Done?
The problems are known, but implementation is lacking. Local governments must become action-oriented.
1. Reviving Local Markets
Following successful examples from the Terai, every municipality should operate regular local markets ("haat bazaars"). Designating one market day per week (e.g., "Budhabare" for Wednesday) can break the monopoly of middlemen, ensure fair prices for farmers, and boost the local economy.
2. Identifying and Branding Local Products
Each municipality must recognize its comparative advantage, whether in agriculture, livestock, forest products, or natural resources like sand and gravel. For example, cucumbers from Hupsekot are sold as "Bhaktapure cucumbers" instead of being branded locally. Branding local products (like "Lapsi" from Parbat or "Niuwro" from Machhapuchhre) can enhance market value.
3. Performance-Based Grants
Current grant systems are ineffective. Subsidies should be tied to production targets, with strict monitoring to ensure results.
4. Commercial Farming and Protectionist Policies
Municipalities must move beyond populist politics and adopt protectionist economic policies. Shifting from subsistence to commercial farming with investments in seeds, irrigation, and marketing is crucial. Agriculture, livestock, and forest-based products (like herbs and spices) should be prioritized.
5. Sustainable Use of Natural Resources
Sand, gravel, and stones can generate significant revenue if extracted sustainably. Formalizing small businesses and expanding tax bases (e.g., property taxes for incomplete constructions) is essential.
The Way Forward
The solution to municipalities' financial crisis lies within, not outside. The challenge is political, whether to pursue short-term popularity or long-term economic stability. Strong local governance, transparency, and bold decision-making are necessary.
Federalism’s success depends on how well local governments strengthen their financial foundations. Only self-reliant municipalities can truly serve their citizens.
(Based on discussions with federalism expert Suvedi.)
